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Around the Web: 2017 Marketplace Lending, FinTech Predictions

Certain events of 2016 shook up the marketplace lending sector–Brexit and the LendingClub debacle are a couple that come to mind. But what does 2017 hold? Nobody knows for sure, but this is what the pundits are expecting:

Pascal Bouvier, CFA thinks the next year will be “delicate” for the alt/marketplace lending industry. This is because rising interest rates will benefit banks first. Infrastructure spending might be where FinTech startups see funding as they offer services. Others may need to merge to stay alive. Major themes to look for include AI, robotics process automation, platforms & ecosystems, messaging platforms wars, and digital identities.

Biz2Credit CEO Rohit Arora says sinking approval rates among alternative lenders could be a sign of negative times ahead. The competitive advantage of a faster decision process is being challenged as other types of lending invest in technology to offer borrowers the same digital offerings. On the positive side, increased regulation on alternative SME lenders is unlikely with the incoming Republican administration. This will lead to greater clarity and stability on incoming regulatory pressures, but, overall, 2017 will be a challenging year for alternative lenders.

The Daily Fintech predictions for 2016 were about half right; five out of 10 rated a “yes”, three rated a “no,” and two rated “maybe” in their self-assessment of last year. This year, the most interesting of their Top Ten Predictions are #8 (VC Fintech Funding in China, India, Africa and Latin America will be double VC Funding in America and Europe) and #9 (Most startup digital banks will fail to get follow-on financing). They left #10 blank for “a big surprise” they expect to have some Bitcoin element.

PeerIQ forecasts growth in the US MPL market. They expect consumer credit to expand, fixed-income investors to continue to favor MPL ABS, repeat issuers to power the new issuance market, and MPL ABS issuance to grow approximately 47% YoY. But they hedge their bets by saying that risk retention, regulatory uncertainty, and increased bank competition in prime consumer credit segments could hinder this growth.

PeerIQ new issuance 2017

Mike Cagney, CEO of SoFi sees four ways America’s massive student loan industry could change in 2017. First, President-elect Trump has a plan to expand the income-based repayment program. The second factor is the Graduate PLUS Program’s possible end. Third, colleges could begin to share the risk of student funding. Lastly, private sector involvement could increase. What will cause the changes? The changes in administration and interest rates.

Avison Young’s John Kevill expects investors to stay cautious in 2017 because of the uncertainty they experienced in the past year with Brexit and the U.S. election. Nevertheless, he sees more growth and opportunities for alternative lenders because institutions in particular are seeking reliable income and higher yield for institutional-grade properties.

The DeNovo Team at Pricewaterhouse Coopers expects 2017 to be the year that determines if the MPL space is sustainable in its current form. Companies may need to alter business models to improve transparency, keep up with regulatory changes, expand to ancillary asset classes, and compensate for the potential impact of tax policy changes.

BondMason looks at the UK P2P lending market and thinks a bank will enter P2P at the sharp end. Having already seen some collaborations, they expect a bank to acquire or create a seamless link to offer investors and lenders new products. Another prediction is the failure of a notable platform due to sub-optimal behavior revealing weak foundations. They also expect rates to drop and P2P lending to become more mainstream as yield hunters move into the space, providing capital. Overall, they are optimistic about the industry but warn that lenders must be vigilant and conduct “healthy due diligence on the P2P Platforms as well as the loans themselves.”

bondmason 2016

Andrew Jennings says on the FICO blog that financial inclusion must be central in 2017. He also believes the focus is now going to be on blockchain, open banking, AI, FinTech beyond P2P lenders, cybersecurity, digitization, and customer experience. He sees a shakeup as the topics collide, but he doesn’t anticipate it happening “as quickly as the technology talking heads would have us believe.”

PYMNTS admits that 2016 broke their crystal ball and they are not making any predictions. They do suggest keeping an eye on the CFPB’s interaction with the new administration. In the P2P ecosystem, they suggest watching where the default rates go (a good idea in any kind of lending) and how the players survive. Will they partner with banks instead of destroy them or go it alone? Subprime defaults are rising, too. Their takeaway is this: “Though much changes in the credit marketplace, one thing remains the same. Consumers have to pay their loans, and those that lend to consumers have to either be pretty sure the repayment is coming or price the loan to account for the risk. Whether regulation and the loan products next year reflect that unchanging reality remains to be seen.”

Written by Nicki Jacoby.

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