Fast-Growing Peer-To-Peer Lending Market Adds To MBA Careers

The fast-growing marketplace lending industry is expected to open up career opportunity in the alternative finance sector, as crowdfunding platforms seek to expand.

The nascent peer-to-peer lending industry is poised for rapid growth. Its platforms have evolved into marketplaces capable of disrupting big banks by connecting consumers directly with lenders and offering better rates for both.

Lending Club, the US’s biggest P2P lender, recently listed on the New York Stock Exchange and surged to a valuation of $8.5 billion. The US is the biggest market, with $8 billion-plus extended to businesses and individuals, but Netsa, a UK innovation charity, forecasts that the UK market will grow to £4.4 billion this year alone.

Such fast growth is expected to open up career opportunity in the alternative finance sector. While lean in operation, the biggest online lenders have grown to collectively employ thousands of people in just a few years of their existence.

Lending Club, which has raised capital from investors including Morgan Stanley and JPMorgan, has about 400 employees, but is rapidly expanding its workforce and is hiring for dozens of positions in finance, sales and corporate strategy.

Prosper, the second-largest P2P lender in the US with $1.6 billion in loans made through its platform, employs 240 people, according to Aaron Vermut, its chief executive.

“We’re going to keep growing. Prosper Marketplace is looking to add significantly more people to its team in the coming year,” he says, with jobs in corporate development and investor services.

Ayan Mitra, founder and chief executive of CrowdBnk, a structured debt and equity crowdfunding website, says that he has hired heavily from London Business School, of which he is an alumnus.

“Because of my alumni status I had access to [students with] very good skills,” he says. “The network has come in good – people back each other.”

Only £7.4 million in funding has been raised through the CrowdBnk platform so far, but Ayan says that crowdfunding websites will change how the world works. “Alternative finance platforms are here to stay,” he says.

Advocates of the burgeoning industry say that traditional banking is ripe for disruption by innovative start-ups that are able to move more quickly than large lenders.

“Banks have a lot of friction,” says Ceri Williams, business development manager at Ratesetter, a P2P lender that matches consumer loans with investors.

He is speaking at a Cranfield Talks Business event, where crowdfunding pioneers are talking up the industry from London’s Royal Mint Court, once home to Barclays' executive board, serving as a metaphor for changing times in the financial sector.

Banks are full of legacy issues, says Ceri, whose P2P platform has lent more than £335 million to borrowers in the past year. “We can take advantage of the agility we have,” he says.

Funding Circle, another P2P lender, believes it is now a top-five net lender to small businesses, topping many of the largest banks.

The speed with which online platforms can raise capital has attracted the attention of big financial services companies. Some of these groups invest directly through P2P platforms, using algorithms that comb through data to make investment decisions.

Ratesetter uses an affordability algorithm that prices in things like interest rates, unemployment and future projected earnings, which spits out a credit score of 1-13, says Ceri.

Ratesetter relies on bank data to do this and other P2P lenders are teaming up with the institutions that many of them set out to disrupt. This includes Santander UK, Goldman Sachs, Société Générale and the Royal Bank of Scotland.

Such tie-ups illustrate how marketplace lending has evolved into an industry that some analysts believe will eventually be worth a large slice of the global lending market – currently at $3.2 trillion, according to Foundation Capital, a venture capital firm.

But to critics, marketplace lenders and in particular equity crowdfunding platforms carry a high degree of risk, with high expected failure rates.

The Financial Conduct Authority, the UK’s regulator, has introduced new rules that govern crowdfunding, which some people think has the potential to deter investors.

Goncalo de Vasconcelos, co-founder and CEO of SyndicateRoom, who earned an MBA at Cambridge Judge Business School, says that his crowdfunding platform places great importance on sustainability.

“[We are] making sure investors actually have a chance of getting a better return over a longer-term, otherwise what’s the point?” he says.

But most crowdfunding executives say regulation has not been much of a hindrance to their companies’ growth.

Ceri at Ratesetter says the elephant in the room is the fear that a slew of investments might go badly wrong. Such scandals could take the whole industry down, he says.

Still, the biggest marketplace lending growth has been priced in for the pure P2P lenders, as opposed to equity crowdfunding platforms, which typically raise capital for early-stage businesses.

But crowdfunding platforms have moved beyond start-ups and are working with larger corporate players, according to Kieran Garvey, business development manager at Crowdcube, the world’s first equity crowdfunding platform.

“That’s the really exciting area that we’re going to see a lot of over the coming year and beyond,” he says.

Kieran, a graduate of Imperial College, adds that Crowdcube, which last year raised £36.5 million for 104 businesses, is looking to move further into the debt market.

The platform already offers so-called mini bonds, a service which companies including department store chain John Lewis and Hotel Chocolat, the British confectionary retailer, have utilized. “It [debt] is always going to be far bigger than equity,” says Kieran.

Ayan believes that CrowdBnk will disrupt the segment of this market that is not technology-enabled. “There’s plenty of mid-cap, micro-cap, boutiques, brokers [and] bankers out there that haven’t got the ability to scale up,” he says.

With equities, he concedes, you’re often looking for a “unicorn”. “People want income generation.”

Comments.

John Curry

Wednesday 18th February 2015, 22.03 (Europe/Paris)

Actually I am pretty sure that 2015 will be the year of p2p. but I would even say that it will be the year of p2p lending with cryptocurrencies. There are so many businesses that exist around bitcoin for example. There are already peer-to-peer lending platforms like www.bitbond.com which enable cross-border lending. We can lend money internationally easily which was very difficult for individuals before bitcoin existed. Bitbond also allows you to support projects in distant locations and earn higher interest rates than what your bank pays.

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