In a subtle allusion to sci-fi favorite Star Trek, Freddie Mac has posed the question if marketplace lending is the “final frontier”.
The December report from the quasi-public / private mortgage entity, states that in Sci-Fi dramas back in the day, “humankind accepted technological help from an advanced and apparently benevolent race from space, only to discover they had made a fatal mistake.” The authors then continue to explain that “similar confusion surrounds marketplace lenders”.
The document delivers a quick tour of the migration from peer to peer lending to marketplace platforms as the form of internet finance has rapidly evolved.
Freddi Mac states the future of marketplace lending as;
“The rapid growth of marketplace lending combined with its emphasis on Internet outreach and its novel underwriting practices have generated dramatic predictions of its future. PricewaterhouseCoopers LLP estimates that P2P originations totaled approximately $5.5 billion in 2014. They project the market could reach $150 billion by 2025. Other estimates are much, much higher. In these scenarios, MLs present a disruptive innovation that threatens traditional lenders. Skeptics question these forecasts. The marketplace lending industry is comprised of relatively small firms with limited capital compared to banks. This industry has not weathered a shake-out yet, raising questions about the resilience of many of the players. And larger institutions – banks and non-banks – may adopt some of the strategies employed by MLs or simply purchase the more successful firms. It’s too soon to tell whether marketplace lending is the next Uber or just another flash in the pan. Here are some factors to consider in forming an opinion.”
These “factors” lead to the conclusion that, “The current generation of [marketplace lenders] MLs all may fail in the next economic downturn.”
That is a pretty harsh assessment for what most expect to be the future of finance. But then look at where Freddie Mac has come from and its involvement in the Great Recession. Perhaps the prediction should be taken with more than a grain of salt?
Read it all below.
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