Garnet Capital Advisors Blog

Archived news

April 27, 2015

Due diligence crucial to bank/marketplace lending partnerships

As many banks consider partnering with marketplace lenders, they must carefully evaluate each particular alliance to get a strong sense of its potential costs and benefits. Marketplace lenders have been rising in importance, growing a strong customer base and in some cases raising significant sums of money by working with receptive investors.

In 2014, Lending Club held one of the largest initial public offerings of the year, raising more than $1 billion and selling upwards of 70 million shares of stock. On their first day of trading, these shares surged 56 percent, resulting in the company's valuation exceeding those of all but 14 U.S. banks, according to Crowdfund Insider.

Rising collaboration
Amid this success, many banks have begun working with marketplace lenders. In February, Alliance Partners, which manages BancAlliance, a group of community banks, announced a co-branded partnership with Lending Club.

Through this collaboration, members of the banking consortium will be able to offer customers personal loans with lower borrowing costs through the Lending Club platform. In addition, the community banks taking part in this partnership will have the option to purchase loans to add to their portfolios.

That same month, Western Independent Bankers, a group of independent and community banks in 13 states across the U.S., announced a partnership with marketplace lender Prosper. At the time, Aaron Vermut, CEO of Prosper, emphasized how the new alliance could help WIB members provide their customers with affordable consumer loans.

"Independent banks are essential to the health of the American economy, but in order to compete and win customers, they need to be able to offer compelling products that are competitively priced and easy to understand," stated Vermut, CEO at Prosper. "Prosper has facilitated billions of dollars in loans through its platform and continues to grow because our product is fast, convenient, and extremely consumer-friendly. We're very excited to work with WIB and its members to expand awareness of a smarter, lower-cost alternative to borrowing money through traditional means."

Partnership concerns
While the organizations that set up these partnerships have touted the benefits, some industry participants have voiced their concerns, according to American Banker. Betty House, senior vice president and chief technology officer for WIB, emphasized that the banking consortium's partnership with Prosper could help make customers more loyal by offering them loans they might not obtain otherwise.

However, working with Prosper might put banks at right of losing their customers, House told American Banker.

If financial institutions are thinking about collaborating with marketplace lenders, they should consider working with Garnet Capital Advisors, an experienced loan sale advisory firm, to help negotiate mutually beneficial partnerships.