CUNA Payments Blog: Engage with marketplace lenders

CUs should take the high road and work toward constructive terms of engagement with online lenders.

Financial institutions have bristled at the success of online “marketplace lenders” for some time.

These firms have built high profiles and even higher valuations by encroaching on what has long been considered financial institutions’ turf: extending moderate-sized personal and small business loans.

Yet again it appeared that banks and credit unions—in part due to being hamstrung by regulation—had been outflanked by Silicon Valley disruptors.

Late last year, however, the narrative began to shift. Players like Lending Club, Kabbage, OnDeck, and Prosper had established their brands and a steady flow of loan demand.

It was the other side of the equation that emerged as the “gotcha.”

Lenders needed to package and resell these loans into the secondary market to free up capital to satisfy the next wave of borrowers. The capital markets suddenly grew wary of these placements for fear of default risk.

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