Monday’s news that Renaud Laplanche was stepping down as Lending Club’s CEO sent shockwaves throughout the industry – particularly coming hard on the heels of industry layoffs and disappointing earnings announcements.
Since Monday morning, the alarmists have been out in full force, nonsensically declaring the end of marketplace finance and FinTech in general. But what some may consider the end, I view as a new beginning.
“What the caterpillar calls the end of the world, the master calls a butterfly.” – Richard Bach
Cynics, I have a newsflash for you. When the automobile industry experienced turbulence, people didn’t rush to trade back their cars for horse-drawn buggies. When the Internet bubble burst in 2000, people did not revert to fax machines. Likewise, we are not going to return to antiquated lending models. Millennials are not going to suddenly start liking banks more than root canals. People are not going to stop looking online for investment ideas. They are not going to resume waiting around for some stock jock to call and pitch them on 100 shares of IBM. The FinTech train has long left the station and there is no turning back.
The earth doesn’t spin in reverse. What we are experiencing now is the natural evolution of an industry. In order to evolve, we must err. Stumbling is how we learn and grow. This is nothing new. Mankind has been advancing in this manner for centuries.
Personally, when I detect fear and pessimism in markets, I smell opportunity. Opportunity for better business models to prevail. Opportunity for innovation to flourish. And opportunity for money to be made. Today is no exception.
Last week I had the honor of speaking at Crowdfund Beat’s 3rd Annual Crowdfunding Conference at the National Press Club in Washington, DC. During the presentation – which focused on the catalyst that would enable crowdfinance to scale – I explained that the present turmoil in FinTech was nothing more than a nascent industry figuring out new ways to scale – as it can no longer depend on fickle hedge fund investors.
Brian Dally, CEO of GROUNDFLOOR, the first online real estate lending platform catering to smaller retail investors, pins the recent industry tumult on the dominance, allure and sugar high of the over-reliance on institutional capital, and believes that the solution lies in an industry-wide cultivation of retail capital. According to Dally, “Inherent to retail capital is certain structural safeguards for investors, platforms and borrowers alike that our industry would do well to acknowledge and model going forward.”
I couldn’t agree more.
In fact, many in the industry are also now starting to realize that the scalability of marketplace lending will ultimately depend upon the retail investor and his appetite for tax-deferred yield. The very same discovery was made decades earlier by a young mutual fund industry which was able to scale into a multi-trillion dollar market simply by aligning with the novel IRA and 401k.
A similar growth opportunity exists for marketplace lending – if it can figure out a compliant and efficient way to engage the retail investor and penetrate the $14 trillion retail retirement market. This will require a modern self-directed retirement product technologically capable of seamlessly integrating with online platforms; regulatory support; new distribution partners and solutions; and a commitment to investor and financial advisor education.
Fortunately, as I’ve been pointing out for quite some time, all of these elements are occurring in confluence.
Last month’s official launch of IRA Services’ ISCP™ technology – the first highly scalable, bank-grade secure, cloud-based retirement investment solution – was an industry game-changer. Some of the most respected and recognized finance platforms have already begun integrating the ISCP™ technology.
The groundbreaking new Worthy app has finally arrived to help the masses more realistically and achievably prepare for retirement. I believe that Worthy will not only transform America’s retirement infrastructure, it will ultimately help redefine investment product distribution. (See: https://daraalbright.com/2015/06/03/the-road-to-crow-centric-retail-alternatives-and-the-future-of-financial-products/).
Finally, as was mentioned in our recently released white paper, a more progressive regulatory environment is materializing that will broaden access to alternative products.
I launched the FinFair Conference last year specifically to highlight these regulatory shifts and showcase these innovations in retail financial products. Given the acceleration of innovation and the implementation of “retail-friendly” regs, I expect our next conference will be even more leading-edge.
Understanding how all of these dynamics will impact marketplace lending was perhaps best expressed in the final paragraph of the white paper which we released last month – prior to all of these industry jarring announcements.
“Old School financial services firms and even modern FinTech platforms will need to find new ways to employ technology and regulations in order to accommodate an increasingly influential retail clientele. New leaders will rise. Some unexpected frontrunners will fall. The businesses that will best be able to oblige the retail customer, adapt to these regulatory changes, and penetrate retail’s $14+ trillion retirement capital will prevail. But of all of the victors in this new democratized investing landscape, by far the greatest winners of all will be the American people.”
If this is indeed the end of marketplace lending, I would surmise that it is the rebirth of true Peer-to-Peer investing.