Several years ago, marketplace lending platforms (MPLs) burst onto the scene and quickly became Wall Street darlings.

Offering easy, fast, convenient capital to just about anyone who needed it, these platforms pledged to make the time-consuming, arduous nature of securing a loan through a bank a thing of the past.

Research from Viacom unit Scratch validated this, with 71 per cent of Millennials – currently the second-largest generation, and those often seeking capital to start a business – noting they’d rather have a root canal than deal with a bank.

Flash forward to 2016 and the once-thunderous warning shot for banks is no longer so loud.

In recent weeks and months, the online lending platforms have hit a major rough patch, marred by disappointing earnings and several high-profile scandals and exposures that have called into question their viability and transparency.

Skittish investors have pulled back, causing revenues to drop precipitously and the public to wonder – what will keep MPLs afloat in times when capital isn’t flowing freely  including a possible downturn?  

In spite of several platforms taking steps to right their ship, the damage control will take some time, and it’s unclear if some will ever manage to fully regain their footing.

Naturally, the pendulum of public sentiment has started swaying back toward the proven reliability and resiliency of established banks, but it would be a huge mistake for the banking industry to throw the proverbial baby out with the bathwater.

Sure, MPLs may be nursing their wounds at the moment, but the virtues they have shown are possible in financial services – speed, convenience, ready access to capital when and where it is needed – should not be ignored.

These benefits are very real, so much so that top banking establishments are trying to incorporate into their very businesses the online models that were once perceived as a disruptive threat.

As one example, Goldman Sachs recently announced plans to roll out their own consumer lending platform this fall.

In our view, predictions that online lending models will cause traditional banks to go completely extinct are way overstated, but so too are predictions that traditional banks will completely squash the spirit of nimbleness, innovation and entrepreneurship that is the hallmark of the MPLs.

Instead, we believe the future of banking will morph these two models together to create a hybrid offering the best of both worlds – the resiliency of banks combined with speed, convenience and accessibility.

Specifically, the online foundation of MPLs will remain, but instead of participants comprising borrowers, lenders and secondary investors, these will be established balance sheet lenders (BSLs), often banks and secondary investors.

BSLs have several advantages that make them much more viable and strong as compared to MPLs.

As the saying goes, you need money to make money. For many BSLs, their primary business consists of people depositing money into savings accounts, and these BSLs often have ancillary lines of business as well, like insurance.

This naturally gives them the advantage of having more capital on hand to originate more loans, in more areas.

Compared to MPLs, this gives BSLs a huge head start. They can make exponentially larger amount of money across diverse areas, coupling greater capital generation with lower risk.

Having a primary business outside of lending also gives BSL access to capital that may be needed to temporarily plug holes, like during a recession.

BSLs also lack a conflict of interest. Many MPLs have spent millions of advertising and marketing dollars claiming how easy it is to secure a loan through them.

Once they approve a borrower, they have no choice but to fulfil the loan – in order to preserve their reputation, as well as keep the debt off their books.

For these reasons, it can be difficult for MPLs to not have conflicts of interest right from the start, as they offer loans to investors.

These lenders provide background on loans and risk assessments, but they are susceptible to delivering only part of the available information, or exclusively the details they want to share because they need to get the loans off their books.

They also package loans into groups to ensure that all the inventory will be sold, not only some portion of it, to the detriment of investors who are unable to align their actual fund allocations with their preferences as a consequence of this packaging.

In contrast, BSLs don’t face the same pressures. They are used to keeping debt on their financial statements and aren’t so reliant on selling loans to investors as the only funding source.

Since BSLs can accept that some loans will be kept on their own balance, there is less reason to provide overly polished’ data or force investors to buy what they don’t want to buy. 

Finally, BSLs are not as inherently risky as MPLs. As noted above, if capital dries up suddenly, MPLs have no other source of revenue beyond originating loans.

Another challenge lies in the fact that MPLs often don’t have high enough loan volumes in developed segments with an established track record, therefore they frequently have to move toward new untested geographies, customer segments or even subprime borrowers.

In good economic times, there may be significant risk, but investors may be willing to, or even want to tolerate it to chase higher yields, but in poor economic times, this type of approach can be downright disastrous.

As more loans go into default and delinquency, the MPL will have to lower borrowing standards to maintain its turnover indicators, which only exacerbates the situation.

Fears about stability of the MPL business model – in contrast with the greater reliability, track record and diversity offered by BSLs  causes investors to seek new opportunities within BSLs’ portfolios and overlook MPLs as the preferable investment vehicle.

In a world that thrives on sweeping prognostications, there is no either/or, black-and-white answer as to what the bank of the future looks like.

We envision a future where older, more established players are empowered to collaborate with investors with greater speed, ease and convenience.

This will enable these players to originate more loans, enter new markets and even leverage new opportunities, including short-term loans (which are sometimes impossible, due to the time-consuming nature of BSL/investor interactions) as well as longer term loans that they can sell to investors (who are often more tolerant of future reward).

In short, more money can be made. This type of hybrid approach can create a powerful catalyst for capital generation that ultimately can benefit the entire economic landscape  consumers, small businesses, banks and investors alike.

Oleg Seydak is the chief executive officer of Blackmoon Financial Group.