Once banks master financial technology, the marketplace lending industry is in deep trouble, Jean-Cedric Jollant believes. And the bad news is that’s starting to happen.
Mr. Jollant is senior product officer at Misys, a financial service software company with more than 2,000 customers worldwide. He spoke about FusionBanking CrowdLending, a fully integrated, white-label platform enabling banks to bring lenders together with borrowers of all sizes through the digitalizing of traditional lending. It allows banks to maintain their client base by finding products for customers they used to turn away.
That’s one reason why marketplace lenders need to be worried (more coming later). But they have some time as not all banks have embraced the new digital world, Mr. Jollant explained. There is a clear threshold between banks making the move from being a black or white, we-want-you-or-we-don’t-type of lender and those using new technology to reach those once ignored.
“The (fintech) challengers made the move by trying to build a hybrid model where they may not own 100 per cent, 50 per cent or even zero per cent of a loan, but the need the technology to do that,” Mr. Jollant said. “They need new underwriting material and servicing software which they don’t necessarily have.”
Misys provides the software so banks can become the marketplace, Mr. Jollant said. As more realize the benefits of that choice the marketplace lending industry as we know it will drastically change.
“We think that (the notion of) competing with banks is nonsense,” Mr. Jollant said.
Should (when?) regulation accelerate and platforms have to endure those costs, they will struggle, especially those needing to resort to external funding to maintain the loan pipeline, Mr. Jollant believes.
“That’s sustainable only to the extent where VCs are willing to spend the money. Basically you are not teaching a man to fish you are giving him a fish and that is not sustainable.”
Mr. Jollant believes the venture capital industry will soon begin to sour on marketplace lenders, possibly as soon as later this summer. Those surviving that will then have to withstand the next downturn, which many models have yet to be tested by.
“Once VCs realize there is no money to be made here and banks can compete with lower rates…”
