Marketplace lending has gone mainstream.
Over 2,000 people attended the Lendit conference this year. In its first year back in 2013, it was only Reneaud Leplanche (CEO of Lending Club) in a room with 250 other people. Now the event has gone mainstream as well as international with more than 300 Asian delegates attending. Over 100 online lending marketplaces were presenting or exhibiting this year. Some of the popularity is due to increased borrower and investor participation on the leading platforms along with Lending Club and Ondeck now being public companies. The optimism for these platforms and promise of wealth creation is beginning to spread. Recent fund raises by Money360 ($110M), LendingHome ($70M), Deal Struck ($58M) Asset Avenue ($11M), and Patch of Land ($23M) just in the last month should bring increased marketplace lending volumes and excitement in the coming year.
Clearly the tide is rising with incumbents and new entrant marketplaces hoping the party continues. I believe the great growth of marketplace lending will continue through the end of this year as interest rates remain low, and even through 2016. With changing economic environments, perhaps in 2017 there will be consolidation and some slowing to the torridly hot credit environment.
It’s important to remember that lending marketplaces may actually be intermediaries effecting a debt securities transaction when making these offerings. There is a lot of complexity that goes into structuring these deals and it is a huge area of risk for many operators in this space. Debt deals are typically structured and sold under either banking or securities law, each approach having their respective pros and cons. Many operators focus on matching buyers and sellers and do not put enough emphasis on applicable regulations when structuring their products and operating their business. As the space continues to grow, regulatory bodies such as CFPB and the SEC will continue to closely monitor the market for violations in consumer protection and securities laws.
As marketplace lending comes of age, from P2P to large institutions allocating capital and replacing brick and mortar banking, it’s an exciting time to raise capital online. More and more issuers will get their entire capital stack from online portals, for both equity and debt needs, regardless of need size or type of financing. Existing institutional lenders and capital providers will allocate more capital to online funding sources as the process for qualifying issuers becomes more institutionalized. Large banks and investment firms should be analyzing their strategy of how to move their business online with technology that allows for underwriting and origination to be faster and less expensive. The economic cycle will shift and more regulation will be placed upon these markets, as there are more findings and data. The growth of Lendit is no surprise, as the depth of the industry and areas of opportunity abound.
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