22 April 2018
Visit https://aciworldwide.webex.com

Securitisation could lead to new phase of growth for marketplace lending

06 March 2018  |  2176 views  |  0 Source: Greenwich Associates

Marketplace lending, formerly known as “peer-to-peer” loans, could be entering a new phase of growth, as fintech lenders start packaging their loans into securitized financial products that could attract major investment from institutions.

Among the investors participating in a new Greenwich Associates study, 30% of institutions not currently investing in marketplace loans (MPL) are watching the space or conducting research and due diligence on the asset class—a level of interest that suggests future institutional involvement is on the horizon.

“Even a small proportion of institutions allocating to MPL could have a huge impact on the industry overall—and securitization could be the key to unlocking those assets,” says Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates, and author of Marketplace Lending Finds a Place in Institutional Portfolios.

Over the past decade, marketplace lending established itself as more than a niche industry for consumers and small businesses. These loans are facilitated by marketplace lending platforms like LendingClub, Prosper and SoFi—all of which use sophisticated technology tools to connect borrowers to a diverse array of lenders and provide advanced credit reporting and analytics. To date, this lending activity has focused mainly on the consumer, student, small business, and real estate sectors.

This growth has attracted the attention of institutional investors who have seen the loans as a source of higher yield and diversification in an era of low interest rates. However, several obstacles have prevented institutions from moving into the asset class. Chief among them are the sector’s lack of performance history, minimal levels of liquidity, a lack of credit ratings on some loans, and internal investment guidelines that restrict many institutions from purchasing assets that are not securities.

Securitization solves many of these problems. The first marketplace loans were securitized in September 2013, and the trend has accelerated rapidly since then. Cumulative issuance now stands at $28.2 billion, with $4.4 billion issued in Q4 2017.

“Not only does securitization open up marketplace lending to a new class of investor/lender,” says Richard Johnson, “but these lenders can write much bigger checks than a typical retail investor, and are a more stable source of funding for loans they originate.”

Comments: (0)

Comment on this story (membership required)

Related blogs

Create a blog about this story (membership required)
Visit https://aciworldwide.webex.comVisit www.abe-eba.eu

Top topics

Most viewed Most shared
Top tier banks pass first transactions on trade finance blockchainTop tier banks pass first transactions on...
11860 views comments | 20 tweets | 27 linkedin
TransferWise becomes first non-bank to open settlement account with BofE RTGSTransferWise becomes first non-bank to ope...
10254 views comments | 18 tweets | 32 linkedin
Revolut launches spare change savings toolRevolut launches spare change savings tool
9987 views comments | 14 tweets | 19 linkedin
Barclays Bank sets up tech venture unitBarclays Bank sets up tech venture unit
9287 views comments | 16 tweets | 22 linkedin
Goldman Sachs acquires PFM startup Clarity MoneyGoldman Sachs acquires PFM startup Clarity...
8663 views comments | 9 tweets | 10 linkedin

Featured job

Find your next job