The history and future of the online lending industry

Aug 15, 2018 Blog  Marketplace Lending

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Forbes published an article in March 2016 which is still very relevant today.  The article kicks of with the question “is lending a good business, where moats and profit pools are durable and one can build billions in equity value, or is it an inevitable cash bonfire when the cycle turns?”  It continues saying that if you look at the question with history in mind, it is surprising that venture capitalists are considering lending at all as in the past equity was raised with the promise of distributing yield based on high ROE and not to creating multiples through exits.

Markpetplace Lending (or “peer to peer lending” as it was originally called) changed all of this.  It is stated in the article that “marketplace lending will be a durable innovation”.  What Lending Club, OnDeck and others proved was that they could compete with banks successfully and build share in their respective categories.

Matt Harris, the writer of the article said, in answer to the question “can non-bank lenders take share from banks?”, that he believes they can, but they have to “pick their spots carefully”.  He says that marketplace lending can be a useful part of a diversified funding scheme, but it is not mission critical to creating venture returns.  There is a great deal of opportunity in alternative lending according to him, but he predicted that things will be harder before it gets easier.  The market volatility, combined with a slowing economy will produce challenges with both default rates and access to liquidity.  However, he ended the article with “for the first time in a decade, I’m feeling like it’s a great time to be starting a lending company!”

To read the full article, click here.

Image: Meaning and Horizon via Flickr (CC 2.0resized)

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