Panel
What Online Lending Means for Banks, Businesses and Borrowers
- Marketplace lending platforms are projected to offer loan products with APRs ranging from 3.99% to 25% and maintain capital risk thresholds aligned with specific risk profiles, while continuing to serve borrowers with FICO scores as low as 640 for unsecured credit lines exceeding $1,000.
- Online marketplace lenders expect to democratize finance by implementing "truly blind" underwriting processes that utilize approximately 400 data points to eliminate human bias, potentially resulting in higher approval rates for women, minorities, and small businesses compared to traditional banks.
- Banks are anticipated to increasingly specialize and partner with best-in-class marketplace organizations over the next decade, with some potentially evolving into marketplaces that aggregate services from specialized partners rather than building operations in every segment internally.
- The traditional physical branch model is predicted to disappear within the next decade as 80% of banking transactions shift to online and mobile platforms, while the UK government may mandate that banks send loan turn-downs to non-bank lenders to address small business credit pullbacks.
- Technology companies like Amazon and Google are expected to leverage unique data to facilitate commerce through partnerships with existing marketplace lenders rather than becoming large specialty finance companies, primarily due to constraints regarding holding billions of dollars in debt on their balance sheets.
- Lending Club expects its FICO score data to serve as a leading economic indicator, predicting drops in scores six months before broader economic stress is observed in official data, while loan applications from residential and electrical contractors will signal construction booms in specific geographic regions.
- Lending Club intends to scale operations by hiring and training employees three months in advance to manage the operational risks of rapid growth, while simultaneously building permanent capital vehicles such as investment companies, BDCs, or closed-end funds to diversify funding sources.
- Prosper is developing its sixth generation of underwriting models using modern data science techniques on look-back data to achieve accuracy levels significantly higher than FICO-based decisions and is balancing loan distribution between retail, whole loan pools, and passive pools to prevent adverse selection.
- OnDeck expects to continue providing financing decisions within one week, a critical timeline for small business owners, while marketing shorter-term loan products based on a "cost per dollar" basis rather than APR, pending potential industry agreements on disclosure structures.
- Funding Circle plans to expand into medium-term international markets beyond the U.S. and U.K., capitalizing on universal small business credit problems, with expectations that conditions in Australia will mirror those in the U.S. and U.K. due to similar small business dynamics.
- Retail investors, high net worth individuals, and institutional capital are expected to prove "stickier" during economic downturns compared to hedge funds, with the marketplace model surviving and issuing loans more resiliently by spreading risk across diverse investors rather than relying on securitization markets.
- Marketplace lenders anticipate the development of a robust secondary market over time to help investors manage duration concerns and liquidity pressure, alongside the creation of a straightforward pathway for investors to hold marketplace loans within retirement accounts in the UK.
- Industry participants do not plan to launch nationwide TV advertising, instead focusing on ROI-focused offline marketing and brand awareness similar to Credit Karma, while maintaining some element of personal interaction in the lending process to build relationships.
- Lending Club expects its nationwide presence to assist banks in meeting Community Reinvestment Act criteria, while Prosper remains focused on the U.S. consumer market rather than global expansion despite the scale of the peer-to-peer lending market in China.