From CB Insights, Jan. 4:
As alternative lending matures into what
some in the industry are calling "alternative lending 2.0," we look at
the sector's evolution since 2005.
UK-based lender Zopa pioneered peer-to-peer (P2P) lending in 2005, quickly followed by US contenders Prosper Marketplace and LendingClub in
2006. These companies allowed borrowers to cut out financial
institutions, while promising transparency, efficiency, and lower costs.
By December 2014, venture-backed alternative lenders OnDeck Capital
and Lending Club had gone public on the NYSE. By 2015, equity funding
to the alternative lending industry had hit an all-time high, with
private companies including SoFi, Avant, and Kabbage receiving a collective $6.3B from investors.
In the following two years, however, momentum in the space slowed:
2017 saw the highest number of acquisitions, mergers, and shutdowns in
the sector to date, while a formal crackdown in China aimed to reduce
the thousands of players operating in the country’s sector.
So where does that leave the state of alternative lending today?
In this post, we analyze how regulation, consolidation, and exits
have impacted the alternative lending sector — and what to expect moving
forward.
Regulation
As the relatively unregulated
alternative lending industry continues to grow in loan volume,
regulators are starting to pay attention. Below, we look at of some of
the major regulatory moves to date across major markets.
United States
The US has taken a largely reactive
regulatory approach to alternative lending, attempting to apply existing
rules and regulations to the emerging field.
Rather than a single rule-making body
tasked with monitoring and regulating the alternative lending space,
regulation comes through a collection of federal agencies.
Consumer Regulations
The Consumer Financial Protection
Bureau (CFPB) is the federal agency in charge of regulation for all
consumer-based financial products.
In October 2017, the CFPB finalized a
rule aimed at payday lenders, requiring them to determine upfront
whether consumers can afford to repay loans via credit checks on CFPB
registered systems. This rule covered all loans that require consumers
to repay all or most of the debt at once, including payday loans, auto
title loans, deposit advance products, and longer-term loans with
balloon payments.
While these restrictions are unlikely to affect any major alternative
lending company operating now, they prevent startups from creating
payday lending companies.
Fintech Innovation
Congressman Patrick McHenry proposed
sandbox regulation in September 2016 as part of a new bill, the
Financial Services Innovation Act of 2016 (H.R. 6118.), which still
remains in the House.
If passed, fintech companies would be
required to demonstrate to regulatory agencies that their innovations
serve the public interest, improve access to financial products and
services, and do not impose undue risk to consumers or the financial
system....MUCH MORE