“Think about the music industry – Spotify, iTunes, Pandora. They all started out with a different premise. You can stream it, you can download music and listen to it online or offline. The music industry is evolving and so is our industry,” Suber said on a panel at the December 1 conference on marketplace lending.
“You’re going to see each of the platforms learn to roll with the changes of the industry and that includes some concept of the silver bullet – is it balance sheeting, is it the hybrid model, is to peer-to-peer? The music industry is evolving, and so are we. It’s really the people who thought we’re going to buy CDs that realized it’s never going back. And that’s my point to this industry – it’s changing and we’re not going back to the old way of walking into places and asking for money,” Suber added.
Suber is right in pointing out that the marketplace lending industry has changed consumer lending. But his analogy comparing the current state of marketplace lending to apps like Spotify is premature. Although 2016 has been a momentous year for the industry, marketplace lending has not disrupted traditional banking in anything like the same way the internet and music streaming services upended the music industry.
Indeed, while the music industry has had to adapt to the emergence of disruptive technology, culminating in the rise the internet as the dominant mode of music distribution, the same cannot be said about the banking industry with regards to the emergence of marketplace lending as force for wholesale change.
Rather, the relationship between marketplace lenders and banks is one of mutual dependence – smaller platforms need to partner with banks to help them expand their borrower footprint, while some larger platforms need to use banks to originate loans.
Banks, on the other hand, need to leverage these platforms’ technologies and lending algorithms in order to improve their customer service.
Regardless of how big platforms get, there is no way they can completely divorce themselves from banks in the same way Spotify, iTunes and Pandora have fundamentally altered the way music is consumed and distributed.
The funding models that Suber mentioned have also yet to be tested through downturn in the credit cycle. To date, most platforms rely on several models to fund their businesses, such as balance sheeting, which includes the use of securitization and warehouse lines, or a marketplace model, which includes levered funds and whole loan sales. Until there is a dip in the credit cycle, there is no way to demonstrate which provides the most stable capital.
So don't compare marketplace lending to fully fledged music streaming services, which completely reshaped an industry. Marketplace lending is much further back. It's more like the first days of Napster — the start of something big, but only the start.