The immediacy and accessibility of information in today’s digital age makes the internet uniquely suited as a medium for greater transparency.
Companies that do the bulk of their business online are in many ways more accessible than traditional brick-and-mortar establishments, and that’s particularly true when it comes to marketplace lending.
Marketplace lending, also known as peer-to-peer lending, refers to the practice of matching borrowers and investors through online platforms. These transactions can be based on a number of consumer- or industry-driven needs—anything from student loans to commercial real estate deals. Taking advantage of advanced technology, data-driven algorithms and innovative credit models, these platforms may frequently better serve their client base. They have broad options in terms of asset class and geography, quick response times and lower overhead costs, which can translate to an overall better value for both borrower and investor.
But there’s another important aspect to the growth of marketplace lending: the significant impact of the online platform on transparency.
Long gone are the days of carbon-paper contracts and stale manila files hidden under lock and key. In today’s digitally-driven world, people are looking for immediate access to the information they need to make a business decision, and that requires greater transparency and enhanced access to information that is possible only online.
Listed below are three key reasons why marketplace lending might offer better transparency for both borrowers and investors:
Enhanced access to information
Digital technologies provide greater transparency and actionable intelligence to the marketplace, allowing investors to better understand loan performance and, in many cases, to research potential loan transactions directly and thoroughly from the convenience of their desktop or mobile device.
This can include not only information unique to a prospective borrower, but market information relevant to a particular investment. Investors can study both pool and individual loan performance and quickly identify the strengths and weaknesses of any given portfolio.
Improved uniformity of data
Digital technologies also allow for better consistency of reporting standards, loan origination data and portfolio performance, which leads to better decision-making by investors.
Because many marketplace lenders use technologies that are shared across any given industry, the ability to draw analysis from apples-to-apples comparisons does a lot to enhance overall understanding, which leads to better decision-making.
This is particularly important for investors, who may be attempting to weigh one opportunity against another. When the reporting standards and data are inconsistent, it becomes very difficult to draw the comparisons necessary to make an informed decision.
This consistency of data can also help borrowers, who are researching traditional and non-traditional lenders to determine the best options. Online markets provide easy access to loan-level data, rates and terms and disclosures.
Speed and flexibility
These digital technologies enhance the speed and efficiency of a transaction, many times providing real-time data afforded by the ability to better monitor information associated with a particular deal.
Marketplace lending platforms can do much if not all of the processing for a transaction online. There’s no need to drive to an office for a face-to-face meeting. Research, analysis and correspondence can be done at any time via computer, and in some instances the response on a loan or investment request can be immediate.
Yes, there will be some in the industry who will not clearly disclose information to borrowers and investors. Those actors will be systematically weeded out of the marketplace as both borrowers and investors continue to search out reputable companies to manage their business.
Marketplace lending is a global industry that is growing rapidly as it responds to a systematic need. The industry’s open access to data is crucial to its ongoing development. Clearly, transparency in all transactions will be a major tenant of the industry and it will be a driving factor to its ongoing success.
Gary Bechtel serves as president of Money360. Prior to joining the company, he was chief lending/originations officer with CU Business Partners, LLC, one of the nation’s largest credit union service organizations (CUSO).