Marketplace lending industry turns to emerging ecosystem as answer to recent problems.
From platform, to investor, to gatekeeper, the message at yesterday’s AltFi Global Summit was the same: the ecosystem will save us. Right from the off it was clear that the ecosystem – previously an oft-referenced but ill-defined thing – had come to the forefront of industry minds. In his opening keynote, Prosper President Ron Suber said: “I can’t stress enough that we support the ecosystem, because that’s what's going to lead to efficiency in the market.”
The essential backdrop, of course, is the rocky recent past of the marketplace lending sector. The industry has endured a sharp decline in media sentiment and investor appetite over the past six months – a growth phase which will forever be associated with the dismissal of former Lending Club CEO Renaud Laplanche. Now the ecosystem is being held up as the panacea to the sector’s woes. But just what exactly is this “ecosystem”?
It’s a collection of “gatekeepers” – as they were often referred to yesterday – that are striving to streamline the process of investment in marketplace lending. The term could arguably be extended to encompass specialists on the borrower side, but yesterday’s debate was, perhaps unsurprisingly, focused almost exclusively on investor-facing firms. AltFi Data, PeerIQ, dv01, MonJa, Orchard. These are the sorts of companies that together make up the industry’s emergent ecosystem.
The focus of each of these five companies is indicative of a key concern within the industry at present: data. The standardisation of data was of particular interest. “As we look to the future, standardisation of data will only become more important,” said Prosper’s vice president of capital market Eric Thaller. Glenn Goldman, CEO of Credibly, agreed, adding that standardisation of data across platforms is crucial to creating a sector-wide secondary market for loans.
The creation of a secondary market was also a talking point in and of itself. “Without a secondary market, it’s going to be really hard for this industry to scale,” said Orchard’s chief commercial officer Bill Ullman. Orchard has long been known to be working on the creation of such an exchange, but the intricacies have proven challenging.
And there are other challenges too. AltFi Data CEO Rupert Taylor warned the audience that disclosure “is not an absolute”, explaining that transparency is only worthwhile if it allows actual scrutiny to be brought to bear upon the portfolios of marketplace lenders. He drew a comparison with the subprime mortgage crisis, during which disclosure was plentiful, but made available in an “indigestible” format. Taylor called for the advent of “transparency 2.0” – a call which seemed to resonate with conference attendees. Perry Rahbar, CEO of dv01, concurred with the message, but added that he doesn't see “malintent” in the present state of the sector, but rather he thinks that current norms of disclosure have developed organically; it will be for the growing cadre of “gatekeepers” to establish new norms.
Ram Ahluwalia of PeerIQ warned that “having confidence in the data” is vital, particularly in securitisation markets. And, lo and behold, Charlie Moore, chief commercial officer of Global Debt Registry (a loan validation company) was to be found speaking at the event. Global Debt Registry has seen a surge in interest from platforms ever since falsified loan data was found nestled at the heart of the Laplanche controversy in May.
In time, the ecosystem’s reach may well expand into derivative and synthetic markets. Companies such as SLMX are already working on this. But this tract of the market is a particular concern for Prosper’s Ron Suber, who spoke of the need to be ultra-cautious in allowing investors to gain exposure to the marketplace lending asset class without actually holding any loans.
In sum, the industry seems to be in agreement that there remain a number of issues to iron out, but that the ironing out of those issues is of vital import to the long-term success of the industry.
26 May 2023
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