Marketplace lending is thriving, with rising amounts of capital being poured into the market and traditional financial services providers and non-bank lenders getting into the action.
See what’s behind the numbers of marketplace lending and what it means for existing platforms, new entrants and managing the wave of data and reporting that comes with the expansion.
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Marketplace lending platforms: a brief history
2006: Prosper opens as the first P2P lender in the U.S.
2007: LendingClub starts operations.
2008: SEC requires Prosper and LendingClub to register their offerings as securities.
2012: The Jumpstart Our Business Startups Act includes P2P lending for small and midsize businesses.
2014: LendingClub goes public on the NYSE.
2015: Regulation A+ allows nonaccredited investors to join in crowdfunding opportunities with limits.
Sources: NYSE, media reports
Soaring growth, then a pause
Issues at one lender dampened enthusiasm for marketplace lending in 2016, but analysts expect an extended rebound.
2014 – $7.6 billion in the Americas
2015 – $18 billion in the Americas
2016 – $21.1 billion in the Americas
2024 – $898 billion globally (projected)
Projected compound annual growth rate of marketplace lending from 2016 to 2024: 48.2%
Sources: University of Cambridge Centre for Alternative Finance, Majesty Alliance
Institutional investors capitalizing on opportunities
Yields, with measured risk, trend toward the higher end of the fixed-income spectrum.
It offers very low correlation to other asset classes.
Sophisticated automation tools and technology quickly analyze loan offerings.
Percent of institutional investors polled very or somewhat familiar with marketplace lending
2015 – 75%
2016 – 82%
Percent of institutional investors polled with capital invested in marketplace lending
2015 – 29%
2016 – 50%
Top three most targeted loan types
2015 – Small business (31%), consumer (28%), real estate (24%)
2016 – Unsecured consumer (52%), small business (46%), real estate (37%)
Source: 2016 Survey of U.S. Marketplace Lending released by Richards Kibbe & Orbe and Wharton FinTech
Securitization extending the impact
Institutional investors are snapping up marketplace-loan-backed securities, which package multiple P2P loans into a larger fixed-income security, a long-standing practice with mortgages, auto loans and credit card debt.
P2P lending securitization by quarter
Q1 2016 – $1.5 billion
Q2 2016 – $1.7 billion
Q3 2016 – $2.4 billion
Q4 2016 – $2.4 billion
Q1 2017 – $3.0 billion
Q2 2017 – $3.0 billion
Q3 2017 – $2.6 billion
Q4 2017 – $4.4 billion
Financial service providers getting involved
Investing in securitized marketplace loans
Supplying lendable capital to P2P platforms
Sharing customers and business with a marketplace lending platform
Acquiring a marketplace lending platform
Providing administration services to investment managers’ P2P funds
Partnerships proving advantageous
Banks and investors are providing complementary — and valuable — business practices to marketplace lending platforms.
Origination and underwriting expertise
Capital accessible through existing distribution channels
Administration of P2P funds securitized debt investments
Reporting with transparency and real-time pricing and performance information
Artificial intelligence and machine learning to drive data and borrower insights
With billions of dollars pouring in, the marketplace lending market will continue to grow — as will the need for P2P platforms and fund managers to leverage outside expertise to keep their operations going at peak efficiency.