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The Ten Biggest News Stories of the Decade in Marketplace Lending

We take a look back at the news stories that shaped marketplace lending in the 2010s

December 30, 2019 By Peter Renton 1 Comment

I started writing about marketplace lending back in 2010, so I have spent almost the entire decade immersed in this space. While we have expanded our coverage on Lend Academy today beyond marketplace lending this remains a major focus.

We have certainly come a long way in the past ten years and the industry is almost unrecognizable from where it was in 2010. Back then there were just two notable companies in the space, LendingClub and Prosper, originating just a few million dollars a month in loans. No one could have predicted that by the end of the decade marketplace lending would have led to a resurgence in personal loans and changed expectations for customer experience across all lending verticals.

As I look back at the past decade here are, in my opinion, the top ten most important news stories in chronological order.

Prosper Recapitalizes and Brings in a New Management Team
(January 2013)

At the time this was a huge story. The number two marketplace lender had been struggling for some time and was in serious danger of running out of money. This new funding round was small by today’s standards at $20 million but it ensured that Prosper would remain a going concern. The deal was architected by, the now fintech legend, Ron Suber as he brought in a new management team and a new board to guide Prosper on to their future growth path. It helped set the industry up for success over the next several years.

LendingClub Becomes First Marketplace Lender to go Public
(December 2014)

This was a momentous day for marketplace lending as market leader LendingClub became the industry’s first company to go public. The IPO was a huge success by any measure. By the end of the first day of trading LendingClub was valued at $8.46 billion and they had raised $870 million in cash. Of course, at the time we had no idea what would happen to the stock but there was a sense a real optimism that this company was going to change the world.

Second Circuit Rules on The Madden Decision
(August 2015)

The biggest legal issue the industry dealt with this decade was the ramifications of the Madden v Midland decision. We have been following this case since the Second Circuit ruling in 2015 and it has had far reaching consequences for the industry. It has led to a reduction in lending activity in Second Circuit states (NY, CT and VT) but the bigger concern was that this kind of ruling would spread nationally. That has not happened and there have been multiple regulatory fixes proposed plus the OCC and FDIC have weighed in as well. But as of this writing nothing concrete has changed since the 2015 decision.

SoFi Raises $1 Billion Led by SoftBank
(September 2015) [Read more…]

PayPal Crosses $10 Billion In Small Business Loans

PayPal continues to grow their small business lending operation and is originating $1 billion per month

May 29, 2019 By Ryan Lichtenwald 1 Comment

PayPal is a company whose name is much more synonymous with payments than lending. However, that might be changing as the company announced that they had crossed $10 billion in lending.

The originations were spread out across 225,000 small businesses around the globe. While their US lending business may be familiar to many, they also operate in the UK, Australia, Germany and also Mexico through a partnership with another online lending platform.

It took the company five years to reach the $10 billion milestone and almost two years to pass the $1 billion mark. Now they are hitting some impressive quarterly milestones, originating $1 billion per quarter, so their next $10 billion is surely to happen even quicker.

Their success is in part due to the wide range of loan amounts, from $1,000 to $500,000. So where does PayPal stand when it comes to their competition? deBanked recently highlighted the leading small business originators which showed that PayPal is solidly the leader when it comes to originations in the US. OnDeck which is second to PayPal reported originations of $636 million in Q1 2019. According to data provided by Funding Circle on their website, which includes their lending globally, they have originated $9.5 billion in loans.

Image credit: deBanked.com

Beyond just looking at origination numbers, it’s important to take note of the value that all of these small business lenders are providing to small businesses both in the US and abroad. When you look at the fact that on average a loan from the U.S. Small Business Administration takes 90 days to complete and that traditional banks have ignored this segment for years, it’s clear that there is room for many winners in the small business lending market. Looking forward it’s going to be interesting to see how all of these lenders evolve to provide much needed capital to small businesses across the globe.

The New Breed of Small Business Lenders: Amazon, Paypal and Square

We explore the small business lenders of tomorrow who have significant advantages in customer acquisition and data.

July 25, 2017 By Ryan Lichtenwald 1 Comment

If asked where to get a small business loan most people would state their local banks or even some of the bigger traditional banks. Those aware of the online lending space may mention the likes of Kabbage, OnDeck, Funding Circle or maybe even some of the new online initiatives of big banks like Wells Fargo’s FastFlex product. However there is another, often overlooked segment of small business lenders and they are names you have heard of: Amazon, Paypal and Square.

Until recently I hadn’t paid much attention to these companies. Amazon in particular flies under the radar and little is known about their lending business. Recently it came out that they are doing a considerable amount of lending to small businesses. Amazon lent $1 billion in the last year and has lent $3 billion to more than 20,000 small businesses since launching their lending product in 2011.

Most alternative small business lenders aim to innovate on pricing, speed, transparency or underwriting. Many also claim the use of data for underwriting purposes as a main differentiator. I’d argue that Amazon has more of an advantage when it comes to data since most other lenders rely on third parties or the small business to provide access to their data. Since Amazon is a marketplace for sellers they have an incredible amount of data on the cash flow of businesses that operate on the platform. They also have a significant pool of borrowers, resulting in virtually no customer acquisition costs.

The best way to understand how Amazon lends money to small businesses is hearing about it directly from a borrower. The podcast called Marketplace recently interviewed an Amazon seller and it was fascinating to hear how it works. [Read more…]