The Hourglass Effect: A Seminal White Paper on the Personal Loans Market by Frank Rotman of QED Investors

The-Hourglass-Effect-Cover

It has always been a mystery to me. I have always wondered why all the banks shut down their personal loan businesses in 2008-09 but never restarted them. Even when it was obvious that companies like Lending Club and Prosper were getting good traction.

When Frank Rotman, a founding partner at QED Investors, sent me his new white paper, The Hourglass Effect, it was revelation to me. Rotman spent more than a decade at Capital One and was actually head of their installment loan division. His current company, QED Investors, was an early investor in Prosper so he has a unique perspective on our industry.

But back to this white paper. The Hourglass Effect is probably the most informative paper I have ever read on this industry. It answers in detail some important questions that have mystified me for years:

  1. Why did the banks shut down their personal loans business units?
  2. Why haven’t the banks re-entered the personal loans space?
  3. What lessons can the marketplace lending industry learn from the banks experience?

Rotman also goes into detail about the conditions that have led to the rise of Lending Club and Prosper and the entire marketplace lending industry. Starting off with the boom in personal loans at major banks in 2005-06 (which I was not even aware of) Rotman takes us on a journey through the past ten years. From Boom to Bust to Recovery we get to see how each period impacted marketplace lending and eventually created significant tailwinds.

When I finished reading this white paper I emailed my partner, Jason Jones (who had also recently read it) and just said: wow. He then said, and I completely agree, that this white paper should be required reading for everyone in this space. It lays out in detail the circumstances that led to this rise of this industry and why it is destined to become an integral part of the financial landscape.

Speaking of which, Rotman concludes his white paper with five different scenarios of the future and gives his opinion as to the likelihood of each one. He also introduces us to the Lending-as-a-Service concept (initially conceived by Insikt) that could well be the way of the future.

Rotman will be speaking about this white paper at LendIt on 2:20pm on April 15. He has also graciously agreed to allow me to exclusively announce it to the world here on Lend Academy. If you are serious about this industry you need to read this paper. Download it here.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Michael Feng
Michael Feng
Apr. 10, 2015 6:43 pm

The white paper astutely notes that HELOCs crowded out personal loans pre-financial crisis.

Since home values have risen, why aren’t banks aggressively marketing HELOC/HEL products, particularly to home-owning LC/Prosper borrowers who can refi into a much lower rate?