Business & Financial Services Update: LendingClub, Mastercard, VISA: Who Holds the Technological Trump Card?

The marketplace and peer-to-peer lending sector is facing a new set of challenges. Growing from a cottage industry to an alternative asset class in its own right with multiple publicly traded operators, loan volumes and cumulative marketplace securitizations have ballooned into a multi-billion dollar juggernaut thanks to an influx of institutional money and a largely supportive investor base. According to Peer IQ -- which keeps an eye on sector risk -- securitization volumes have surged from $1.8 billion in FY15 to an estimated $11.2 billion in 2017. At the same time, the specter of regulation continues to loom, with some P2P players already having registered with the SEC and OCC while others remain at the fringes of the still-nascent asset class. Now, with the FOMC raising rates and investors raising concerns over loan due diligence and arrangement process issues at LendingClub and OnDeck Capital, and with continued confusion over the different risk profiles of balance-sheet-funded loans vs. marketplace-funded loans, the landscape is rapidly changing and many on the buy side are reassessing their lender models - a topic we explored with the CEO of LendingRobot in July.

In parallel, Coleman's Business & Financial Services analyst team recently examined the changing strategies of the three leading payment processors at a time when Visa and MasterCard shares were both hovering near all-time highs. Following a string of successes with its so-called “SelfiePay” platform, MasterCard recently acquired NuData, which allows the company to verify transactions based on subtle nuances of how users hold their phones as well as the cadence with which users type in their passwords. As MasterCard CEO Ajay Banga recently explained: “if you were to [manipulate the phone differently from the verified owner, NuData] will tell you this is not the same guy holding it. When he enters the password, the way he enters the password, it can tell you it’s a different guy entering the same password, and the fact that he types with two thumbs and then deletes 12 times, because you['ve] got [a] fat thumb, [that] is also something it will tell you.” In parallel, Banga has scored a series of recent wins in broadening MasterPass’ ties to companies including Dunkin Donuts, Expedia, Walmart and several other mass-market merchants. As MasterCard moves to expand its tap-and-point partnership with PayPal -- which will allow consumers and small businesses to instantly cash out funds held in their PayPal accounts to a Mastercard debit card – and as Visa develops a new IoT-centric ecosystem, the question remains: who holds the technological trump card?