Planning for Success in Online Lending

[Editor’s note: This is a blog post from Tom Burnside, CEO at LendingPoint. LendingPoint is a Platinum Sponsor at LendIt USA 2017 which will take place on March 6-7, 2017 in New York City.]

Much has changed in marketplace and online lending since 2016’s LendIt USA conference. Seemingly healthy, strong players stumbled on significant bumps in the road, and a number of industry executives exited their companies’ rosters. Industry observers and participants alike were left asking themselves what those bumps in the road meant for the industry as a whole.

Many industry pundits offered up opinions as to what caused last year’s turbulence. While there were several variations to the insights given and summary statements made, one main takeaway stands out:

The approach taken to achieve seemingly easy growth is a make-or-break choice that drives everything — from a company’s overarching strategy all the way down to its daily business decisions made by managers and executives.

When the lure of need and potential in a space like marketplace and online lending exists, it is a given that many companies will enter the game and, potentially many will achieve success doing so. The cautionary tale is really about how to strategically go after what starts out as easily gained growth — in a manner that allows for meeting consumer demand while still getting things right. By “right” I mean critical factors such as smart underwriting, sustainable growth, simplicity and transparency of process and system, and compliance.

While several marketplace and online lenders experienced missteps in 2016, LendingPoint quietly and attentively continued along a trajectory of steady, measured growth, with purposeful system and process evolution and a laser-focus on our customers, those in the underserved “fair credit” band. This wasn’t simply by luck or keeping our heads down. It was about adhering to careful, foundational tenets and choices — the “right” things I mentioned earlier. It’s how we achieved strategic, yet significant growth in 2016, and how LendingPoint will continue forward on the same path in 2017 and beyond.

As a CEO and cofounder in the online lending community, here’s what I see as the path to growth and success for existing players and new entrants alike:

  1. Get the team experience right. Beyond the price of fintech admission — that always important technology and customer experience expertise — expert credit, lending and underwriting background is critically important.
  2. Get the demand right. Within the larger population of demand for better lending products, you have to identify the specific need(s) in a focused way that allows for defining aligned products and services. Simply offering a general “me-too” product won’t work anymore in this space.
  3. Get the credit right. This goes back to the criticality of expert credit, lending and underwriting talent. The risk and credit landscape is constantly changing — loans are being stacked, new indicators and ways to predict creditworthiness are evolving, and those who have deep experience in risk and lending can confidently navigate these waters.
  4. Consistently look for ways to improve. This means constant monitoring, measurement and enhancement of systems, products, and processes that impact analytics, underwriting, and customer experience. It’s easy to get comfortable with what’s working well, but evolution keeps a company relevant and sound.
  5. Be transparent. By this I mean, have in place measures by which the company can easily be scrutinized, both from the inside as well as by external parties. Whether we’re talking about company execs, investors, the CFPB, the OCC or self-regulation, companies must have in place a way to clearly and simply pull back the curtain on their operations and books. Find ways to instill confidence in investors, consumers, and regulators.

No one doubts that online lending will continue to be a critical part of the fintech movement. The opportunity is still vast for both existing players and new — as long as we get it right. As Peter Renton recently stated in his fintech charter comment letter to the OCC, “The promise of fintech is that it will vastly improve access to financial services for everyone. Given the online nature of fintech there are no geographic barriers for access so finally the entire U.S. population has the possibility of equal access.” He also goes on to say, “The reality is that while fintech has improved access to credit it has still not reached its potential with an estimated 33.5 million households in this country still unbanked or underbanked. But we are still in the first or second inning of the fintech revolution and the industry is getting better at broadening its reach.”

In spite of a somewhat bumpier year in marketplace and online lending than any of us could have anticipated at last year’s LendIt USA conference, I remain optimistic and enthusiastic about the growth and potential of our ecosystem. But, as is the case with any industry and company, sustainable growth absolutely requires a healthy infrastructure. Looking back at the last 10+ months of industry happenings, I believe 2016 has served a beneficial purpose. It’s been a clear reminder of what’s important for success, and also one which reminds us that even when business is steadily growing and opportunity is abundant, we need to ensure key foundational elements are always in practice, and our eyes are wide-open to the pitfalls that are found alongside enormous opportunity.

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