ABA Banking Journal - July/August 2016 - (Page 32)
> MARKETPLACE LENDING
Three approaches for banks working with
marketplace lenders to enhance loan offerings
BY TINA oREM
ending is a fundamental franchise of the banking
industry, but in the last few years a growing
number of nonbank financial technology, or
fintech, companies have taken a sledgehammer to
that pillar. Dubbed "marketplace lenders," these
companies are building digitized, streamlined platforms
and captivating investors who see a huge opportunity to
turn traditional lending on its head. For many banks it's
been a startling call to action that-perhaps surprisingly-
has also given rise to some innovative partnerships with
those very same disruptors.
A big motivator is that marketplace lending attracts
borrowers-primarily for personal loans, small business
loans and student loan refinances. Three of the largest
players-OnDeck Capital, Lending Club and Prosper-
originated about $3.8 billion in loans in the third quarter
of 2015 alone, according to SNL Financial. The landscape
is getting bigger, too. According to the Federal Deposit
Insurance Corporation, there were "at least three"
marketplace lenders back in 2009. By last September,
there were 163.
Conceptually, marketplace lending is straightforward:
borrowers apply for loans online, the marketplace lender or
the bank does the underwriting and the borrower gets his
or her funds-usually very quickly. It's a process that's often
faster and less expensive than traditional methods, and for
many banks that's attractive.
Today, there are generally three ways banks get into
marketplace lending: build a proprietary platform in-house,
form a referral partnership with a marketplace lender or
license a marketplace lender's platform. The in-house
option is usually the most expensive and time-consuming
ABA BANKING JOURNAL | JULY/AUGUST 2016
Three ways banks get into
marketplace lending: BUILD
form a referral partnership with a
marketplace lender or LICENSE
but offers ultimate control over underwriting and the
customer experience. Referral partnerships, whereby
banks send potential borrowers to a marketplace lender's
site and either buy the resulting loans or receive referral
fees, generate income and quickly fill product gaps but
often come with underwriting and user-experience risks.
The third method, platform licensing, allows banks to
capitalize on white-labeled plug-and-play technology and
nontraditional credit criteria-but it's not exactly free and
the integration requires effort.
Few banks have actually made the move to marketplace
lending, according to Charles Wendel, president of
Financial Institutions Consulting. Part of the trouble is
finding viable partners. "There are probably-and I'm
really stretching-10 to 15 companies that are capable of
meeting a bank's needs," he says.
Nonetheless, marketplace lending is on everybody's radar.
"How many are looking at it? The answer is a lot," he adds.
Table of Contents for the Digital Edition of ABA Banking Journal - July/August 2016
HOW BANK STARTUPS BUILD LEADERS
LEADERSHIP LESSONS FROM THE WORST JOB I EVER HAD
BREAKING THROUGH $10 BILLION
PLATFORMS AND PARTNERS
EXCEEDING CUSTOMER EXPECTATIONS STARTS AT THE CORE
ABA COMPLIANCE CENTER INBOX
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
ABA Banking Journal - July/August 2016