Marketplace Lenders Should Remember Experience Can Be Replicated, Experts Say

EXCLUSIVE—Marketplace lending survived 2017 with many of its advantages over traditional balance sheet lenders intact, including its embrace and use of new digital technologies for lending and underwriting.

With marketplace lenders enabling a borrower to apply for a loan via a mobile device from the comfort of their own home (rather than standing in line at a bank for hours), this approach to technology has put it far above some of its more traditional counterparts.

“The borrower experience at a marketplace lender is better than [the experience] at a bank, and that’s why it’s here to stay,” Don Davis, portfolio manager for Prime Meridian Capital Management, said today. during a panel discussion at the 3rd Annual Investors conference for Marketplace Lending, pointing to the ease of the online lending experience for borrowers.

However, lenders — and investors — in the space should keep in mind that the benefits of a new technology only last so long, according to Andreas Wilgen, managing director, co-head of North American ABS for Fitch Ratings.

“The technology gives you an advantage, but it isn’t that this technology can’t be replicated,” Wilgen said during the panel discussion. “Do you think the experience of applying for an online loan at Marcus is especially different?”

In addition to keeping an eye on those banks or other legacy companies that might be playing technological catch-up over the next year, the biggest worry for these companies moving forward will be risk, securitization, and standardization in the industry, according to the panel.

“I don’t think marketplace lenders are pricing risk in the right way,” Josh Tonderys, president of marketplace lender Marlette Funding, said during the panel. “We price our loans so that they can withstand a great recession… the way that other platforms have priced their credit is not a real marketplace, they’re just setting their price to clear the market and customers can pick what they want based on their own risk [tolerance].”