I sat down with Gavin Harding, Sr. Business Consultant with Experian who is attending American Banker’s Marketplace Lending & Investing Conference in New York City this week to get his perspectives.
Interview with Gavin Harding
Gary: Hello and good evening my name is Gary Stockton and I’m with Experian Business Information Services in Costa Mesa. I’m joined by Gavin Harding who is with our global consulting practice. Gavin is at the Marketplace Lending and Investing show in New York, Gavin how are you doing in New York?
Gavin: Good evening Gary it’s good to be here. It’s a tremendous show this year. Very high-energy, very dynamic a little different to some conferences that we’ve participated in over the last couple of years. So some evolving themes. Two years ago, three years ago at this type of conference it was all about growth. Maybe a year ago it became more about regulation and compliance, kind of a more pragmatic approach. And this year it has evolved one more time into a core question of sustainability. How can marketplace lenders build a solid foundation that incorporates compliance, growth, risk, basic core principles of governance to make sure they become profitable and that they are still here in 3 to 5 years? So it’s really interesting to see those themes emerge over the last couple of years.
Gary: So marketplace lenders it seems like they are getting their houses in order right? We’ve had a few things happen in the last six eight months that kind of rattled the industry but I think a lot of them have taken a step back from that rapid growth pace to get you know compliance and things like that in order, and a lot of them are pursuing partnerships with lenders right?
Gavin: That’s right. So, some of the key drivers have changed over the last year have been some things in the news that kind of shook the industry up a little bit, caused both marketplace lenders themselves and the investment community and the banks and bank partners to stand back a little bit and pause, and address some really key fundamental questions. So, one of the questions, I want to take this from a bank perspective. There was a great program this morning. Four panelists – one banker and three marketplace lending lawyers, and the question was about the interaction between banks and marketplace lenders, and it was really interesting questions that were asked and one of them was, if every marketplace lender has its core competency, it’s target market, the thing it does differently and better than anybody else the differentiator, the key question for the bank partner is how real is that? How do we know? How do we document that? So there’s definitely more of a, it’s great to share the story with the bank partner, now the bank partner is saying that’s great I like the story, now let me show or let me see some evidence how it works, show me that you are adhering to your model consistently. Show me that you were documenting what you’re doing. Show me that you are being fair and disciplined in your credit decisions. Prove to me that when you say your portfolio is grade A+, that it actually is grade A+. So, not so much a skepticism, more a real life pragmatism to fully engage with the marketplace lender and to understand their model down to a granular level in terms of process, in terms of business governance, management practices and so on. So I see it as a convergence of the new innovative approaches of marketplace lenders, and the more traditional approaches of banking. So I see the two as coming together being more engaged and aligning more closely and again that overall pragmatic approach is prevailing.
Gary: Are you seeing, last year there were a lot of international companies starting to come on the scene there were a number of Chinese marketplace lending companies, is that kind of still the case or is it pretty much domestic US marketplace lenders?
Gavin: So with this particular event this year it seems it’s mainly U.S. based however there are some global players. I’m not seeing a lot of participants and attendees from Asia for instance where at prior events we would have seen more of them.
Gary: And so looking at the agenda are there any sessions that you personally are looking forward to?
Gavin: Today the one that really resonated with me was the session on bank partnerships, exactly how they can work and the one theme that was a central core statement from that is, compliance is now a price of entry. Compliance is not a want to have. The marketplace lender has to have solid documented procedures in place to have a conversation with a bank. This doesn’t mean that there needs to be an exact mirroring of the bureaucracy and really deep compliance processes in a bank, but it means that the marketplace lender has to understand the banks perspective, has to speak the banks language and needs to understand the regulations with which the bank is complying. That’s now the expectation from banks of their marketplace lending partners. And that changes the world significantly for them. There is a demand for better alignment and mutual understanding, high levels of transparency and the application of fundamental principles of management and good governance so for me that session today resonated. I think it was a long time coming, and it was good for the group to hear that.
Gary: That’s great so you’re there tomorrow and you’re speaking at the conference right?
Gavin: Tomorrow afternoon we have a session that should be pretty interesting, it’s a panel session and it is centered on building sustainability in your portfolio. Let me tell you kind of where that comes from and why we’re talking about this. So there has been over the last year and a half, a tightening in terms of the availability of capital for marketplace lenders, a heightening in the demand from investors and from bank partners and others, heightening in the demand for additional information and more granular data on what’s in the portfolio, portfolio content, predictive performance, risk profiles and so on and so forth. To continue to address those needs marketplace lenders need to look within their portfolio to add components in terms of reporting, in terms of upfront origination discipline, ongoing management so that as they approach partners to look at these portfolios and invest in them, the partners can gain a level of confidence that the portfolios are as presented. So tomorrow I will be speaking with two other panelists, one from the world of regulation compliance in an advisory capacity working for a law firm in DC with a long history of working in the regulatory and supervisory market. And the perspective of the other panelist is from a firm that assesses portfolios, stress tests portfolios, establishes valuations and so forth, again related to our conversation on investment, the investment community, the reduced availability in capital of capital and the demand for more information and then I’ll be giving some examples of some work we’ve done with clients in terms of trying to understand the portfolio. Of presenting the portfolio in industry-standard approaches, industry-standard scores, industry-standard analytical approaches that can help bridge a portfolio to the investment community, and help that investment community gain a level of comfort that they need. So I think it will be a lively discussion, I think we got some great diversity in the panelists, and from what I saw today I think the audience is going to be very engaged and ask some tough questions.
Gary: That’s great so do you think you might have time tomorrow to give us another recap from the event?
Gavin: I’d look forward to that.
Gary: OK. Well I want to thank you for taking time out I know that you very busy there it’s in the evening so thanks for staying back and giving us your update and we’ll look forward to another chat tomorrow around the same time.
Gavin: You’re welcome thank you Gary.
