Hybrid Lending: Welcome to the future

Thijs Koot,

LinkedIn profiel

The era of fintech has arrived and triggered a disruptive process that holds the promise of radically reshaping the landscape and dynamics of the global financial system. Marketplace lending is arguably one of the more intriguing branches of fintech due to its diverse nature, with a plethora of platforms geared towards everything ranging from art projects to entrepreneurial financing.

This article offers a sneak peek into the reason hybrid lending is such a hot topic and how this one specific branch of fintech translates to a broader movement. Ronald Kleverlaan and Auke Douwe Veenstra, two of the speakers at the Marketplace Lending event (22 September 2016) were consulted to offer their insights and opinions.

Big Bad Basel

Ever since the introduction of the heightened solvability requirements in Basel 3, banks have been increasingly careful in deciding where to invest their assets. While the exact contents of Basel 4 remain a mystery, the heated discussion about what methods to use for determining the risk weight of assets forces markets to look beyond the traditional set of financial instruments. The rapidly growing fintech scene happens to offer just that: novel approaches to traditional problems.  A particularly interesting example of these approaches is a concept dubbed hybrid lending, a ‘mature’ spinoff from the original phenomenon called crowdfunding.

Catch 22

Traditionally, banks could either grant or deny a customer’s request for a loan based on its risk profile. The aforementioned developments have tipped the scale towards risk, rather than reward. This poses a serious problem for segments such as SMEs and real estate, who find it increasingly difficult to procure investments. Marketplace lending platforms offer an attractive alternative but lack the expertise and experience when compared to banks. Hybrid lending offers a way out of this catch 22 by getting rid of the binary question, simultaneously providing a way for new and old incumbents to peacefully co-exist.

Rabo & Co

Rabobank recently announced a pilot bearing the moniker ‘Rabo & Co’, an online platform that connects its private banking customers with financing requests from various businesses. During the trial phase, Rabobank finances 50% of each successful request while private banking customers provide the remaining part. This allows Rabobank to retain more business without significantly increasing their balance sheet while simultaneously satisfying its client and fellow investor with an attractive yield.

The big picture

This initiative represents a broader development in the financial sector, the shift towards a new landscape where old incumbents start to adopt innovations offered by the new herd of enthusiastic fintech companies. This shift indicates a natural progression from a one-stop-shop to a system where banks take on the role of orchestrator. With a standardized infrastructure banks can now compose their value chains from separate components which can easily be improved or swapped out without disturbing the symphony – plug and play.

Meet the hype-cyclegraph

‘Well,’ critics say, ‘that sounds interesting but what about the absurd amount of alternative finance startups claiming to offer the solution? It’s clearly just another bubble which will burst soon enough.’ This line of criticism can easily be refuted with the notorious hype-cycle model developed by Gartner. Marketplace lending is, as I see it, sliding into the trough of disillusionment with a few brave frontrunners starting to climb the slope of enlightenment. Hybrid lending is here to stay, welcome to the future.

Ronald Kleverlaan is the founder of CrowdfundingHub, the European Expertise Center for alternative and community finance. Auke Douwe Veenstra oversees the European and South Asian divisions of Cloud Lending Inc., a global cloud infrastructure company offering a suite of SaaS solutions for marketplace and online lending. Both gentlemen are speakers at the Marketplace Lending event on September 22nd and were kind enough to share their thoughts in a conversation with IIR. Using their input, this article touches briefly on a couple of topics that will be discussed in detail during the event itself.



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