Throughout this book, we have collected several puzzle pieces that describe the emerging FinTech sector, with a focus on marketplace lending.
We have also examined how banks and the formal financial sector “do” lending. We have mapped a vision for the Hybrid Financial Sector and outlined the winning ideas it can champion and build upon.
We feel that the lowest hanging fruit for collaboration between banks and marketplace lending platforms is providing better analytics to investors in marketplace loans. Platforms clearly need this, and banks have all the experience necessary to provide it. Such a collaboration could mark the starting point for the future of credit, which is the reason we discuss it in more detail in its own chapter.First a note of caution: what we describe in this chapter is by no means supposed to be a prescription for marketplace lenders on how to run their businesses. They may have different goals for their companies, and they may have a different opinion about analytics and risk management. However, if their aim is to take a bigger bite of the credit sector and reinvent lending on a larger scale, platforms gain a lot from focusing on analytics for their investors. When they do this, they will have to integrate some of the banking analytics we examined in Part Two of this book. Adopting a banking risk-management approach to marketplace lending may sound simpler than it actually is. This is hardly about advocating FinTech companies to be more like banks, which will be impossible for a number of reasons. The power of FinTech is that it has little in common with the established practices of banks, which gives it the freedom from legacy processes and regulation to forge ahead into uncharted financial territory. Nevertheless, the main product—loans—of marketplace lenders and banks is very similar. Therefore, they should apply the same analytics.
At the same time, it makes sense to point out that the business cycle of established banks may be on the decline, as it has always been for large monopolists who have had their run for several centuries.
Throughout history, business constantly changes, and it would be preposterous to believe that banking is immune to the passage of time. Individual brands may hardly survive another hundred years. On the other hand, credit as a product has had amazing staying power through the ages: it is easily thousands of years old. Since the dawn of credit, analytics and derivative instruments have constantly evolved. Banks' trading books, powered by derivatives trades, are to blame for the great losses of recent years. Nevertheless, dismissing banks as dinosaurs on the way out would be throwing out the baby with the bath water. Banks have much experience that comes from being in business for hundreds of years. FinTech startups can profit greatly from using the banks' distribution channels, their brands, and their existing customer networks to speed up innovation in the financial sector. IfFinTech companies want to be true game changers, it will be in their interest to find ways of using the existing infrastructure in a smarter way, instead of trying to reinvent the wheel while fighting a war of attrition. The result will be a hybrid financial sector, in which FinTech companies and banks complement each other. The first step towards this will be finding the common ground between the two and bridging gaps between them. Analytics could be this bridge.There are many ways to do analytics, and we can hardly claim that we have found the cure- all for the ills of the financial sector. In this chapter, we propose one approach for marketplace lenders to improve their services, take the sector to the next step, and lay the foundation of the hybrid financial sector. At the same time, banks should be excited to participate in this initiative. Sharing their knowledge and experience will align them organically with the FinTech sector, and it will allow them to define the future of credit, just as a mentor may shape the direction of a talented and promising but inexperienced student.
17.1
More on the topic Throughout this book, we have collected several puzzle pieces that describe the emerging FinTech sector, with a focus on marketplace lending.:
- Instead of exclusively focusing on either the established banking sector or emerging lending platforms, when advocating a strategy to move into the future, we propose taking a different approach.
- One FinTech and the Online Lending Landscape—Where Are We Now?
- WHY DOES THIS BOOK FOCUS ON ONLINE LENDING?
- THE RESPONSE OF BANKS TO ONLINE LENDING
- WHAT IS FINTECH?
- THE BUSINESS MODEL OF MARKETPLACE LENDING PLATFORMS
- Whenever a new FinTech service launches, the obvious first thing to do is to compare the new offering to those of the established financial sector.
- WHO ARE INVESTORS IN MARKETPLACE LOAMS?
- GOOD IDEAS IN MARKETPLACE LENDING THAT MIGHT BE HERE TO STAY
- Innovation the mesin fintech