Marketplace Lending: Where No One Makes Any Money?

September 28, 2016 | By: Sean Murray

At the Marketplace Lending and Investing conference in NYC, LendAcademy founder and p2p lending expert Peter Renton asked a group of panelists a stunning question, “Why is no one making any money?”

For the sake of context, Renton explained that if banks were basically the most profitable business type on Earth, then how could it be that those companies infringing on their space or partnering up with them weren’t partaking in that.

The question was posed to Noah Breslow of OnDeck and Sam Hodges of Funding Circle, two of the most high profile players in the alternative small business lending industry. Both companies have been operating at a loss despite being in business for quite some time, in the case of OnDeck, almost ten years now.

Breslow took the question in stride, saying that “first you have to look at the unit economics of a loan. If you’re not profitable there, you’re in trouble. You can’t scale your way out of that.” He added that there are indeed competitors that fail on this test alone who won’t likely be around for much longer.

But as to why they personally were still not profitable? He put a lot of emphasis on their continued strategy to expand.

Funding Circle’s Hodges offered a similar explanation, saying that they have spent a lot of resources on expanding into five countries. He also said that “their plan takes them to profitability next year.”

Of course, neither OnDeck nor Funding Circle are as diversified in their product offerings as banks, explaining perhaps why the analogy between bank profitability and their profitability isn’t apples to apples. LoanDepot CEO Anthony Hsieh touched upon this in his presentation earlier in the day when he said that his company acquires an astounding 600,000 leads per month, a record high, but with very low conversions. So many [lenders] are monoline, he said.

Surely that affects the bottom line.

Last modified: September 28, 2016