2.13 Concluding remarks

This chapter explains how online lending works, and it outlines the different business models in online lending, namely marketplace lending, balance-sheet lending, and lender-agnostic mar­ketplaces.

Individuals and companies who borrow on online lending platforms are by no means subprime borrowers only. However, platforms underwrite a large proportion of loans to bor­rowers with imperfect credit who use credit to refinance other loans or pay off credit card debt. Institutional investors firmly dominate investing in marketplace loans, which is the reason the sector has rebranded itself from peer-to-peer lending to marketplace lending.

Despite relatively loose regulation, online lenders have the potential to grab signifi­cant market share from traditional credit institutions. Their market share is still insignifi­cant, yet banks need to respond to the emergence of new approaches to underwrite credit in the digital age. Banks may be able to keep up for a while by acquiring promising star­tups, but the knowledge gap between their in-house capabilities and market demands can be fatal. The established financial sector has much to gain from collaborating with inno­vators early on, and banks could co-create the future of credit jointly with customers and entrepreneurs.

NOTES

1. Zopa (2015a) home page, http://www.zopa.com/about, accessed 17 July 2015.

2. Prosper (2015a) home page, https://www.prosper.com/about, accessed 17 July, 2015.

3. Lending Club (2015a) home page, https://www.lendingclub.com, accessed 17 July 2015.

4.

5. Moldow, Charles (2014) “A Trillion Dollar Market By the People, For the People” (Foundation Capital, 2014), http://www.foundationcapital.com/downloads/FoundationCap_Market placeLendingWhitepaper.pdf.

6. Gordon Mills, Karen and McCarthy, Brayden (2014) “The State of Small Business Lending: Credit Access during the Recovery and How Technology May Change the Game” (Harvard Business School Working Paper, 22 July 2014), http://www.hbs.edu/faculty/Publication%20Files/15-004_ 09b1bf8b-eb2a- 4e63-9c4e- 0374f770856f.pdf.

7. Ibid.

8. Biz2Credit (2014) “Lending Index October 2014,” http://www.biz2credit.com/small-business- lending-index.

9. LendingClub (2014) “Prospectus for Member Payment Dependent Notes” (22 August 2014), https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20140822.pdf&type= docs

10. Manbeck, Peter; Hu, Samuel (2014) “The Regulation of Marketplace Lending: A Summary of the Principal Issues” (Chapman and Cutler LLP White Paper, April 2014), http://www.aba.com/Tools/ Offers/Documents/Chapman_Regulation_of_Marketplace_Lending_0414.pdf.

11. Fink, Ronald (2014) “Online lenders and the evolution of banking,” (Crain's New York Business, 27 April 2014) http://www.crainsnewyork.com/article/20140427/FINANCE/140429884/online- lenders- and- the- evolution- of- banking.

12. Buford, John and Yu, Heather and Lua, Eng Keong (2009) P2P Networking and Applications (Burlington: Elsevier).

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15. https://intl.alipay.com/index.htm.

16. Cheng, Allen (2014) “Yu'e Bao Wow! How Alibaba Is Reshaping Chinese Finance,” Insti­tutional Investor, 29 May 2014, http://www.institutionalinvestor.com/Article/3346365/Investors- Sovereign-Wealth-Funds/Yue-Bao-Wow-How-Alibaba-Is-Reshaping-Chinese-Finance.html, date accessed 29 March 2015.

17. https://www.apple.com/apple-pay/.

18. Chao, Georgia T. (2012) “Organizational Socialization: Background, Basics, and a Blueprint for Adjustment at Work,” in Kozlowski, Steve (editor) The Oxford Handbook of Organizational Psy­chology, Volume 1 (Oxford: Oxford University Press).

19. Federal Reserve Bank of New York (2014), “Key Findings of the Small Business Credit Sur­vey, Q4/2013,” http://www.newyorkfed.org/smallbusiness/Fall2013/pdf/summary-of-key-findings- 2014.pdf.

20. Cunningham, Simon (2015a) “Wells Fargo Personal Loan? Lending Club Has Better Rates” (Lend­ing Memo, 14 February 2014), http://www.lendingmemo.com/wells-fargo-personal-loan/, date accessed 27 March 2015.

21. Lending Club, adapted from Cunningham, Simon (2015a) “Wells Fargo Personal Loan? Lending Club Has Better Rates” (Lending Memo, 14 February 2014), http://www.lendingmemo.com/wells- fargo-personal-loan/, date accessed 27 March 2015.

22. Several P2P Platforms in the U.S., adapted from Cunningham, Simon (2015a) “Ditch the Credit Card and Get a Lending Club Loan: 5 Reasons” (Lending Memo, 13 January 2014), http://www. lendingmemo.com/credit-cards-vs-lending-club/, date accessed 27 March 2015.

23. Several credit cards in the U.S., adapted from Cunningham, Simon (2015a) “Ditch the Credit Card and Get a Lending Club Loan: 5 Reasons” (Lending Memo, 13 January 2014), http://www. lendingmemo.com/credit-cards-vs-lending-club/, date accessed 27 March 2015.

24. Cunningham, Simon (2015a) “Ditch the Credit Card and Get a Lending Club Loan: 5 Reasons” (Lending Memo, 13 January 2014), http://www.lendingmemo.com/credit-cards-vs-lending-club/, date accessed 27 March 2015.

25. Biz2Credit (2014a) “Biz2Credit's Analysis of Bank Failures from 2009 to 2014 Exposes a ‘Credit Desert' in the South-Eastern U.S. and the Rise of Alternative Lending,” http://www.biz2credit.com/research-reports/analysis-bank-failures-2009-2014-identifies-credit- desert, date accessed 15 November 2014.

26. Bradley, Anthony (2014) “Debt Crowdfunding Holds Much Promise,” Gartner Research, http://blogs.gartner.com/anthony_bradley/2014/10/22/debt-crowdfunding-holds-much-promise/, date accessed 25 May 2015.

27. Cunningham, Simon (2014) “The State of Retail Investing in Peer to Peer Lending,” http:// www.lendingmemo.com/grow-p2p-lending-retail-investor-community/, date accessed 17 Septem­ber 2015.

28. http://www.risk.net/risk-magazine/feature/2372612/hedge-funds-securitisation-and-leverage- change-p2p-game.

29. Lending Club (2015a) https://www.lendingclub.com/info/download-data.action.

30. Devasabai, Kris (2014) “Hedge funds, securitisation and leverage change P2P game” (Risk.net, 28 October 2014), http://www.risk.net/print_article/risk-magazine/feature/2372612/hedge-funds- securitisation-and-leverage-change-p2p-game.

31. Ibid.

32. Devasabai, Kris (2014) “Hedge funds, securitisation and leverage change P2P game” (Risk.net, 28 October 2014), http://www.risk.net/print_article/risk-magazine/feature/2372612/hedge-funds- securitisation-and-leverage-change-p2p-game.

33. Manbeck, Peter; Hu, Samuel (2014) “The Regulation of Marketplace Lending: A Summary of the Principal Issues” (Chapman and Cutler LLP White Paper, April 2014), http://www.aba.com/ Tools/Offers/Documents/Chapman_Regulation_of_Marketplace_Lending_0414.pdf.

34. Ibid.

35. Moldow, Charles (2014) “A Trillion Dollar Market By the People, For the People” (Foundation Capital, 2014), http://www.foundationcapital.com/downloads/FoundationCap_Market placeLendingWhitepaper.pdf.

36. World Bank (2015a) “World Development Indicators,” http://data.worldbank.org/data-catalog/ world-development-indicators, date accessed 27 March 2015.

37. IMF (2015a) “World Economic Outlook Update January 2015,” http://www.imf.org/ external/pubs/ft/weo/2015/update/01/index.htm, date accessed 27 March 2015.

38. World Bank (2015a) “Domestic credit provided by financial sector (% of GDP),” http://data. worldbank.org/indicator/FS.AST.DOMS.GD.ZS, date accessed 27 March 2015.

39. Agar, Jon (2013) Constant Touch: A Global History of the Mobile Phone (London: Icon Books).

40. Ismail, Salim (2014) Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it) (New York: Diversion Books).