The world’s largest online lenders are falling into rival camps.
Yesterday came the announcement that OnDeck, Kabbage and CAN Capital – three of the largest small business lending platforms in the US – have banded together to form the “Innovative Lending Platform Association” (ILPA). The association will seek to promote education, advocacy and best practices within the online small business lending space. The body has been launched in partnership with the Association for Enterprise Opportunity (AEO), which is a leading advocate for microbusiness in the US.
First on the association’s agenda is the launch of a “model small business lending disclosure" called the SMART (Straightforward Metrics Around Rate and Total Cost) Box. The SMART Box is a tool which aims to provide greater transparency around the cost of small business loans. Business users will be presented with a chart of standardised pricing comparison tools and explanations. These will include “various total cost and annual percentage rate metrics”, with the purpose of allowing “a comprehensive pricing comparison of loans of equivalent duration”. Music to Growth Street’s ears, then.
The news of this initiative comes just one month after the Lending Club, Prosper and Funding Circle joined forces to form the Marketplace Lending Association (MLA), with the intention of promoting responsible business practices and sound public policy within the sector, to benefit both borrowers and investors. OnDeck operates a hybrid lending model – part marketplace, part balance sheet funded – and could have well have made a case for being a member of the MLA. For whatever reason, that didn’t happen.
Of course, there’s also the Small Business Finance Association (SBFA) – formerly known as the North American Merchant Advance Association (NAMAA) – which published its best practice guidelines in mid April. In the UK there’s the Peer-to-Peer Finance Association (P2PFA), and the UK Crowdfunding Association (UKCFA) – and just recently there’s been talk of a new association for a broader range of alternative business lenders.
Industry associations, it would seem, are something like buses. We’ve seen a string of entities come together over the past few months. It’s no coincidence that these trade bodies are emerging just at the time that industry headwinds are starting to blow. Marketplace lenders are facing cooler investor demand. Direct lenders have been accused of charging exploitative interest rates. Share prices are tanking across the board. What better time to club together in the defence of shared interests?
“OnDeck is one hundred percent focused on responsibly serving small businesses and we are proud to join other industry leaders in this groundbreaking initiative to establish transparency best-practices that benefit the marketplace. In the days ahead, we look forward to working with other lenders, trade associations, policymakers, and non-profit organizations to create a national model for small business lending disclosure.”