In December Insikt came out of stealth with their white label loan origination platform.
James Gutierrez, Insikt's founder, wrote a lengthy blog post on why he started Insikt and what he sees as the future of online lending - it will be brands. I can't agree more. There isn't a lot of differentiation among your banking choices - what's the difference between a Bank of America vs JP Morgan Chase checking account? Their brands; a totally informal and unscientific pool of my friends shows they've "had a good experience with their bank", "they haven't had a reason to change" - it's not interest rates or really better websites, it’s just ease of use – applying for a loan online is way easier than going to a bank only to be told, go home and collect more documentation and come back.
A lot of the rhetoric that is published on the rise of the marketplace lenders (originally peer to peer), talks about the revolution that is taking place. As a millennial (yeah, I’m a bit young), moving things from brick and mortar to the web has been the standard march of progress. Some businesses are easier than others to move to the web – SaaS CRM tools are just websites, don’t really need a lot of collaboration with others to get up and running, they don’t need complicated license agreements from content creators, etc.
Music went digital a long time ago, movies and TV are headed that way rapidly – but needed a boost in bandwidth to really take off. Netflix has done amazing work around building a fast, high availability video service – it’s not easy, but it’s technical innovation and tinkering. The biggest hurtles these guys all faced were (and still are) negotiation with content creators.
Shopping businesses are tougher, as they have the offline supply chain and shipping to manage, but at a high level its straight forward – I don’t mean it’s easy, I don’t mean Amazon hasn’t innovated like crazy in their quest for supply chain optimization; but, aside from maybe their legendary sales tax issues, there aren’t a lot of regulatory hurdles.
That’s really the rub – regulatory serves a needed purpose to protect the consumer, but it often also serves to protect incumbent businesses. Lending Club and Prosper put in the work to show that the regulatory hurtles could be overcome – it took LC roughly 6 years to hit profitability, and Prosper 9 years (they started earlier and made a few mistakes along the way). They showed that the regulatory burden could be challenged and overcome. I don’t know that it’s revolutionary, but it’s certainly an amazing feat.
Now that the dam has broken, marketplaces and online lenders are popping up all over the place for all kinds of asset classes. There will be room for many of these, particularly in the alternative asset classes. But as they eat into banks, credit unions, and savings and loans businesses, and as knowledge about building these systems spreads, I will not be surprised to see them all jumping into the fray. Particularly when people like James come out with a product that allows these old institutions to side step all the building, and just pay a service fee.
All of these institutions have existing clients, they know them better than most of these platforms can, and why should they sit idly by and allow LC and Prosper to take those sweet origination fees?