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With so many new actors appearing on the lending stage, there have been some claims that the market is becoming oversaturated. UK firms LandBay and Zopa, have seen lowered demand and a decrease in originations. Both Noblanc and Ullmo disagree that this is the case. The market, says
Noblanc, still has plenty of room to manoeuvre and consolidate. Traditional players, more used to weathering the peaks and troughs of market instability, are better equipped to handle fluctuation. “We can only foresee a strategy of ‘trenches and bunkers’ from traditional actors,” says Ullmo. “[They are] waiting for a return of the market. A market crisis would wipe out actors not prepared.”
“One of the main competitive response coming from traditional credit actors,” adds Noblanc, “consists in building partnerships with crowdfunding platforms in order to allocate funds that haven’t been granted to their own customers. [These arrive] as middle or short term loans or additional offers to crowdfunding platform customers.”
The man with the clipboard
It’s not just FinTechs that banks and traditional players must watch for. Regulation has become a dirty word these days, and it seems that the watchdogs are gunning hard for the lending business. The UK’s Financial Conduct Authority published a stern review into the sector in December 2016, and has taken measures to tighten belts and clamp down on risky strategies. To Ullmo, this is just part and parcel of the industry: “We truly believe it is part of daily business and is an intentional push from the authorities for better control and customer information.
Cassiopae, he adds, is always pushing for better conformance processes, documentation and accurate info. Some UK lenders have “lost some of their skills” in that department, he reveals. Partnering with a firm like Cassiopae is a solution to the issues they face. Noblanc points to a similar regulatory investigation by France’s AMF watchdog: “We see only two means to reduce irregularities: pedagogy and control. A leaflet released in 2014 by ACPR and AMF has already been updated in May 2017 to inform people about the new crowdfunding legal framework.”
Lend of the free Things are changing in the US, too. The Consumer Financial
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Protection Bureau (CFPB) has been planning regulations on marketplace lenders, such as Lending Club and OnDeck. Its rulings could be released as soon as the end of 2017. Signs have appeared in the US that the country is investigating alternative lending regulations, and that lenders have been adjusting to prepare for that change. Some of the alternative crowd resorted to forming consortia in 2016, with the Marketplace Lending Association featuring members like Prosper and Avant.
When regulation does hit the US, small businesses will be an area struck by the ripples. According to the US Small Business Administration the sector represents 99 per cent of US companies and 54 per cent of total sales. All these firms need funding to grow. According to research from Business Insider, alternative lending firms in the US provided more than $5 billion for small businesses in 2016, a 4.3 per cent share of the market.
Where is the industry headed, then? For Noblanc, the hot topic is the potential market entry of GAFA – Google, Amazon, Facebook and Apple. Amazon Loans extends short-term credit to small and micro business selling on its marketplace. The retailer has reams of data on how its sellers are performing, which means it can choose borrowers as it pleases. The possibilities are there for the other digital giants to make a lending play, too. It’s not too far-fetched to imagine Apple lending to its app developers or Google pumping cash into independent YouTube creators. For now, patchy regulation for digital bigwigs is keeping them at bay.
Ullmo takes a different track: “Leasing and lending is a long-term business. Therefore, we do not expect major changes in the markets, except those initiated by the central banks. However, this does not mean that significant trends do not happen.” The end of proprietary COBOL-based software is a
future worth looking forward to, as studies report more than 43 per cent of core banking systems are written in the ancient language. Blockchain, too, will have its role to play in the lending industry, adds Ullmo. Like most sectors in banking, it seems that lenders and FinTechs could butt heads for some time, while regulators loom overhead. Whether that looming is menacing or protective remains to be seen.
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