Just a few years ago, the peer-to-peer lending market seemed to be just a novel idea that would creatively help a few people obtain financing by crowdsourcing intrepid investors seeking attractive yields on their capital. At the time, the burgeoning industry barely registered a blip on the radar to traditional lending establishments. Fast forward to today, the peer-to-peer lending industry is now well into the billions and exploding at an exponential growth rate. In addition, Lending Club’s IPO filing marks a seminal moment for the industry as one of its largest players in the space goes public with a multi-billion dollar offering. Suffice it to say, the banks are definitely paying attention now.
This week, the CFGE: Crowdfund Banking and Lending Summit on Oct. 16-17 at the San Francisco Hyatt looks to further the conversation on how traditional lending institutions can work with the peer-to-peer platforms to evolve the financial marketplace for borrowers and investors. It turns out that both business models actually complements each other quite nicely, and a more comprehensive lending marketplace will only help consumers and entrepreneurs.
Keynote speakers for the summit, which is presented by Coastal Shows, will include Ron Suber, President of Prosper Marketplace; Nikul Patel, Chief Product Officer of LendingTree; as well as many other influential attendees and industry leaders. The event will host crowdfunding platforms, real estate crowdfunding platforms, peer-to-peer, large and smaller community banks, credit unions, mortgage banks and specialists in the crowdfunding industry.
“It’s win-win-win.” said Andrea Downs, Founder of Coastal Shows and the CFGE Crowdfund Banking and Lending Summit, in a statement. “Peer-to-peer and crowdfund platforms have a lot of money to lend are a great option for borrowing money, however, most people go to the bank to get a loan. With the banks and traditional lending institutions under increased regulations, it has become very difficult for them to lend to their banking customers. Now, they can refer these clients through partnerships with P2P and crowdfund platforms, and obtain client satisfaction, retain the client and potentially the funds loaned and gain a broader customer base. So the borrower wins, the crowdfund and P2P platforms win and the banks win.”
By now, most Americans should be familiar with the term “crowdfunding.” It’s the idea that an entrepreneur with an intriguing consumer technology product can go online and make a viral video to raise a sizable sum of money to fund the next hot startup.
While that’s all well and good, the more common application of crowdsourcing for capital and financing has to do with more traditional needs. It may be a consumer that needs a personal loan to consolidate their debt, or an aspiring proprietor wanting to open a local storefront—but while these examples are more modest in scale, they are certainly much more essential to the economy and everyday lives of people. That’s perhaps why the peer-to-peer marketplace has enjoyed such explosive growth over the last several years.
equities.com had the opportunity to speak with Ron Suber of Prosper and one of the keynotes for the upcoming event to learn more about his thoughts on the industry’s direction and the importance of a more collaborative lending marketplace.
EQ: To start off, can you tell us about Prosper Marketplace and the various markets that you serve?
Suber: Prosper is the fastest-growing platform in the world. We’ve gone from $9 million a month in loan origination last year, up to $170 million in loan origination last month. We are roughly one-third of the whole marketplace in America. Lending Club is roughly two-thirds of the U.S. market. The entire market is still expanding, and while Lending Club is growing, we’re growing twice as fast as they are.
EQ: How would you categorize your business model? Are you viewed as a financial or technology company?
Suber: We’re Fintech companies. So we’re not one or the other, but really a hybrid of Silicon Valley and Wall Street, with a splash of the banking industry.
EQ: How has the P2P market grown over the last five few years?
Suber: Definitely. So I gave you the $9 million per month to $170 million from last month. But in the second quarter of this year, Prosper did $369 million of loan origination. That’s more than what the company did in all of 2013. Also, it took Prosper eight years to do its first $1 billion in aggregate. We passed $1 billion in aggregated in February 2014. We will cross our second billion by the end of October. That’s how fast this is growing.
EQ: You joined Prosper last year after leaving Wells Fargo, which gives you experience on both sides of the P2P and traditional lending businesses. Do traditional banks view P2P has a major threat to their business model?
Suber: Not at all. At the time, I was a customer of Lending Club and Prosper. The businesses were so small that I’m not sure the banks were nearly as aware back then as they are right now. Candidly, I’m not sure it was on their radar screen two years ago. But I can assure you that it’s on their radar screen today, given the dramatic growth as well as the number consumers that love what we’re doing. We’re doing easy, quick, and appropriate credit where the borrowers deserve, and we’re doing it the way they want it. We’re doing it on their mobile device, with no hidden fees and with transparency. That’s why we’re seeing the growth, because the borrowers love this new process.
It’s almost like Uber in a way. The reason why Uber has been so successful is that passengers love it. That’s the same with us. Once they come to us, they don’t go back to the old way of borrowing and investing.
EQ: The CFGE: Crowdfund Banking and Lending Summit, brings together both the new and established spectrums of lenders to evolve the market together. What are the benefits of the market evolving into a cooperative environment versus a competitive one?
Suber: Renaud Laplanche, CEO of Lending Club, and I spoke together at the American Banker Conference in New York. I think these conferences are critical because they help the banks understand that we can work together. The banks can send us borrowers that don’t fit for them. Loans under $35,000 are rarely profitable for these big banks to do. So the banks can send us the borrowers that are $35,000 loan request or lower, and then they can turn around and buy loans from us to hold on their balance sheet. That’s happening today.
EQ: You’re one of the keynote speakers at the conference. What are some things that you’re excited about?
Suber: For me, it’s about a word: EAU. That stands for education, awareness, and understanding. My main mission is to help retail investors, institutions, and people in this country to understand that there is a better way to invest and borrow. Credit cards are a good tool to purchase something, but it’s a terrible place to borrow money.
EQ: From an investor’s standpoint, how have the expectations of rising interest rates affected your business and the yields you can offer?
Suber: We’re prepared for many changes. There will be changes in unemployment, in interest rates, and credit cycles. We’re prepared to iterate for all of these upcoming changes. It’s not a question of will they happen? It’s just a matter of when.
EQ: You mentioned EAU earlier. What are some initiatives at Prosper to educate and inform more people?
Suber: Mobile is a major initiative here. We want to improve the awareness and experience of our borrowers. We’re working to let the retail investors in this country understand that there is a new marketplace for credit where they can now get on average 7% net yield, paid monthly. It’s a new investment asset class.
EQ: Like any investment, there does comes risk. Not all loans or borrowers are the same. How do you help investors identify risks on these investments?
Suber: We’re SEC registered, so we publish all of our data and it is all available on our website. You can go to our website to see the gross returns, net returns, and expected defaults. We’re very transparent about our rates, and there’s no hidden fees. We’re really trying to show people the opportunity with all the information and data made public.
EQ: One of the biggest news in the space is that Lending Club filed for its IPO. How do you anticipate that will affect your industry?
Suber: The competition is not between Lending Club and Prosper, or us versus the banks. The competition is about educating the borrowers that there is a better place to borrow. The Lending Club IPO helps the branding and awareness of the marketplace lending industry. So we continue to pray for their successful IPO.
EQ: That would also theoretically improve transparency for everyone involved, from platforms to lenders to borrowers and to investors. Do you feel that is the case?
Suber: I actually think that’s an excellent point. I think our success as an industry is all based on transparency and trust that we provide for the borrowers and investors of the loan.
EQ: Do you have anything else you’d like to add?
Suber: I think this conference is a must-attend for anybody who is related to Wall Street, banking, or Silicon Valley given the explosive growth we’re about to see going forward.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer