FinTech

FinTech Lenders Form Marketplace Lending Association

FinTech lending leaders Lending Club, Prosper, and Funding Circle are coming together to form the Marketplace Lending Association (MLA) in an effort to help legitimize the sector. According to a press release the newly formed non-profit organization will work to promote responsible business practices and sound public policies that will benefit both borrowers and investors. The joint effort touts the transparency and efficiency that marketplace lending offers while also dispelling concerns some may have about such businesses.

Marketplace lending has grown tremendously over the past several years. In fact loan originations have doubled every year since 2010 and Morgan Stanley anticipates that $122 billion in loans will be facilitated by marketplace lenders by 2020. Additionally the sector has seen some moral victories including Lending Club going public in 2014 and recently hitting $16 billion in loans facilitated.

While it may be surprising to see these competitors work together it’s a wise move in terms of setting themselves apart from less reputable lenders. Because of the nature of marketplace lending, including operating on the internet and some arguing that peer-to-peer lending leaves little skin in the game for the companies themselves, the sector at large has had to fight an uphill battle to show that their business is not only legitimate but also beneficial to borrowers and investors. Recently these efforts led to the Small Business Borrowers’ Bill of Rights which both Lending Club and Funding Circle were signatories on.

Just a couple of weeks ago Lending Club CEO Renaud Laplanche sat down with Re/code Decode host Kara Swisher to discuss some of the challenges that his company and other marketplace lenders face in terms of perception. When asked by Swisher about Ezubao, a Chinese P2P lender which was revealed to actually be a Ponzi scheme, Laplanche said, “There’s a misconception that marketplace lending isn’t regulated, like it clearly wasn’t in China. I wouldn’t mind having more oversight.” Similarly, back in the early days of Lending Club, the company actually halted operations for six months while they explained their business model to the Securities and Exchange Commission and figured out how to properly regulate it.

On their website the Marketplace Lending Association highlights a number of topics and issues ranging from fairness and transparency for borrowers to standards for non-accredited investors. Other marketplace lenders who agree to MLA’s Marketplace Lending Operating Standards and meet the membership criteria are also welcomed to join the association. The MLA will be governed by a Board of Directors, which currently consists of one director nominated by each founding member with additional directors being elected based on a vote of the full membership.

Overall this is an important step forward for marketplace lending and FinTech. Efforts like these help educate the public and lawmakers about these emerging business models and prevent the baby from being thrown at with the bathwater, so to speak. It’s definitely encouraging to see these companies coming together to raise the profile of FinTech lending and bring it further into the mainstream.

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