It surprises me to write it, but it’d be accurate to call Lendit USA – the world’s largest online lending conference, which took place in San Francisco this week – a relatively sober affair.
Peter Renton, the founder of Lendit, set the tone from the start, remarking that “the easy money is no longer there”. Renaud LaPlanche, founder and chief executive of Lending Club (the first US listed online lender, and the biggest), followed in the same vein, citing where he and other lenders must focus their attentions in the year to come. In his view, an economic downturn is due, making prudent growth, operating efficiency and business continuity top priority.
It was hardly the meat (and hype) of usual industry conferences. Where were the prognoses of explosive growth and soaring trajectories we have come to expect?
Headwinds on the horizon
Instead, “headwinds” was a well-used word this week, with several specifically identified.
First, venture capital funding is declining. It seems that the serious VCs have made their plays and the surrounding hype has faded. A climate of consolidation is approaching and VCs may watch to see which lenders survive – and which burn through capital – before committing further rounds.
Second, fears of a wider economic downturn are suppressing US banks’ appetite to lend and marketplace lenders are considering their options. Do they take the opportunity this retrenchment creates to lend where others won’t; or do they follow suit, watching the industry’s first significant storm roll out from the safety of the sidelines?
Regulation – or rather the lack of clarity on it – is a subject that’s threatening to consume as many hours’ conversation about marketplace lending in the US as it has done here in the UK.
The US marketplace lending sector has grown phenomenally quickly (almost matching China for adoption proportionally) but has done so in an unenviable regulatory environment. It is a problem of unquestionable complexity. And the federal system threatens to stifle the creation of a stable, all-encompassing framework that protects this new industry and its customers, while providing room for innovation and natural evolution.
Against this gloomy backdrop, the new Marketplace Lending Association (MLA) in the US was duly welcomed. A selective trade body established to champion regulation that’s based on “sound public policy”, the MLA will need to fight hard against some of the punitive measures tabled.
It ought to be noted, of course, that the MLA is closely modelled on the UK’s Peer-to-Peer Finance Association (P2PFA), a group (of which LendInvest is a member) that has campaigned for regulation since 2011 and so helped to shape marketplace lending’s position in the UK financial system.
Harbour in the storm
The relative calm of the British contingent at the conference, in the face of impending economic challenges, made me wonder if perhaps the MLA isn’t the only thing the US should be appropriating from the UK.
Take, for instance, our approach to regulation. The path to obtaining UK regulation has been a long and complex one, but it’s one that at least is in motion. The P2PFA has lobbied the FCA and Treasury for several years for fair, proportionate and national rules that are in place before our sector goes truly mainstream.
It is too late for US marketplace lenders to implement regulation before achieving scale, but it’s the right time for them to get behind the MLA’s demands for common sense, countrywide supervision. To stem systemic risk meaningfully, US marketplace lending should be regulated on a national basis, not settling for an overly complex federal regime.
The US marketplace lending market is enormous, almost an ecosystem in itself. It’s so large in fact that, for many US lenders, their world view seems to end at the country’s borders.
Conversely, the UK market can pride itself on its international perspective. Looking beyond borders for inspiration, lessons to learn and cross-collaboration is what makes the European marketplace lending market diversified, buoyant, and arguably more confident of its own survival in the face of economic challenges. Conferences like Lendit London and this year’s Money 20/20 with their multinational delegate lists are reminders of this healthy European view of the global marketplace lending industry.
And so we return to London inspired and motivated by an unequivocally – and refreshingly – frank and realistic exchange of ideas.
If this week’s keynote speakers are right, change is coming in the US marketplace lending market. With interest rates uncertain, funding down, more regulation and less credit appetite, we will certainly watch a shakeout among lenders.
While London lenders may lack the size and scale of their US peers, the UK is, genuinely, nurturing a marketplace lending market that will become the envy of the world.