Executive Lounge

Posted on April 23, 2015
Jamie Risso-Gill of Per Ardua Associates Featured in GARP Article on P2P Business Models and Risk Management

Demand for risk expertise persists and evolves as new-generation platforms disrupt traditional banking and lending BorrowersFirst, a year-old, 16-employee company based in Austin, Texas, says on its website that it aims to be a disruptive force in the fast-growing business of peer-to-peer lending. More than 100 such platforms now exist in the U.S. alone, vying for a slice of the multitrillion-dollar consumer credit market.

Overseeing risk systems for an innovative P2P loan provider is “exciting” and “ever-changing” – and definitely hard work, says Ben Duran, BorrowersFirst’s chief risk officer.

“The majority of new financial services are all online,” Duran notes. “So this is a risk area that is growing and where there is a lot of opportunity for someone with risk expertise.”

But it is a very different and rapidly changing environment when compared with more traditional financial risk management settings. The job descriptions and requirements are evolving accordingly.

Duran has been working with and developing consumer credit risk models for more than 20 years, including stints at Dell Financial Services and at Bill Me Later, which eBay acquired in 2008 and has since been rebranded as PayPal Credit. That experience has proved invaluable for building and frequently revising models in the online, P2P world, but that is not the only risk challenge the BorrowersFirst CRO faces.

A continual barrage of attempted frauds requires constant rethinking and updating of anti-fraud measures and cyber defenses.

“The fraudsters are always trying to poke holes in our system and to take your money,” Duran says. “We are always finding new ways to keep that from happening,” working with a lot of third-party data vendors and sometimes thinking outside the box. It is a cybercrime reality that once a breach is plugged, more threats emerge. The team must be on constant alert.

Duran’s credentials and the issues he is facing indicate how this new wave of financial services enterprises is in need of, and benefiting from, both traditional risk skills and online-oriented technical expertise.

Growth and Buzz

The online lending segment, consisting of such firms as Funding Circle, Kabbage, Lending Club, OnDeck and Prosper, is still relatively small, having originated $9 billion in loans last year. Total U.S. revolving credit outstanding was $885 billion as of February, and secured and unsecured non-revolving loans were $2.5 trillion, according to Federal Reserve data.

But this fast-growing, buzz-generating sector has come to the fore at a time when traditional banks, constrained by new regulations, are exiting or cutting back in selected areas. Meanwhile, the availability and falling costs of big data technologies and analytics have lowered boundaries to enter the business.

The sector is attracting not just individuals seeking to borrow or to invest in a portfolio of loans, but also institutional, hedge fund and family office investors – making the original “peer-to-peer” characterization a bit of a misnomer. Many in the field have come to define it as marketplace lending or alternative lending.

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Posted By: IIC Partners