Examining marketplace lending — how it affects borrowers, lenders and investors alike

Section 1: Marketplace lending platforms: a brief history.

In 2006, Prosper opens as the first P2P lender in the U.S. In 2007, LendingClub starts operations. In 2008, the SEC requires Prosper and LendingClub to register their offerings as securities. In 2012, the Jumpstart Our Business Startups Act includes P2P lending for small and midsize businesses. In 2014, LendingClub goes public on the NYSE. In 2015, Regulation A+ allows nonaccredited investors to join in crowdfunding opportunities with limits.

Sources: NYSE, media reports.

Section 2: Soaring growth, then a pause.

Issues at one lender dampened enthusiasm for marketplace lending in 2016, but analysts expect an extended rebound.

Marketplace lending in the Americas was 7.6 billion in 2014, 18 billion in 2015, 21.1 billion in 2016, and is projected to be 898 billion globally in 2024.

The projected compound annual growth rate of marketplace lending from 2016 to 2024 is 48.2 percent.

Sources: University of Cambridge Centre for Alternative Finance, Majesty Alliance.

Section 3: Institutional investors capitalizing on opportunities.

Marketplace lending investing is valuable because the 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.

The percent of institutional investors polled very or somewhat familiar with marketplace lending was 75 percent in 2015 and 82 percent in 2016. The percent of institutional investors polled with capital invested in marketplace lending was 29 percent in 2015 and 50 percent in 2016.

The top three most targeted loan types in 2015 were small business at 31 percent, consumer at 28 percent and real estate at 24 percent. In 2016 the top three most targeted loan types were unsecured consumer at 52 percent, small business at 46 percent and real estate at 37 percent.

Source: 2016 Survey of U.S. Marketplace Lending released by Richards Kibbe & Orbe and Wharton FinTech.

Section 4: 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.

Lending was 1.5 billion USD in Q1 2016, 1.7 billion USD in Q2 2016, 2.4 billion USD in Q3 2016, 2.4 billion USD in Q4 2016, 3.0 billion USD in Q1 2017, 3.0 billion USD in Q2 2017, 2.6 billion USD in Q3 2017 and 4.4 billion USD in Q4 2017.

Source: PeerIQ

Section 5: Financial service providers getting involved.

Providers are investing in securitized marketplace loans, supplying lendable capital to P2P platforms, sharing customers and business with a marketplace lending platform, acquiring a marketing lending platform and providing administration services to investment managers’ P2P funds.

Section 6: Partnerships proving advantageous.

Banks and investors are providing complementary – and valuable – business practices to marketplace lending platforms.

These include origination and underwriting expertise, capital accessible through existing distribution channels, administration of P2P funds and securitized debt investments, reporting with transparency and real-time pricing and performance information and artificial intelligence and machine learning to drive data and borrower insights.

Section 7: Robust expectations.

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.

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