Marketplacelenders say community banks have something to gain by partnering with them, andbelieve they are ready to handle the regulatory scrutiny that comes with thoseagreements.
Suchwas the message that a group of marketplace lenders delivered to an audience ofcommunity bankers on March 31 at the 5th annual SNL Community BankersConference.
Thegroup acknowledged that marketplace lenders often compete with banks, but saidcommunity banks can utilize their superior technology to compete with largerbanks by offering more user-friendly delivery channels. Marketplace lendersincreased partnerships with retail banks in 2015, and many of the lendersbelieve those relationships will increase in 2016.
Manyexisting partnerships between marketplace lenders and banks have occurred withlarger institutions, though. Community banks can also benefit from theagreements, they said, saving money through partnerships as opposed to buildingan infrastructure on their own.
Presentersat the event acknowledged that partnerships require marketplace lenders to meetthe demands of bank regulators. Brian Graham, CEO at , said at theconference that the worst thing a marketplace lender can do is pursue apartnership and not meet regulatory demands. He said those companies need tomeet regulatory hurdles on the front end to ensure that a bank partnership issustainable and effective.
AlbertPeriu, global co-head, capital markets at Funding Circle USA Inc., agreed and said he could notstress enough the importance of vendor management and security. He encouragedcommunity banks to work with larger, established marketplace lenders that havebeen "run through the gauntlet" by larger banks.
Choosingthe right partnership can be imperative since regulators are paying closerattention to the intersection between financial technology and banks. ThomasCurry, the Comptroller of the Currency, cautioned the same day as the conference that banks needto pursue innovation in a safe and sound manner. The OCC released a white paperon the topic, outlining eight ways the agency plans to implement fintechregulation, including potentially opening a new office dedicated to innovation.
IsaacBoltansky, analyst at Compass Point Research & Trading LLC, said in areport that the white paper reinforced Washington's broad support of financialtechnology, but he believes regulators remain somewhat apprehensive due to theindustry's rapid growth and expanding reach.
Presentersat the SNL event want to expand that reach even more. They believe communitybanks can offer marketplace lenders an established customer base. They notedthat financial technology companies do not have existing customerrelationships, though argued that they can offer a more customer-friendlyplatform and even can cater to underserved borrowers.
RobertGiltner, chairman of R.C. Giltner Services Inc., a digital lending technologyprovider for financial institutions, said community banks often have depositrelationships without a corresponding lender relationship. For instance, heestimated that close to 80% of community banks' business checking accountslikely do not have a lending relationship at the institution because thosecustomers generally own very small businesses. A marketplace lender, however,can service a $20,000 business loan at a reasonable cost, he said.
Presentersat the SNL event emphasized that community banks would not alter theirunderwriting practices when partnering with marketplace lenders; they simplywould utilize technology to improve efficiency. Periu said marketplace lendersaggregate data very well and can cobble together the necessary information injust minutes.
"It'sreally just making a frictionless platform for all of us," Periu said.
Periusaid his company has already spent $20 million building its infrastructure fromscratch. Banks, meanwhile, including the nation's largest institutions, have tolayer new technologies onto their existing infrastructure and the end productcan be kludgy. He said marketplace lenders are interested in partnering withcommunity banks, which can offer higher-quality borrowers. He also noted thatbanks have far more attractive funding, highlighting that there is nothing more"powerful than the cost of deposit capital."