By Jason Best,
What a difference a year makes. The 2014 LendIt conference had nearly 1,000 attendees and 100 online lending companies represented in the space – nearly 4 times the 2013 event. What was also interesting is that over 50% of the attendees classified themselves as professional investors. While there were many interesting speakers and sessions (LendIt will make these available online soon), here are three of the topics that garnered a lot of interest at the conference:Screen Shot 2014-05-08 at 8.51.41 AM
P2P is no longer an accurate label/descriptor for onlineNew players and verticals have emerged in the space. Financial institutions are rapidly entering and helping lending platforms achieve scale. As such, P2P is no longer an accurate title. During a presentation on the $1 Trillion dollar market size of this industry, Charles Moldow, of Foundation Capital, suggested using “Marketplace Lending” instead of P2P lending to better describe the phenomenon because it is a new online market with many types of participants to source and use credit products. This is the term I will use going forward to describe this market.
This is not a winner take all market (Amazon), nor is it a free-for-all (Groupon). While there will be consolidation in the market, unlike Amazon in e-commerce, there will an ecosystem of funding sites that will continue to exist andThis is due to the high barriers to entry in the market including regulatory burdens and scale required to break even. Several speakers indicated that platforms needed to reach at least $1B in origination to reach break even.
The UK and German marketplaces continue to experience massive growth and are interesting to watch for lessons learned to apply in other markets. While the traditional lenders largely ignore them companies like Funding Circle, Ratesetter, Assetz and Zopa, continue to experienceThey are seeing more than twice the annual growth in loan originations, while maintaining default rates of between 0.7%-1.7%. While these platforms began as peer-to-peer or peer-to-business lenders, they now (to varying degrees) are seeking institutional capital while they scale up inventory and operations. Also, unlike some of the marketplace lenders in the US, they cap their gross yields at 12-15%. In the case of Funding Circle, the SME lending platform, the UK government continues its program of co-investing in certain loans to UK businesses as a way to support lending to SMEs that traditional banks continue to refuse to do.
A year from now, it will be interesting to see the developments that will have taken place in this market, the development of secondary markets, the securitization of these loans, the globalization of platforms and the development of an ecosystem of companies that will support advances in underwriting, due diligence and transparency. If the marketplace lending space were a 1000 page novel, I’d say we were only at page 70 today.