Marketplace Lending Predictions for 2017

Crystal ball - 2016 predictions

Happy New Year everyone. As I do every year at this time I make a few predictions for the year ahead as well as review my previous years predictions.

Review of my 2016 Predictions

As we know 2016 turned out in a way that was completely unexpected. Regardless, I will go through what I thought would happen in 2016 – some things I got right and with others I was way off.

  1. Lending Club will launch an auto lending operation this year
    Despite the challenges at Lending Club in 2016 I did get this one right. They launched a new auto lending operation in October in their first new product expansion in more than two years.
  2. Consolidation will begin
    I was not really right with this one. While consolidation did begin somewhat in 2016 my suggestion of three platforms buying acquired by larger competitors did not really come true. We saw several platforms go out of business but only one or two minor acquisitions.
  3. There will be five IPOs in our industry in 2016
    I was embarrassingly wrong on this one. I expected the IPO market to rebound in 2016 and several of the large platforms to take advantage of the public markets. I was completely wrong with zero IPOs in our industry in 2016.
  4. Three large banks will build platforms
    I was pretty much right on this one. We had Goldman Sachs launch their Marcus platform in 2016 and we also saw Wells Fargo launch their Fastflex product for online small business lending. While outside the US, German banking giant Commerzbank launched their own online lending platform.
  5. A Chinese company will buy a U.S. marketplace lending platform
    This did not happen in 2016 although interest in the US marketplace lending industry in China has never been stronger. I think I was probably a couple of years early on this prediction.
  6. The retail investor will become more in favor in 2016
    The retail investor certainly became more in favor this past year. There were some new Reg A+ deals announced and Lending Club made several moves aimed at increasing retail investor volume including the one just last month providing bonuses for new IRA investment.
  7. A new trade association will finally launch
    This was an easy one to predict as many of the leading companies have been talking about it for some time. The Marketplace Lending Association launched in April and we had several other initiatives launch as well.

Anyway, if you are counting at home that is about 4 out of 7 – barely a passing grade. Let’s see if I can do better in 2017.

My 2017 Marketplace Lending Predictions

  1. 2017 will be the year of the bank partnership
    My partner, Jason Jones, wrote a post about this a few weeks ago and I firmly agree with him. I think we will see at least a dozen new bank partnerships announced in 2017.
  2. The OCC Fintech Charter will receive a positive reception
    The OCC announced a new limited banking charter a few weeks ago. They are currently soliciting comments but it is highly likely that this new charter will become a reality in 2017. I expect many platforms will become “fintech banks” as a result of this charter.
  3. Lending platforms will offer banking products
    It has already started with SoFi when they began offering wealth management and life insurance. More platforms will offer products like debit and credit cards as well as checking accounts and savings accounts (with FDIC insurance). These first three predictions all indicate a blurring of the lines between banking and online lending.
  4. One large platform will be acquired
    The valuations of the major platforms are, for the most part, way below where they were a year or two ago. I think we will see a PE firm or even a bank snap up one of these platforms in 2017. My guess (and I have no inside information on this) is Prosper.
  5. There will be no new IPOs this year
    I was way off in 2016 but I have decided not to double down in 2017. Given the valuations with the current public companies I don’t see anyone braving the public markets this year. Good private companies are still raising VC money and I think we will see that continue. The exception here is China, where I think we will see 2-3 Chinese companies list on the US exchanges.
  6. China will become an important source of capital outside the USA
    I think we will have to wait until 2018 before China becomes the largest source of capital outside the USA but there will be significant strides made in 2017. We will see many new deals, particularly on the debt side, of US platforms signing agreements with Chinese investors.
  7. Artificial intelligence will take center stage
    I keep reading about artificial intelligence and the impact it is going to have on everything from underwriting to customer acquisition. I think 2017 is the year some of this promise becomes reality.

My bonus prediction is a somewhat negative one. Despite years of talk and significant amounts of work we will still end 2017 with no institutional secondary market. Secondary deals will continue to get done on an ad hoc basis but no fully functioning market will be in place by the end of this year. I hope I am wrong on this one.

Let me know what you think. What is in your crystal ball for 2017?

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Yvan De Munck
Yvan De Munck
Jan. 2, 2017 3:58 pm

Bulls eye on #7 – ain’t seen nothin’ yet Peter – all else a toss up. To add: radical new ways to acquire customers – for pennies on the dollar. Current status (dixit Brett King today: $5-40/customer for neo banks, $272/customer US avg., $350+/customer Big 4.) It’s gonna get a lot cheaper.

QVP1
QVP1
Jan. 2, 2017 4:51 pm

When will we ever see a publicly traded fund for retail investors? Mom & Pop need a simple way to just buy a ticker in their existing brokerage account.

QVP1
QVP1
Jan. 6, 2017 4:37 am
Reply to  Peter Renton

Yeah, but sadly we’ve already been waiting for years. 🙁

Merin47
Merin47
Jan. 3, 2017 11:55 am

I am skeptical that a Private Equity shop will buy Prosper or any platform up for sale. Venture Capital firms invest in companies burning cash not Private equity firms.

PE tend to purchase businesses with positive cash flows (sometimes declining but positive) then lever up to get their return. PE need cash flow to pay off debt & find a path to profitability until the exit. Prosper would need robust cash flows before becoming a good candidate for PE investment.

If Venture Capital firms (especially existing investors) are less willing to fund Prosper, Private equity should be even less.

Thought if Prosper is offered at a fire-sale price, a PE firm might bite at an advantageous valuation.