Do you think this is a reversal, or just another step in the evolution of marketplace lending? Earlier this year, a number of the platforms discovered the value of having capital for their lending operations when their funding sources were disrupted. We’re now seeing more of the platforms moving toward the so-called ‘hybrid model’, of originating some loans for distribution while retaining some loans on their books. But if a platform is going to be originating some loans for their own books, might they be better off as a bank rather than a non-bank? There are pros and cons to each approach. As a bank, a platform would have access to lower funding costs for loans on its own book, but significant regulatory costs. As a non-bank, a platform would have a higher funding costs, but wouldn’t have the prohibitive regulatory burden of a bank. Both models are workable.
Absolutely this can be a trend. I’d say mianly investing from Private Equity. There are at least $3 trillion in dry powder (which seems that investors hesitate to deploy) and total US banking is around $15trillion? I think. So the private funds are getting quite significant for the size of the economy and have to earn a return somewhere. Actual business and middle market is an obvious outlet and probably banks are the best intermediator (before they became absorbed in off-balance sheet speculation). It’s probably easier for PEs to invest through banks than to set up their own middle market funds, which they are also doing (but too much work, compliance, monitoring and different from the type of work they are used too). See for example Carlyle moving funds from hedge funds to lending http://www.nytimes.com/2016/10/28/business/dealbook/carlyle-group-turns-focus-from-hedge-funds-to-lending.html
This is what the great Matt Levine, says about the Cross River Bank news
“The service here is banking, though, and the people hoping to strike gold think that the gold is in replacing banking. But if many fintech firms aim to replace banking mostly by throwing a cool app or a clever algorithm in front of a traditional banking service, then a fintech-friendly bank back end will have lots of opportunities.”