Preface

In the aftermath of the financial crisis 2007/8, it seemed that the current banking model had failed. After supporting an unprecedented boom in financial markets for the last couple of hundred years, the traditional credit sector was now out of sync with the demands of customers.

While one of us has a strong background in financial risk and profitability analysis (Akkizidis) and the other is an economist who founded several startups (Stagars), it seemed natural to join forces and take a magnifying glass to the brave new FinTech sector that was just emerging at the time. We analyzed the scene in much detail, with a focus on marketplace lending, by exploring its lending business model both structurally and analytically. Would FinTech introduce innovation in the established processes of credit underwriting? How could we apply risk and profitability analysis using financial analytics to the emerging asset class of marketplace loans?

Because we are in close contact with the financial sector that FinTech is trying to disrupt, drawing parallels between the two was a given. It became clear that both sides have much to learn from each other. FinTech companies have yet to catch up with the vast experience of banks in underwriting and managing credit.

In the course of writing, we conducted many interviews with innovators in marketplace lending and those in charge of innovation in banks. Under our eyes, the peer-to-peer lending sector rebranded itself as marketplace lending. We watched the online credit sector mushroom into a multi-billion dollar behemoth with a confidence that would make the most brazen Wall Street honcho blush. At the same time, banks announced partnerships with marketplace lending platforms, institutional investors piled into the asset class, and the odd acquisition of a FinTech startup by a financial institution took place. The structural gap between the new entrant and the incumbent narrowed, but the alliance between the two is still uneasy and at risk of disintegrating should there be any economic turmoil ahead.

Marketplace lenders and banks can do better than that.

There exist clear benefits when the two join forces and evolve the future of credit together. The future is hardly an either/or proposition, and both parties have complementary roles in the emerging hybrid financial sector. No single tech company is likely to dominate, just as no conglomerate of banks will squash all marketplace lenders and prevail as the ringleader. The future of credit is hybrid, but how to get there is far from obvious. In this book, we have had much fun examining ways for innovators in marketplace lending and banks to co-create the future of credit together. When they succeed, the result is a stronger financial sector, one that is more transparent and more resilient.

Ioannis Akkizidis and Manuel Stagars Zurich and Singapore