The U.S. Treasury Department will open a study on the lending practices within the fast-growing online marketplace sector, the agency announced yesterday (July 16).
Through a Request for Information (RFI) filed with the Federal Register, the Treasury will seek to gain knowledge surrounding the risks associated with the growing number of online lending platforms, while also examining the benefits provided by their services. These new companies – which offer a sought-after alternative to traditional bank lending – utilize online platforms to match borrowers with investors for peer-to-peer lending.
“In light of the growth of this segment, Treasury is interested in learning more about the business models and product offerings of online marketplace lenders; the potential for online marketplace lending to expand access to credit to historically underserved market segments; and how the financial regulatory framework should evolve to support the safe growth of this industry,” Antonio Weiss, counselor to the Secretary at the U.S. Treasury Department, said in a Treasury Note blog post.
The department cites research from Morgan Stanley, which found that in less than 10 years the marketplace lending sector has grown to an estimated $12 billion in loan originations as of last year.
Not only has this growth caught the attention of the Treasury Department — who plans to host round table discussions this summer to advance the dialogue about the marketplace lending industry among key stakeholders and participants — but it has also spurred interest from big banks.
Alternative finance player Lending Club, which is seen as a pioneer in providing another source of working capital and financial products to SMEs that cannot otherwise access them through mainstream financial institutions, is now exploring partnerships with the same mainstream banks it was established as an alternative to.
“We work a lot with banks now, and CRA [the Community Reinvestment Act] often comes in conversation about something banks would like us to do more of,” Lending Club founder Renaud Laplanche told Quartz last month, explaining how mainstream banks are reaching out to alt-lenders to fulfill requirements of the CRA to boost lending to underserved community members.
“They are having trouble reaching these populations because they don’t necessarily have branches in particular areas, so having an online platform is a way to reach them,” Laplanche added.
Despite the ways in which the industry continues to evolve, Lending Club’s Q1 earnings release in May shows it is a good time to be in the P2P lending business.
During Q1 2015, the San Francisco-based firm clocked in with $81.2 million in revenue, reported the Associated Press, beating the average analyst prediction of $74.7 million. And Lending Club is getting behind more loans as consumers are catching on to the P2P option. In the first 90 days of 2014, Lending Club originated $791 million in loans – as compared to Q1 2015, when the firm originated $1.64 billion in loans.
The Treasury Department’s “Public Input on Expanding Access to Credit through Online Marketplace Lending” RFI was posted today in the Federal Register and the public will be able to begin submitting comments on July 20.
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