April 28, 2015
While they are frequently identified as being competitors of banks, marketplace lenders have asserted repeatedly that they want to work with these more traditional financial institutions.
Thus far, marketplace lenders have landed clients by using innovative methods to connect borrowers with financial institutions interested in providing funding. The progress in this burgeoning sector has turned heads.
Marketplace lending's rise
Lending Club made headlines by holding a $1 billion initial public offering late last year, and the marketplace lender's shares rose 56 percent on their first day of trading, according to Crowdfund Insider. While firms in this particular niche have issued between $10 and $15 billion worth of loans, some estimate this figure could reach $1 trillion by 2025.
Some have asserted that the traditional banks are leaving certain parts of the market completely untapped, Crowdfund Insider reported. Amid this situation, some are concerned about the rising prominence of marketplace lenders.
However, officials representing both Lending Club and Funding Circle recently emphasized they want to work with traditional banks, according to Bank Innovation.
During Bank Innovation 2015, an industry conference recently held in Seattle, both Lending Club, as well as Funding Circle, shed some light on how marketplace lenders might be able to work with banks as part of their growth plans, Bank Innovation reported. Because of its innovative use of technology and unique underwriting model, Lending Club can provide funds more cheaply than traditional banks and can also reach a broader audience.
"Lending Club has been able to cut costs and fees out of the system," Deringer stated during the event, according to Bank Innovation. "Our use of technology allows us to reduce the cost of originations."
Benefits of partnerships
In addition to lowering expenses, partnering with marketplace lenders might help banks broaden their customer base, as a growing number of consumers are open to doing business with organizations in this innovative space, according to Crowdfund Insider.
Millennials in particular are receptive to working with marketplace lenders, and during a recent industry conference, Susan Herbst-Murphy, consumer credit & payments industry expert for the Federal Reserve, stated that this generation is more open to working with these companies than any other, Crowdfund Insider reported.
As marketplace lenders continue to grow in importance, financial institutions interested in benefiting from this trend by forging strategic partnerships might consider speaking with Garnet Capital Advisors, a loan sale advisory firm that can leverage its network of contacts to establish appropriate relationships.