The peer-to-peer (commonly abbreviated p2p) marketplace lending industry has become a booming playground for businesses to borrow money where banks have become too slow, overregulated, and cumbersome to deal with. With so much happening so fast in marketplace lending, industry leaders have a handful of lessons they need to keep in mind in light of recent events that have cast a poor light on the industry over the past few weeks.
1. Don’t get greedy.
If the recent woes with LendingClub have any lessons for p2p and marketplace lending companies as a whole, it is that companies need to be careful and operate within legal, ethical, and common-sense parameters. A well-run marketplace lender WILL grow in this environment. There is no real need to push to avenues that will hurt the business for short-term gain.
2. Be proactive in fighting fraud.
Probably one of the bigger mistakes in the debt buying world, p2p, and marketplace
Lenders need not just to set good industry standards (which LendingClub did not follow) but also be open, transparent, and proactive in fighting against companies actively committing fraudulent activity – even if they are not members of the newly created Marketplace Lending Association. The MLA should continue to set the standards for the industry, and any lender who is not a member should be called into question. Also, membership within the MLA should be based on corporate standards rather than revenue – small companies should have an incentive to join, rather than it be a club for the large companies to squeeze out competition.
3. Work with government, but stand your ground.
Standing ground against a regulation-happy federal government and banking system is probably the hardest fight. Institutional and large debt buyers have given in to government oversight and overreach in the old debt-buying market which lead to good companies leaving the debt space or going out of business altogether. P2p and Marketplace lenders need to help ensure that their house is in order and that they are taking care of their own business, and the federal and state governments do not need to set regulations.
Person-to-person and Marketplace lending, even when banks participate more and more, is going to be a massive industry in a short period of time. Bad players will be shaken out, and a few others will come in. If the industry wants to survive and establish maximum profitability, it needs to take steps and learn lessons from other financial sectors that have come under greater oversight due to poor business practices.
Jeffery Hartman, Fitzgerald Advisors,LLC
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