As many have reported, online lending is headed into the next phase of its evolution. As with any industry moving from its nascent stage to its adolescent years, we expect consolidation as the strongest players grow their stature, and opportunities to learn what works and what does not. We also expect a focus on powering continued growth in the sector fueled by increasing capital investment.
With this in mind, we wanted to provide our readers with a firsthand account from the leading forces for investment in the online lending space about the trends they’re seeing, the challenges they’re facing, and what they have up their sleeves for the industry’s next stage of development.
On July 21, 2017, we hosted an online lending Meetup event, “Risks and Emerging Solutions for Investor Confidence in Online Lending,” at Global Debt Registry’s New York City headquarters. We were hoping for a meeting of the best and the brightest — and that is exactly what we got with panelists from Citi Bank, Global Debt Registry, and PricewaterhouseCoopers among others.
The conversation largely focused on the online lending industry’s need to take a closer look at infrastructural elements in order to substantially grow and attract more mature capital into the space. Under that umbrella, there were four key takeaways from the evening’s conversations that we found particularly noteworthy:
1. The future lies in scalable investor infrastructure
For online lending to continue along its current growth trajectory, industry leaders are taking a close look at the sector’s infrastructure – in particular the reliability and scalability of that infrastructure. As the space seeks to attract continued capital investment to support a growing network of participants, the right risk infrastructure is key to achieving that goal. An optimum risk infrastructure is one that involves fewer manual processes to reduce errors and improve efficiency, provides the highest degrees of certainty around loan data to diminish opportunities for fraud, and offers robust reporting tools and sets industry-wide standards. A structure that delivers on each of these points and can scale on demand will help spur investor confidence that in turn supports broad industry expansion.
2. Investing in online lending is broadening oversight professionals’ scope of work
As online lending increases in popularity as an asset class, auditors and trustees are increasingly being asked to handle a greater breadth of tasks. Exposure to a wider range of investors and an increased level of complexity in the types of players involved in lending activities has caused due diligence to become the tip of the iceberg for compliance professionals. This trend is likely to continue upward as the online lending industry matures.
3. Bolstering the back end can’t take a backseat
The initial focus of the online lending industry was on innovation in the borrower experience — bringing the dream of virtual lending into reality and exploring newly available data sets to support underwriting (e.g. social data and spearheading the total disruption of the preexisting lending paradigm). The less exciting requirement of readying the back end, investor management systems was pushed to the back burner. But if the online lending industry is to continue its growth trajectory, the nitty-gritty details of building out a back end to allow for scalability must become a priority.
4. Blockchain could be big — but it’s too early to predict its full impact.
While blockchain has great potential to become a safe and secure way to keep track of loan ownership and asset integrity, using a single consistent source of core loan data to create an immutable audit trail, it’s still in the nascent stages of development. As such, there is still much debate on which technology platforms will win out. There will also likely be some industry stumbles early on, as there often are when new technology is first adopted. However, the significant need for distributed trust, a single version of the truth, and immutable record keeping make for a compelling blockchain use case across the online lending ecosystem.
“The value of open dialogue among major players in the online lending space is immeasurable,” said Charlie Moore, president of Global Debt Registry. “The entire industry benefits when leaders in the space come together to share and develop industry solutions. Conversations like this help us determine the most effective ways to open more loans, attract more capital, and secure the emerging risk infrastructure requirements — and that’s a very positive thing.”
The event provided a rare and valuable inside look at what online lending industry leaders are really thinking about the state of the rapidly evolving industry.