John W. Gardner is quoted as saying, “History never looks like history when you are living through it.” While perhaps true in many cases, does it apply to the technological impact on traditional lending in the current environment? Whatever we want to call it – peer-to-peer, innovation, FinTech, marketplace or alternative lending – the use of technology is changing and will continue to change the manner in which funds are made available to borrowers. Are we living through this historical transformation even if many do not appreciate the depth and breadth of the changes?

And, how can this transformation remotely be considered historical when total bank lending in the US approaches $9 trillion and the estimated marketplace lending in 2015 was $15bn, projected to be $100bn in 2020 – infinitesimal by comparison?

The historical significance will manifest itself in how evolving technology is used to change the methodology of how credit is extended, the potential expansion of credit opportunities to those who currently are unbanked or underbanked and whether financial regulators are able to effectively adapt to the use of technological change in the marketplace.

While expressing an openness to considering the ramifications of the nascent marketplace industry on institutions they regulate, US regulators are naturally cautious in their approach. Too fast growth of a bank portfolio without the proper capital, policies and procedures in place will be frowned upon. But fast growth in market share by a marketplace lender is often prized by investors – seemingly a business model that is at odds with traditional banking.

Jul-Sep 2016 Issue

Clark Hill