In part one of his year end review (part two to be written), Gustin first addresses The Year of Peer to Peer or Marketplace Lending (for Business):
“We know the investor world is in love with consumer peer to peer lending (P2P). Peer to peer lending has become almost a feeding frenzy of activity. Prosper took 8 years to lend $1 billion. It took only 6 months to loan out the next billion. Now granted most of the peer to peer lenders are consumer credit, but many are now trying to get involved in business credit. These P2P platforms work one of two ways, either they are pure pipes to connect funds suppliers with businesses needing credit, or they have access to lines of credit and have some skin in the game. P2P providers are expanding into business loans—including LendingClub, OnDeckCapital Inc., Kabbage Inc. and CAN Capital Inc. Collectively they are growing fast (about $3 billion in loans for 2013 and set to grow even faster), compared to bank outstanding commercial loans under $1 million at federally insured banks, a proxy for small business, they are scratching the surface (report to be $284.5 billion in third quarter of 2013). But small business lending at banks is down on an absolute basis about 20 percent since the financial crisis, so marketplaces know the opportunity.”
Gustin continues,
“LendingClub just completed a successful IPO in mid-December. Given their current valuation of about $5 billion, it is viewed as purely a technology company, which makes perfect sense since they are not collecting deposits or making loans, just pipes. Like other tech start-ups, the market has margin for losses. While LendingClub lost more than $23 million in the first nine months of this year, it’s revenues have been more than doubling each year. OnDeck, preparing for an IPO made $788.3 million of loans, producing a loss of $14.4 million on revenue of $107.5 million for the first nine months of this year. Peer to peer lending, or MarketPlace lending, its new moniker, is the domain of hedge funds, family offices and other large institutional buyers. This model is an innovation of how capital is now delivered to small time borrowers. Is 2015 the year the regulators take a harder look at these models? While the lending environment is friendly today, as these platforms chase growth, and more risky borrowers, and face perhaps a rise in interest rates, can they maintain their lofty valuations?”
To read Gustin’s full article and his views on online receivable auctions and private pcard exchange disruption, click here.
In his blog on Spend Matters Network, David Gustin eloquently highlights several themes that impact the world of business credit during 2014: “The first of course is the rise of alternative lending products that go by such categories as online receivable auctions, private pcard exchanges, and peer to peer or marketplace lending.”