COLUMN: Marketplace lending in 2018, what’s next?

As businesses begin to head back from the holidays and jump into Q1, it’s important to take a step back and look at what the year ahead has in store.

Across many sectors, 2017 was a turbulent year but resulted in many important conversations. But what does all of this mean for the marketplace lending outlook for 2018? Below are the top four changes and continuations we should all be preparing for this year.

More focus will be placed on business models and profitability

Are marketplace lenders finance companies or tech companies? Or both? How does that impact enterprise value? These are huge questions both private and public markets are struggling with.

I believe marketplace lending as a category is just getting started and has huge potential to change the way lending works which will ultimately drive significant valuations. But the key to long-term success as a category is to demonstrate that the business model works and there are profits to be made. I think hiring and spending will continue to decrease in 2018 and all platforms will focus on what really matters to deliver long-term value.

Platform mergers and shut down will occur as equity investors remain on the sidelines

This year saw five well-known platforms close down or exit at disappointing valuations. New platforms are not being funded.

There isn’t much equity for marketplace lenders at valuations we’re willing to accept and I don’t believe that will change in 2018. I think we’ll see platform mergers that will drive economies of scale and give the combined platform a better chance of long-term success. It’ll be a tough year, but the platforms that are still standing at the end of it will be stronger for it.

Capital will start to look for shorter duration assets

Even with the short-term boost to the economy that the new tax plan is expected to deliver, investors are still concerned about a potential market correction. I think we’ll see capital flow to shorter duration assets and platforms may restructure products to support this shift.

It’s also possible that the rising interest rate environment combined with 2017 performance issues is going to drive marketplace rates up in order to maintain liquidity. This will obviously have a negative impact on profitability but may be unavoidable.

The conversation about diversity will continue

With all the scandals in 2017, the conversation about the need for diversity and inclusive cultures is top of mind. Marketplace lending did not come out unscathed on this front. This may be too aspirational, but I sincerely hope we continue the conversation in 2018. That platform leadership will start to take the lack of diversity in our category and fin-tech as a whole a lot more seriously.

Taking a look at the big picture is an important part of the planning process throughout the year. 2018 will be an important year for marketplace lending and it’s necessary to stay on top of where the industry is heading and the potential impact of other sectors. After all, each quarter will be here before you know it.

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