Many of us in this industry will be glad to see the last of 2016. It has been a difficult year on many fronts, certainly the most challenging in the industry’s short history. This was the year of the pullback as the rapid growth of the last decade dissipated amid a downturn in investor interest due to missteps at some of the major players. But there was also some good progress made this year as you can see in many of the stories below.
Here are my top 10 most important news stories that we published on Lend Academy in 2016.
It was a very easy choice for the biggest news story of this year. The departure of Lending Club founder and CEO Renaud Laplanche was the most important news story of this past decade. He was the leading figure in the industry. His drive and vision was one of the main reasons not just Lending Club but the entire industry had seen such growth over the previous few years. The news of his departure rocked the industry globally and led to a dismal 2016 for many lending platforms.
There has been talk about a new regulatory structure for marketplace lending since the GAO report way back in 2011. By September it was clear that the Office of the Comptroller of the Currency (OCC) was going to take the lead here. In early December the head of the OCC, Thomas Curry, announced the plans for a new fintech charter that will launch in 2017. They are currently seeking public comment on this idea until January 15, 2017. This will be a big story to watch in 2017.
The largest and most profitable investment bank in the world became a bank holding company in 2008. Since then Goldman Sachs has bought the $17 billion in deposits from GE Capital Bank and started an online-only savings bank GS Bank. After news leaked in mid-2015 about their launch of an online consumer lending platform everyone has been waiting to see what Goldman Sachs would do. Their new platform called Marcus is now live and is available for consumers in 49 states.
The disruption in capital markets this year has led many people to question the pure marketplace model. My partner, Jason Jones, shared his thoughts on this topic and it has become the most shared story in Lend Academy history. He lays out a new capital markets strategy for companies entering the market today and where the marketplace model fits with more mature companies.
We have been following the Madden v. Midland Funding case as it made its way through the court system. At issue is whether or not an issuing bank can export the interest rate caps of one state to other states even if that rate is above the usury cap for that state. It went all the way to the Supreme Court who refused to hear the case essentially leaving in place the decision of the Second Circuit. In anticipation of this decision most marketplace lending platforms have been keeping all loans in New York, Connecticut and Vermont under the state usury limits.
This year saw the first ever 40-Act funds launch. In June the Stone Ridge Alternative Lending Risk Premium Fund (LENDX) launched buying loans on multiple US platforms including Lending Club. Then in September the RiverNorth Marketplace Lending Corporation (RMPLX) launched a fund. This was an important step in the maturation of the industry as investors in this country can now invest in this asset class through publicly traded vehicles.
It had been talked about for years but the industry finally came together to create the first trade association, the Marketplace Lending Association this year. Lending Club, Prosper and Funding Circle were the three founding members but their goal is to expand to many more members in 2017. It should also be noted that other industry bodies also launched in 2016: The Innovative Lending Platform Association and the Online Lenders Policy Institute both came into being this year.
I am including this article in my top 10 not because the deal itself is significant but for what it might mean for the future. CreditEase is the leading P2P lending platform in China but they are becoming even more successful in their wealth management business. This deal was for a $50 million investment (in loans) split evenly between Prosper and Avant and is part of an initial $80 million fund. I expect to see many more deals like this one in the coming years as more Chinese money makes its way into loans issued by US platforms.
While the online lending world was going through a dramatic pullback over the summer SoFi has continued to execute well. They launched new products in 2016 but also kept their core business humming. They became the first platform to receive a AAA rating (from Moody’s) on a $380 million deal completed in May. They have been in the news a lot this year and very little of it has been negative.
Their timing could not have been worse. The US Treasury released their long awaited white paper on marketplace lending the day after the biggest news story in the industry’s history. Yes, it was on May 10 that this white paper was released and as such it did not get the attention it deserved. Regardless, it was a well produced paper that has become an asset for lawmakers and regulators in helping them understand the issues facing our industry.
Now, with this list I didn’t focus on many of the negative stories from this year but I am sure readers realize that we had more than our fair share of bad news this year. There were layoffs at Prosper, Avant, Lending Club and others. There were platform failures and some articles predicting the demise of the industry. There was the news of the Ponzi scheme in China which certainly didn’t help our image globally. But most companies in this country are still standing, many stronger than they were at this time last year.
While we have all learned a lot I know I can speak for most of us when I say that we don’t want to see another year like 2016 again. Happy New Year everyone. Here’s to a healthy and prosperous 2017.