[Read On… Free White Paper Download at the Bottom]
Born into a digital world, having digital processes and efficiencies built into its DNA, marketplace lenders (or peer-to-peer lenders) have disrupted the traditional financial services with online, easy-to-use platforms that connect borrowers to investors. But, could new complexity and risk challenge and complicate their place in the market?
The Challenges of Rapid Growth
The market for loans from marketplace lending platforms is growing rapidly due to little to no fraud activity, default levels lower than industry standards, and few enforcement issues.
By building loan origination and transfer of asset ownership practices on today’s little-to-no regulations, marketplace lenders could conceivably face future risk, with the potential of disrupting their flow of credit, raising their rates, or worse, threatening their ability to provide loans.
In a recent article in American Banker titled “Marketplace Lenders Are a Systemic Risk,” Todd Baker, managing principal at Broadmoor Consulting, LLC argues that, “…while MPLs [marketplace lenders] have introduced valuable innovation into financial services, they carry a fundamental flaw that threatens to undermine their business, destabilize financial markets and cause real economic hardship. The bigger the MPLs get before the inevitable squeeze, the worse the consequences will be for all of us.”
The Solution: Digital Asset Management
With the rise of complexity and risk within the industry, the need for ironclad digital contract management practices that provide unique authoritative copies of the assets and certainty will be a necessity.
As Baker puts it, “… all it will take is a credit issue or a serious legal or regulatory problem to shift investor sentiment away from MPL investments and toward other high-yield investments, and there is plenty of reason to think credit and regulatory issues are lurking in the background.”
Smart marketplace lenders are getting ahead of the curve by adopting more robust digital asset management processes and systems, especially as post-signature lifecycle management becomes more prevalent.
With growth projection unlike any other industry, we believe several factors will come into play that will require marketplace lenders to have a robust and certifiable digital asset management processes, ensuring that the ownership of the loan is unambiguous. These trends include:
- Growth and New Risks
- Traditional Lender Participation
- New Post-Signature Uses and Complications
- Increased Scrutiny by U.S. Regulators Resulting in New Regulations
Download our New, Free White Paper
With new regulations on the horizon, now is the time for marketplace lenders to build certainty in your digital asset management practices. Download our newly released white paper, “Building Future Certainty in Asset Management for Marketplace Lenders,” to read an in-depth outline of all of the changes that are coming to the industry and how you can quickly respond to them.