Since the excitement and buzz from LendIt USA 2016 this past April, we have seen the optimism surrounding innovative marketplace lending (MPL) products being tempered somewhat. It’s no secret that there have been doubts the past few months: some MPL leaders have begun to struggle with concerns over their business models. This combined with rising delinquencies and impending regulation, many from outside the industry think the marketplace lending market is on a downhill slope.
Those outsiders should relax – what the industry is experiencing now, while from the outside seemingly disconcerting, is simply the growing pains of an industry coming into its own and contending with the greater forces at work in the market.
Up until now, MPL has represented a gold rush for consumers and lenders – expanding access to credit for consumers and small businesses that ordinarily might not have had access to capital from traditional lending institutions.
In the stampede to make good on the promise of this new lending market, the distinction between those growing fastest and those growing strongest may have been lost in the shuffle. The fast, and risky, growers have since started retracting, while those who emphasized the traditional safeguards and risk assessments that protect both consumers and lenders remain strong.
The specter of increased regulation isn’t one to fear: With MPL being added to the CFPB’s complaint database in anticipation of the expected summer 2018 rollout of CFPB oversight, additional scrutiny is, overall, a good thing. It validates the existence of the marketplace and is needed to ensure that the marketplace can continue to be profitable and safe for all parties.
Just because some lenders have experienced some turmoil doesn’t mean the alternative lending landscape is crumbling. What we are seeing now is Darwinism at work in the market, with lenders who valued quarter-over-quarter growth over comprehensive risk assessments rightfully having to contend with the consequences.
The future for MPL is strong. In July, an online lending organization secured an ABS – a trend that will rise as the market becomes less weary of the alternative lending market. Lenders who embrace the value of sophisticated risk analytics alongside their novel operating models will find themselves well-positioned in the years to come, able to meet the demand of the market and maximize profits.
About the Author: Paul Greenwood is President and Co-Founder of GDS Link. Paul is responsible for the company’s overall strategic planning and direction, which is centered on providing the technology for clients to accurately score the behavior patterns of the customer lifecycle. Greenwood oversees GDS Link’s business development, sales operations and marketing direction to ensure the delivery of customer-holistic risk management technologies. Greenwood has more than 13 years in the risk management industry, providing clients with the expertise and guidance to design, implement and manage their enterprise risk management platforms.