Letter From the Editor – March/April 2016

In early 2016, a recession seemed inevitable, until it didn’t. Rumors of rising defaults across a variety of marketplace lenders have been defended as falling within model estimates. The stock market’s sudden plunge recovered. And Madden v Midland’s long-term impact is being chalked up as overblown. All is well again, well mostly anyway. Institutional investors have gotten a little spooked and the once insatiable appetite seems to have become just a little bit satiable.

But we’re back, and so is the beast that has come to be known as “marketplace lending.” The FDIC says that term can encompass unsecured consumer loans, debt consolidation loans, auto loans, purchase financing, real estate loans, merchant cash advance, medical patient financing, and small business loans. It can “include any practice of pairing borrowers and lenders through the use of an online platform without a traditional bank intermediary,” they wrote in their Winter 2015 Supervisory Insights report.

In this issue, we examined one piece of marketplace lending that has created many success stories, the merchant cash advance industry. For years, it’s turned hungry 20 somethings into front-page worthy stars. Will that trend continue or has the moment passed? The quality of leads will play a role in who makes it big and who doesn’t, said some of the folks we interviewed. Ironically, while the industry is often considered to be online, the Internet is reportedly becoming a less reliable place to acquire customers because of competition and cost. Having problems with leads? You’re not alone, we’ve learned.

But not everyone is struggling. In March, we published a list of the top 8 alternative small business funders of 2015. The numbers were either reported to us directly or we determined them using publicly available information. In this issue, we’ve got the year-over-year statistics for 18 companies. Some of them might surprise you.

I don’t want to finish off my introduction to this issue with the R-word, but since there were signs of weakness earlier this year, we did ask the wider marketplace lending industry what to expect from the next recession. Everything is at risk, they said, from borrower defaults to institutional backing to regulatory action. Marketplace lending, however big and strong it is now, is not believed to be impervious to market forces. Will the beast prevail? Or is it destined to fail?

–Sean Murray

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.