[Editor’s note: This is a guest post by R. Tyler Smith and Mark Lusky. See the end of the post for their bylines. The views expressed here are their own.]
While marketplace lenders use advanced technologies to determine applicant suitability and administer loans, most continue to use traditional direct response marketing to get borrower prospects, ignoring virtually limitless ways to brand and differentiate themselves in the marketplace.
Such direct response marketing techniques as direct mail, search engine ads (Google AdWords), email/marketing automation, and cell phone text messaging focus communication on a target market or database of prospects and/or customers. Typically, there is an offer, call to action, and means to track response.
These methods work, but at what cost? Rising popularity of marketplace lending and the number of industry players are leading to direct response saturation, driving up per-conversion costs. Many players are already at net zero (no profit from paid conversion) or relying upon a future potential conversion for profit. Instead of asking themselves how many dollars are spent getting a deal, most marketplace lenders are concentrating on transaction volume as a measure of success or failure.
The industry loves to talk about the total addressable market. While the current market has essentially doubled every year since 2009, the number of players has tripled or quadrupled. This raises the question of how these additional players will compete, a particularly poignant concern for Lending Club and Prosper, which for eight years have had limited competition.