Marketplace Lending Maturation and an Evolving Ecosystem

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As marketplace lending evolves and matures, the combination of technology and finance continues to create a more sustainable ecosystem positioned to grow and expand across asset classes. For more than a year we have been seeing a convergence between marketplace lenders and traditional financial institutions and the fact is that they are very complimentary to one another – when they are not competing.

To support growth and solidify funding strategies, marketplace lenders (MPLs) must meet the rigorous requirements of investors to establish trust and to access the secondary market.

Recently, eOriginal’s President and Founder Steve Bisbee participated at IMN’s Investors’ Conference on Marketplace Lending in New York in a session titled, Less Tech, More Fin? Is Marketplace Lending Going Against the Industry it was Founded On?

Panelists included:

  • Steven Dresner, Founder and CEO of DealFlow Financial Products
  • Al Goldstein, CEO, Avant
  • Noah Breslow, CEO, OnDeck
  • Chuck Weilman, Managing Director, DBRS

During the presentation, thought leaders focused on the evolution of marketplace lending, advantages and disadvantages of various strategies such as bank charters, partnering with traditional financial institutions and growth factors.

Marketplace Lenders Gain Market Share

For MPLs, working with banks is productive, but more precisely an important maturation of the industry as it takes more proactive role in its own stewardship. According to a Transunion study, fintechs averaged an 8.7-percent return compared to 6.7 percent for banks and 6.3 percent for credit unions. Traditional finance companies average the highest return at 11.5 percent.

We know MPLs are very good at originating and finding borrowers. And as the TransUnion study showed, they continue to gain market share and – surprisingly to some – they are performing better than traditional methods. Conversely, traditional financial institutions have the structures in place to ensure compliance and has the confidence of the secondary markets. As a result, it has the access to capital the MPLs need to grow.

One of the next steps will be for smaller MPLs to navigate the changing landscape to determine how and where they will fit. For instance, many may evolve into service providers that are plug-in origination platforms that enable consumer lending for traditional financial institutions.

Capital is Critical

From an investor perspective, there is a critical need for transparency and a level of reps and warranties from marketplace lenders.

There is too much opportunity in front of marketplace lending to overlook the importance of enhancing confidence and acceptance from investors, who have a greater interest than ever in the MPL space. At the end of the day, innovative marketplace lenders must commit to transparency and due diligence to accelerate capital investment into the industry.

Fortunately, securitization numbers are confirming the maturation of the industry and digital platforms are being utilized in the secondary market that protect the interests of investors. According to Peer IQ, there were six marketplace lending securitizations with quarterly issuance of $2.6Bn in 3Q2017. This represents a 7.6 percent growth issuance over 3Q2016 and to date, cumulative issuance equals $23.8 billion across 96 deals.

Certainty and Confidence in the Secondary Market

It is essential to mitigate risk and establish confidence with each and every asset and transaction. To learn more about how transparency for investors can help your organization, we invite you to read our recent white paper, Creating Securitization eCertainty in the Secondary Market. Download

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