Major sector trends continued unabated in September, with (1) the emergence of closed-end funds (e.g., GLI Alternative Finance, Funding Circle SME Income, new issuance on Victory Park Capital’s VSL fund); (2) new securitizations (e.g. DRB’s $340M issuance), and (3) continued venture investment pouring into space, led by mega rounds for Avant and SoFI (as well as PeerIQ’s own follow-on round, see here).
Also, compelled by the U.S. Department of Treasury’s information request into online marketplace, September was a time for considered discussion on sector dynamics, regulatory policy, effects of Madden, and the evolution of the industry.
Here at PeerIQ, we marvel at the success story that P2P/online lending has been to date in extending credit to underserved segments, particularly consumer and small business. The sector has increased the efficiency and availability of credit and ushered in novel business models and technical innovation in origination, underwriting, funding, and risk-matching.
To the extent more regulation is warranted, we support a principles-based approach that preserves innovation and improves the ability of P2P lenders to reach the long-term, low-cost, diverse funding base that will ensure the sector is poised to grow safely and securely through many credit cycles. Platforms, already are subject to many regulatory regimes, have significant alignment of interest today (and increasingly so as they must meet requirements of sophisticated institutional investors). Rigid, capital-based, risk-retention measures on P2P lenders could have adverse impacts, forcing P2P lenders to compete based on access to low-cost balance sheet, rather than on the merits of product or technical innovation.
PeerIQ believes there is a better way: namely, alignment of interest via transparency and simplicity, by the following:
- Mandating P2P lender data disclosures consistent with best practices of industry leaders such as Lending Club, Prosper, Funding Circle, Zopa and others.
- Promoting simplicity and standardization of datasets, models, and structures (including securitization and other structured products).
- Proliferation of tools (particularly in advance of market pricing) that allow all P2P participants the ability to access and analyze data and structures.
For those interested in more detail, we encourage you to read our UST comment submission [here], as well as those of others of major market participants and industry groups.
To end, we invite these regulatory inquiries (including the Fed, which looks to follow suit). It shows that P2P has arrived. And early, collaborative thinking to ensure the sector embarks on its next phase in the spirit of innovation and transparency is welcome to all.
- Online lender Avant raises $325 million and joins unicorn club (Fortune, 9/29/15) Major new, equity-only, investment for the Chicago-based consumer lender. Notable participation from JP Morgan, which is increasingly active in the online direct lending space.
- SoftBank Makes $1 Billion Fintech Bet With SoFi Investment (WSJ, 9/30/15) Another major announcement and win from SoFi, in a round reportedly tied to a $4B valuation.
- Liquidity Near Drought Conditions (AB Alert, 10/2/15) (subscription required) Reports of a ABS liquidity crunch, with dealer desk pullbacks due to Basel III and FINRA’s trade reporting system quoted as potential contributors.
- MMKT Raises $5.9MM and Launches Platform to Transform the Middle Market Loan Syndication Process (GNW, 9/30/15) Interesting middle-market syndication play backed by a number of PeerIQ investors, such as Vikram Pandit and Victory Park Capital.
- Online Lenders Deluge Small Business (WSJ, 10/2/15) Stories of increased marketing and competition amongst SME platforms.
- After the fall: boost for China’s P2P lending platforms as jittery market investors eye havens (SCMP, 9/30/15) Interesting story about how volatile public equity markets have been a boon for Chinese P2P lenders.