Online lending can be defined similarly to peer-to-peer lending as money is transferred through a website to others. A large amount of investment into this form of lending has come from investors that are prepared to give millions of dollars to the marketplace. Almost exactly one month ago, the US Treasury Department began to consider online marketplace lenders and whether regulations in place can be effectively applied to modern technology. The statement published said that the department will “seek public input on the growing online marketplace lending industry, however, officials are focused on finding out how marketplace lenders operate, rather than creating new regulations. Treasury Insider speaks to co-founder and CEO of online lender Bond Street, David Haber, about how treasurers can implement online lending into businesses now and in the future.
In your opinion, what is the role of the treasurer?
In the private sector, treasurers typically help oversee a number of corporate finance responsibilities including cash and liquidity management, capital structure and risk.
How can a treasurer use online lending?
I think we’re going to see a number of innovative ways that online lenders partner with large corporations who may be interested in using their cash reserves to lend to their employees or to small businesses within their supply chain or community. I believe that online lending can be an attractive alternative to other short-term fixed income products that treasurers may currently be using to drive yield.
What do you have to say about the US Treasury Department investigating online marketplace lenders?
I wouldn’t describe it as the US Treasury “investigating” online lenders. They recently sent out a Request for Information (RFI) to solicit perspectives from across the industry. We’ve maintained a consistent dialogue with senior officials at the Treasury and the White House as they remain optimistic about the ways in which online lending can make capital more accessible for consumers and small business owners in the country. I was proud to visit the US Treasury last week to participate in a roundtable discussion with other industry leaders about the future potential of this nascent space.
Do you see a future for traditional foreign exchanges as more and more peer to peer platforms emerge?
Possibly, as I think you’re going to continue to see many of the larger online lending players expand their geographic reach and lend across other countries. This may create opportunities for traditional forex markets.
What are the biggest risks regarding online lending?
The market is growing quite rapidly, so there is always a chance that some folks are being less cautious than they should with regards to underwriting or credit management. Likewise, a systemic market event could have a negative effect on the industry, as it would across all credit markets. There is a possibility that new regulation could change the current business models in the space, specifically with regards to exporting interest rates, state usury law and risk retention.
Does big data play a part in online lending?
Absolutely. One of the catalysts for starting Bond Street was a large shift that we saw happening in the technology landscape where new sources of financial data on the health of small businesses were suddenly becoming accessible via API. We’ve written integrations with products like QuickBooks, the major credit bureaus, the IRS, and 5,000 banks in the country to seamlessly allow all of our customers to share the data we need to make lending decisions. As we continue to see more volume, we’re constantly working on improving our models and leveraging the vast amount of data that we collect across the network to make better decisions and to help our companies grow their businesses more successfully.
Do you think financial regulation can be applied to online services?
Yes, while I am generally in favour of free markets, I believe that regulation can have a positive effect on certain parts of the online lending space. Generally, I believe it is a small business owner’s right to fully understand the true cost of their loan. This is why Bond Street is committed to always clearly highlighting the APR, repayment schedule and terms with any of our loan products. Unfortunately, this isn’t consistent across the industry, which much of the true cost is hidden in terms like ‘Factor Rates,’ monthly interest, and hidden fees. Regulation could have a solidifying effect on the industry and create some healthy protections for consumers and businesses alike.
How is the online lending landscape evolving?
I think that awareness for online lending as a viable alternative to traditional bank financing is becoming more prevalent for consumers and business owners. This is helping increase the size and impact of online lenders and drive down the cost of borrowing as this asset class becomes more established. At Bond Street, we’re continuing to drive innovation with regards to our technology product and customer experience. We aspire to be more than just a lender to our customers, but to also be their financial advocate. I think you’ll continue to see lenders deepen their relationship with their customers through technology, data and community. Hopefully Bond Street is at the forefront of helping usher in that future.
