7 predictions for 2017
7 predictions for 2017
In January 2016, I made 6 predictions for the coming year. Let’s see how accurate those predictions turned out to be:
- Total Origination for Peer Lending in the US will surpass \$50B
It’s a close call, but we estimate that total originations in the US has reached \$58.8B. Lending Club posted that they have reached \$22B in the third quarter, while SoFi is at \$13B, followed by Prosper ( \$7.9B ), OnDeck ( \$5B ), Avant ( \$3B ) and Kabbage ( \$2B ). Eight remaining platforms total over \$2.8B (Lending Home, Fundrise, Upstsart, CircleUp, RealtyMogul,…). One way argue that some of those platforms are not 100% peer lending. So if we discount OnDeck and Avant, we’re at \$50.8!
- Regulators will take a Clearer Stand towards Peer Lending
Nothing firm has been decided yet, but the Treasury reported the findings from its request for information in the form of a white paper and has highlighted what the industry can (or should) do. The Office of Comptroller of the Currency (OCC), the Federeal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB) have all issued announcements or made official comments about alternative lending in 2016.
- At least one Marketplace will be in Serious Legal Trouble
While I thought a ‘small’ marketplace will suffer, the surprise was that the origination platform in turmoil was the biggest one on the market: Lending Club. Now, the degree to which how ‘serious’ their legal troubles were (or still are, since they still face an ongoing class action) is up for debate. For really serious trouble, we can look at Chinese Ezubao, with its \$10B defrauded and 21 persons arrested.
- One Marketplace will try to mix Debentures and Equities
Point.com is a marketplace that mixes loans with fractional equity in private homes. Instead of simply ‘borrowing money’, users relinquish some shares of their home, which lowers their debt ratio.
- Borrowing or Lending will be made (also) from a Mobile Device
Companies such as Ledge launched apps that allow borrowers to apply for a loan directly from one’s smartphone. And this is not even counting our own app, LendingRobot Dashboard.
- One Marketplace will rely on radically new Risk-assessment Methods
This happened early in the year: in January, SoFi announced they were moving away from FICO scores for their credit decisions, opting for a more ‘holistic view’ that includes savings, cash flow, and a prediction of future earnings.
6 predictions, 6 turning out to be true. It could have been worse… And now, without much further ado, here are my 7 predictions for 2017:
1. We have reached “Peak Conference”
The ‘Peer Lending’ boom gave birth to an impressive number of conference targeting this nascent industry (and the money VCs have poured in it). I personally spoke at 4 in the first half of 2016 alone. Now that the mood is more… let’s say, sober, my prediction is that several of these conferences won’t be renewed in 2017. At the very least, nobody will be able to match the remarkable (and well-deserved) success of Peter Renton’s LendIt.
2. Banks will direct more than $5B to alternative lending
During its latest earning call, Lending Club reported the renewed interest of big institutional money. For instance, Stoneridge Capital investing \$1.5B in Peer Lending, and \$700M specifically in Lending Club notes. At the same time, traditional banks have become more sympathetic with the idea of partnering with their ‘disruptors’. OnDeck should reach \$1B of debt financing this year, while the Royal Canadian Bank has already committed to purchase \$1.3B of Lending Club notes. My prediction is that the trend will accelerate in 2017, and more than \$5B will have transited between the ‘frenemies’ by the end of next year.
3. ‘Marcus by Goldman’ will be still less than 30 times less popular than ‘Lending Club’
One effort from banks I’m skeptical of, though, is Marcus by Goldman. Since their platform is seeded with their own money, Marcus will have no problem funding loans and can therefore be quite aggressive with rates. Still, I don’t think it will make much a dent in people’s mind. Today the term ‘Marcus by Goldman’ is 40 times less queried on Google than ‘Lending Club’. My prediction is that the gap will remain huge even one year from now.
4. Self-directed investment will shrink further more, and will represent less than 10% of loans issuance on the major platforms.
The age of ‘early adopters’ may be over, but they haven’t been replaced by ‘normal users’. A few years ago, the typical investor in peer lending was doing his homework on Excel and executing his own strategies. Today an ever-increasing share of funding or investment decisions comes from people in suits (traditional financial institutions) or hoodies (techies such as us). If individual investors continue to come to peer lending, it will be through simpler products.
5. Seven origination platforms or more will go down or cease being independent
Maybe I was too optimistic for 2016 and am too pessimistic for 2017, but I think it will be a tough year for origination platforms. With the gold rush being over, several me-too platforms will face increasing difficulties in raising the necessary money to survive, and there will be Lending Platform consolidations in several countries.
6. There will be at least one product that merges alternative lending, blockchain and individual investing.
‘Greed is good’. But greed and lack of transparency… not so much. Investors will probably continue to demand data they can trust, and in an always-connected, completely transparent world, complying with regulatory disclosures isn’t enough. The Blockchain technology is the basis of Bitcoin and other crypto-anarchist alt-currencies. But it’s also a fantastic solution to ensure data is never, ever tampered with.
7. It will be progressively harder for LendingRobot to make predictions until we reach 2020
You can already guess that we’ll try to make 8 predictions for 2018, and so on. At least in 2020, I’ll be able to write “I’m making 0 predictions this year”. Oh, and I also predict that the accuracy of my predictions for 2017 won’t be better than 2016.
- Emmanuel Marot
- January 5, 2017
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