1. business and industrial

To Build or To Buy?
The Question for Every Marketplace Lender
Darpan Saini,
Co-Founder & CTO,
Cloud Lending Solutions
CLOUD LENDING SOLUTIONS
Lending Innovation starts here
Contents
Introduction
How Does Marketplace Technology Impact Borrowers and Investors?
The Impact of Technology in Marketplace Lending
To Build or To Buy?
Four Key Criteria to Evaluate a Marketplace Platform
Introducing Cloud Lending Solutions
Success Stories
3
4
5
6
7
10
11
Introduction
Traditional banking is at a crossroads. Banks offer high rates of interest to borrowers while giving little
return to the depositors, and have become increasingly more focused on regulations than
consumers. As small business borrowers, consumers and students became more disillusioned with
banks, they started seeking alternatives to traditional banking. With banks no longer the first choice
for consumers and small businesses to obtain loans, marketplace lending has bypassed this
traditional intermediary.
71% of Millennials would rather see their dentist
than deal with a bank!
Marketplaces connect borrowers directly with lenders through digital platforms. Marketplace
lenders witness 60% lower operating costs than banks so marketplaces can offer better rates to
both investors and borrowers. Marketplaces not only address the full spectrum of borrowers, from
prime borrowers to borrowers who are creditworthy but unable to qualify for loans from traditional
banks. Marketplaces are more efficient ways to expand the lending landscape, servicing consumer
lending, student loans, real estate and small-business lending markets. In addition, marketplaces
draw investors who are looking for attractive returns on their investment from alternative sources,
allow for diversification and flexible durations as well as higher yields. By creating an online
platform for borrowers and lenders to connect, marketplace lending makes it possible for lenders to
achieve higher rates of return, and for borrowers to gain access to capital at lower rates with just a
click of a button.
In fact, marketplace lending is estimated to grow to US$7 billion in UK and $33 billion in US by
2016*. Marketplace Lending is transforming the borrowing and investing experience, creating liquidity for buyers and sellers with more transparency, and using technology to enable scale and operating leverage.
By 2025, Foundation Capital predicts that $1 trillion in
loans will be originated through marketplace lending, the
leading form of non-bank lending.
* The Marketplace Lending (MPL) investment opportunity,17 November 2014, Liberum.
How Does Marketplace Technology Impact Borrowers and
Investors?
Marketplace lending companies consider themselves not as banks or finance companies but as
technology enabled financial platforms that provide quick and easy solutions to the borrowers as
well as lenders, enabling them to break free from legacy systems. As technology companies, they
consider it their top priority to have a software solution that enables them to meet the requirements
of borrowers and lenders and stay ahead of the curve. There are key success factors that any
marketplace must deliver to attract both borrowers and investors.
Borrower and Investor Convenience
Borrowers and investors today are looking for convenience. They want a simplified process for
loan application, and a quick and easy way to find whether the application is accepted or
rejected. Marketplace lending companies need technology solutions that can underwrite loans
quickly to approve or reject a loan application. Investors are looking for convenient tools to
place, manage and monitor their investments.
Rapidly Launch New Products
Online lenders are looking at diversifying their product portfolios. They need a solution that
allows them to configure and launch new products instantly to satisfy borrowers’ needs.
Transparency and Trust
Online Lending requires a technology that facilitates simplified business processes to foster
transparency and build trust among borrowers and lenders.
Availability
The software solution should be up and running, and available to the lenders and borrowers all
the time without fail.
The Impact of Technology in Marketplace Lending
For a marketplace vendor, fulfilling these requirements has very specific technical implications.
Get to Market Fast: Time to market is critical, and the speed of delivery for the system can make
or break a marketplace lender’s success. Successful marketplaces are fast to market, fast to
innovate and fast in their operations.
Unique Functionality and Agility : The marketplace lender needs a technology solution that can
quickly bring their secret sauce to life, and go live making loans.
Flexibility to Handle Regulatory Changes : The marketplace platform should be agile in order
to quickly adapt to new regulations, and provide the flexible reporting structures.
Ability to handle rapid growth with complete security : The platform should offer robust
security for safeguarding lenders’ and borrowers’ information.
Ability to change risk models, and product offerings instantly : The marketplace lender should
be able to configure new credit models using traditional as well as non-traditional sources to
rapidly bring new products to the market to satisfy new borrowers.
Provide an unsurpassed borrower experience :
a) Fast application, credit decisioning, approval and funding processes
b) Competitive rates
c) Flexible payment plans
d) Control over entire loan lifecycle
Provide an unsurpassed borrower experience :
a) Fast application, credit decisioning, approval and funding processes
b) Competitive rates
c) Flexible payment plans
d) Control over entire loan lifecycle
Provide an unsurpassed borrower experience :
a) Fast application, credit decisioning, approval and funding processes
b) Competitive rates
c) Flexible payment plans
d) Control over entire loan lifecycle
Deliver on investors’ requirements :
a) Full transparency to see where their money is invested and how it is performing
b) Ability to compare loans and manage portfolios, and perform risk calculation
c) Transparency to the viability of the marketplace to determine the size of investment
d) Confidence in marketplace’s regulatory compliance.
Cost Efficiency : Marketplace lenders need robust and comprehensive technology that is easy
to implement and cost effective.
Scalability : Marketplace lenders need a technology solution that can be scaled to meet rapid
growth.
Multi-tenancy : Successful marketplace platforms need to run more than a billion transactions
per day, demanding a technology solution that can enable them to run business operations
smoothly, without any hiccups.
Business Continuity Planning Management : The software should have the ability to recover
the operations in the event of a disaster.
To Build or To Buy?
It is a question of Shakespearean proportions.
Marketplace lenders have to make some tough decisions, and one of the hardest is to Build or to
Buy. The core ingredient for a marketplace lender is the platform on which they operate. The
success of the business is highly dependent on the quality of the infrastructure platform as most
processes are built into it, such as credit ratings, third party bank accounts, social scoring, and
document input and handling functions.
Unlike other online companies, marketplace lenders cannot launch a Minimum Viable Product
(MVP) and improve functions on the fly. Customers want high security and transparency when it
comes to handling their money, and investors need to trust the marketplace in order to invest in that
platform.
Furthermore, being a new industry, evolving regulatory requirements are forcing the lenders to
be agile in their compliance. Marketplace lenders require a highly flexible technology in order to
quickly adapt to changing business processes or regulations.
Four Key Criteria to Evaluate a Marketplace Platform
Four key technical areas need to be assessed by a marketplace to determine whether building or
buying their platform will make the marketplace most successful. Those four areas are:
Programming Changes
Given the dynamic nature of today’s lending industry, marketplace lenders find themselves with the
need to constantly innovate. Introducing new products can help lenders enter previously
unexplored markets. Agility is key. If a marketplace lender chooses to build their own technology
platform, it often happens that their in house system is built to support only a certain kind of product
– the one they choose to go to market with. This makes perfect sense, because during the launch
phase of their business there is no need to build capability into the system that is not currently
being used. However, when time comes to introduce a new product, the rigidity of their current
system may not allow for a quick change or extension, especially if the new product is different from
the product set that the marketplace launched with. In such a situation, we can clearly see how a
bought and proven solution can be of help.
The platform solution may already support different products including loans, lines of credit,
invoice factoring and more which delivers agility in adding new products to the marketplace.
Infrastructure solutions are designed from the ground up to be flexible. This may not be a
requirement for an in house marketplace system as the most important attribute is time to
market, but it will matter down the road. Vendors invest significantly in making their solution
flexible because they are required to cater to a larger customer base. Even if the vendor’s
solution does not have the exact support for the new product, it is faster and easier to add
support for the idea if the solution is architected for flexibility.
Technical Support
Having 24x7 technical support is key to running a successful back-office. For a lending company,
their loan management system is mission critical and it is imperative to have round the clock
technical support to run operations smoothly. Companies that build a system themselves also have
to think about having 24x7 in-house technical support, which can be expensive. On the other hand,
buying a platform typically includes technical support packages. Always review the
the technical support packages the vendor offers to determine the right cost/benefit for your
marketplace.
In-house technical support also increases the opportunity cost that you carry. Companies are
always trading off investment in technical support and maintenance vs. building new features and
products. Especially for marketplaces, a laser focus on constant innovation is a key success factor.
Upgrades
When you buy from a seasoned vendor, you are not just buying the current version of the product
but future upgrades as well. Vendors are constantly improving their product by adding new features
and fixing existing defects. Given that vendors typically work with many customers, they receive
input for product improvements from a wide audience, making upgrades more valuable for all of
their customers. Vendors also have scheduled upgrade cycles because their processes are mature.
This helps their customers plan for upgrades better. Always ensure that your platform vendor has
a frequent release schedule that they consistently deliver to, and one that fits with your planned
release schedule.
Experience
An often-overlooked advantage of buying from a seasoned vendor is the vendor’s experience in
implementing their solution for other customers. Although implementation details are often
confidential and cannot be shared, general knowledge of implementing in a particular market can
be shared. For instance, working with banks for transferring funds in a particular geography may
be a problem the vendor has faced before. If a system was built in-house such experiences may be
unknown and can often take development teams by surprise leading to delays. Always look for a
vendor that has implementation experience in many countries around the world, not just your own.
With the rapidly changing environment of marketplace lending, global experience is critical in your
vendor.
Building your software in-house means building all capabilities, adding new functionality, either
developed or purchased, and finally integrating the solution. It takes marketplace lending
companies an average of one year to develop their platforms if they chose to build it themselves.
This not only means more time required to develop the product but also higher risk and cost for
development and implementation. Furthermore, quality and performance issues might be
underestimated that can later delay the time to market.
Since time to market is critical, building software in-house may not be the right choice for marketplace lender’s success. It may make more business sense to build your unique marketplace on top
of a commercial platform that is flexible enough to allow the customizations that make your
marketplace unique. Buying a tested and proven software solution eliminates the cost and time
risks of building infrastructure, and offers more scalability as compared to a solution built in-house.
It is also more cost effective for both implementation and ongoing maintenance. Prepackaged
software decreases testing time as it is already used by other marketplace lenders that have
already confirmed its robustness. A third party solution has stringent policies for disaster
management and it is easier for a marketplace lender to resume operations after a mishap.
Cloud infrastructure platforms allow marketplace lenders to focus on the revenue generating
aspects of their marketplaces, such as configuring new products instantly or other future
customizations, and not have to spend time and resources on maintaining infrastructure.
Marketplace lenders focused on success understand that they need to develop unique solutions to
differentiate themselves from the competition. Buying a tested and proven software enables them
to focus on what their “secret sauce” is and how they can refine it to cater to the dynamic needs of
the consumers.
TIME
BUILD
BUY
COST
Think what the opportunity cost is to your marketplace to be
6-12 months longer in development rather than being
live and making loans!
Introducing Cloud Lending Solutions
CL
MARKETPLACE
CloudLending Solutions
Back end processes such as origination, under
writing, funding and servicing for online loans
can be complex and expensive without the right technology solution and difficult to bring to market
quickly. Many third party vendors providing technology solutions may not have the flexibility to
customize their solution based on the lender’s business needs. However, Cloud Lending’s CL
Originate and CL Marketplace come with an open architecture that enables lenders to quickly
customize the solution to suit the evolving market and regulatory needs. Marketplace lenders can
develop and validate any new product and substantially reduce time to market. For a serious
lending business, this can be the key to success.
Cloud Lending Solutions Marketplace platform enables a marketplace to:
Handle all aspects of marketplace lending
Easily assess the creditworthiness of potential borrowers using all online data sources and
their own unique risk algorithms
Flexibility to stay in compliance with changing regulations
Open architecture to build any kind of marketplace to customize the experience per their
unique business needs
Supports multiple asset types to quickly bring new products to the market
Responsive borrower and investor portals to facilitate marketplace transactions and foster
transparency
World class, cutting edge ,secure and compliant solution that can go live in weeks
Success Stories
Two successful marketplaces started with Cloud Lending’s Marketplace platform. Both benefited
from significantly reduced time to market, with no loss of functionality. This has enabled these
marketplaces to deliver high growth for their investors, and an excellent customer experience for
their borrowers.
LendingPoint, a non-bank direct lender, aims to meet consumer
demands for online borrowing options. LendingPoint adopted a cloud
based marketplace solution to go from concept to market in less than
90 days. Since its launch, LendingPoint’s loan processing system
has been tested and proven, and has experienced rapid and scalable growth. With a cloud solution,
they reduced an anticipated 6 to 12 month platform build and deployment, bringing it down to less
than 3 months. This dramatically changed their go-to-market strategy and helped them realize a
faster connection with consumers.
Another marketplace lender, Harmoney, New Zealand’s first peer to
peer lending company, deployed a cloud based technology solution to
create a simplified and automated loan application process and scale
up quicker, with loans approved faster and less time spent on
back-office operations. The cloud based solution enabled them to reduce the time to market to a
fraction of other alternatives.
Conclusion
For marketplace lenders, time to market and innovation are critical for success. Cloud-based
technology platforms can enable marketplace lenders to rapidly introduce new products to market
while improving access and the overall borrower experience. Using a market-tested infrastructure
that is able to deliver the unique innovation of your marketplace can be a sustainable competitive
advantage.
Successful marketplaces never stop innovating, never stop
changing. These marketplaces prize technology and systems that
can move as quickly as they do to capitalize on every opportunity.
Cloud-based, robust systems that can change and deliver in a day
empower these disruptive innovators.
About Cloud Lending Solutions
Cloud Lending Inc. is a global cloud infrastructure company that offers a suite of SaaS applications that efficiently manages loan portfolios, increases
transaction volume, and rapidly brings new products to market for non-bank financial institutions all over the world. Our lending solutions are built
natively on the Salesforce platform so customers can safely and confidently utilize cloud technology to significantly lower costs, generate greater
revenue and outperform their competitors. For further information and to see how we can help you, please reach us at [email protected] or
on our website www.cloudlendinginc.com.
Copyright © 2015, Cloud Lending Inc. All rights reserved