Is it time to declare online lending a fad and head home?

“As stories circulate regarding Lending Club, Prosper and OnDeck that all is not well in the online lending sector, Eyal Lifshitz, CEO of Bluevine, describes why fintech isn’t disappearing anytime soon”

It has been a rough period for online lenders. Lending Club’s woes made the Wall Street Journal’s front page. OnDeck recently missed earnings and revealed lower demand from investors interested in purchasing its loans. Fintech has been a consistent darling among investors, but now many fintech doubters are eager to say “I told you so” as online alternative lenders stumble.

So is it time to declare online lending a fad and head home? Hardly.

Lending Club’s troubles have certainly sent a chill through the fintech world, but the headline-grabbing issue seems to be an isolated incident, not a fundamental flaw in the business model.

Traditional lenders are still taking the segment seriously: OnDeck and JPMorgan Chase signed a high-profile deal, Citi’s venture arm invested in BlueVine, and Wells Fargo recently launched its own online, fast-approval small business lending product. All of these moves validate the basic premise of online alternative lenders: the product experience matters, and there is a profitable segment of businesses and consumers who are willing to pay more for a fast, simple online experience.

Specifically in B2B financing, most of the online lenders started by targeting small businesses which were under the radar of the entrenched banks. This way they established themselves in an under-served market (like BlueVine has done in online invoice financing).

Expect to see more news of new and traditional financial players partnering up in the upcoming years. Big banks are continuing to lose profitable segments of business to online lenders and will want to reclaim this business. But they will also want to grow into the new segments that online lenders have opened up and cross-sell other products. Fintech companies, for their part, will continue to drool over access to banks’ vast existing customer base.

Talking about the future overthrow of the big banks may be great for online lenders’ hype and valuations, but eventually reality sets in. That reality is likely to be a world in which fintech players drive innovation in the space while big and established players give scale to that innovation.

Some banks like JPMorgan Chase may take a partnership approach while others like Wells Fargo build their own competing products. Expect to see some acquisitions, too, as banks attempt to bolt on proven fintech companies.

This plays to the strength of each side: big banks have established regulatory expertise, the back-end “plumbing” that makes the current financial system run, and the ability to cross-sell to their big customer base. Tech-based lenders have built great product experiences and have the agility to quickly refine their product for their target customers.

The disappointing performance of some of the biggest online lending names has proven that it won’t be all rainbows and unicorn (companies), but online alternative financing is here to stay.


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