Heard a couple of comments at FinTech conferences recently. CEO of a marketplace lender (paraphrased): “Yes, I’m sure I will have to either buy a bank or become a bank at some point in order to get access to deposits. But if I do that, I get valued as a bank, not a tech company.” (Company in question has not yet IPO’d.) CEO of an alternative investment platform (paraphrased): “We are a technology company, nothing else.”
The online alternative investment industry is going to have to pull its head out of the sand at some point and admit to being more finance than technology.
CEO #1 clearly sees the issue here. P2P platforms have largely transitioned to sourcing funding from institutions rather than people, and dropping the “P” to become marketplace lenders. But that funding is fickle. Come the next downturn, both hedge funds and people will have less money to deploy with marketplace lenders. Deposit-taking banks have access to large amounts of lazy, cheap, reliable money. Marketplace lenders might need access to that sort of funding. But CEO #1 is clearly hoping that that will happen after he’s done his IPO. When he does make that move, he’s right, his stock price probably will suffer. As will the retail investors who invest directly or via mutual funds in the IPO.
CEO #2 is not seeing the issue. His platform connects investors with startups. That’s a risky and regulated area and to the extent that he ignores securities laws or tries to convince himself and his investors (VC funds) that those laws don’t apply, he’s putting those investors at risk.
The online alternative investment community is going to have to face the fact that however cool our tech might be, the “finance” part of FinTech really does matter.