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 2017 Predictions
First, let’s review my predictions I made exactly one year ago. We had an interesting year as an industry in 2017, it was certainly a better year than 2016. I think I did ok on my predictions from last year although as you can read below I did get some things completely wrong.
- 2017 will be the year of the bank partnership
I would say I was partially right on this one. We certainly saw a large number of new bank/fintech partnerships with deals closed from Avant, Fundation, Upstart, P2Bi, LendUp, Biz2Credit and many others. And in Europe the floodgates opened with dozens of new deals between lending platforms and banks announced. But in the US I was expecting even more partnership deals than we had so I think it is bit of a stretch to call 2017 the year of the bank partnership here.
- The OCC Fintech Charter will receive a positive reception
It was an interesting year for the OCC Fintech Charter. With Thomas Curry leaving as head of the agency in April, then Keith Noreika holding the acting role for a few months and finally Joseph Otting being sworn in to lead the agency in late November it was difficult for any new initiative to get momentum. There was also the case of the Conference of State Board Supervisors suing the OCC over the charter, which was dismissed in December. So, while many of the fintech platforms supported the charter there was no real positive movement this year.
- Lending platforms will offer banking products
While we had a couple of platforms offering credit cards for the most part this prediction failed to materialize. With the possible exception of SoFi I think we are still some time away from lending platforms offering a variety of banking products.
- One large platform will be acquired
I am going to say I got this one right as one major platform was acquired in 2017. Student lender Earnest was acquired by Navient in a deal announced in early October. My guess that Prosper might be the platform to be acquired was wrong but there were rumors flying around about acquisition talks at more than one major platform last year.
- There will be no new IPOs this year
I was almost right on this one but one US lending platform did have an IPO in 2017. Short term lender Elevate went public in April after postponing their IPO in 2016. None of the major marketplace lenders braved the public markets in 2017 as valuations continue to be depressed at many of the leading companies.
- China will become an important source of capital outside the USA
I got this one right. China continues to make its presence felt as more US companies are looking for capital from that part of the world. The leading Chinese fund, the CreditEase Fintech Fund, made investments in 2017 in Upgrade, dv01, Orchard, Lenda and Nav just to name a few. China is now becoming a consideration for many more companies looking to raise money.
- Artificial intelligence will take center stage
I think I read more articles about AI this year than in the previous five years combined. Whether it is for underwriting, customer acquisition, collections, compliance or cybersecurity AI is now central to the success of many lending platforms. It has taken center stage and will remain important for the foreseeable future.
If I tally up my predictions here I think my score was about 4 out of 7. Not that great but we all know predicting the future is not easy. I will try to do better in 2018.
My 2018 Marketplace Lending Predictions
- Five top 25 banks will launch their own online lending platforms
Banks have realized that if you want to provide successful loan products today you need to have an online presence. I think we will see many large banks launch their own online lending platforms in 2018. Some will be the result of partnerships with fintech platforms but many will be built through internal efforts. Online lending for consumer, small business and real estate is becoming an online-first consideration and 2018 will be a tipping point for banks in this area.
- Two new pieces of legislation will be passed that will benefit the industry
Not much happened on the regulatory front in 2017. As I said above the OCC Fintech Charter is in a holding pattern. While predicting legislative success in Washington these days may be a fool’s errand I think we will get two pieces of legislation passed in 2018. The first one will be the Madden fix by Congressmen McHenry (R-NC) and Meeks (D-NY) and the second will be another bipartisan McHenry bill, this time introduced with Senator Booker (D-NJ), that will help modernize the IRS with the creation of an API for inquiring on tax records.
- One of the top five (non-bank) online lending platforms will be acquired
So, last year I said that one of the major lending platforms will be acquired and in reality that was an easy prediction. This year I am going to name names. I think one of the following five platforms will be acquired in 2018: Lending Club, SoFi, Prosper, OnDeck or Avant. I have no concrete inside information although as I said above there have been rumors swirling in 2017 over acquisition targets.
- A major lending platform will get hit with a cyber attack
Here is the one prediction where I really hope I am wrong. We have had a good run so far but with cyber attacks hitting some of the biggest names in business there is no reason to think online lending platforms will remain unscathed. I think it happens in 2018. I just hope the platform that gets hit deals with it quickly and transparently and the damage is limited.
- The tech giants consolidate their positions in online lending
Amazon, PayPal and Square have all started to roll out various online lending offerings to their huge customer bases. In 2018 they will consolidate their position in the space. Square has already started piloting a consumer lending program, PayPal acquired Swift Financial last year to boost their position in small business lending and Amazon, we learned, passed $3 billion in small business loans last year. These companies will continue to expand their footprint in online lending in 2018.
- 2018 is the year of product line expansion
Whether we are looking at consumer, small business or real estate one of the keys to success will be to have multiple product offerings. We have seen some expansion of product lines at Lending Club, SoFi and a couple of other companies but I think we will see significant moves in this area in 2018.
- Messaging apps start to get integrated into online lending
I am going out on a bit of a limb with this one. We have started to see P2P payments incorporated into messaging apps. Facebook Messenger now integrates with PayPal for payments, Apple launched P2P Payments in their latest version of iOS, Venmo and Zelle both are looking more like messaging apps. It is only a matter of time that one of these services starts to offer loans. This has been happening in China for years and I think something launches in beta in the US in 2018.
My bonus prediction is around IPOs. We have just heard about Funding Circle’s intention to possibly go public later this year and while I don’t think this will cause the floodgates to open I think we will see at least two more online lenders go public in 2018 for a total of three.
Let me know what you think. Happy to hear your feedback in the comments.