Marketplace lending will survive and thrive, says Deloitte

By Ryan Weeks on Wednesday 8 March 2017

Alternative Lending

New report from Deloitte sees marketplace lenders maturing, argues they could serve as credit cycle indicator.

The latest report from Deloitte on the marketplace lending sector in the US sees a brightening future for the industry, suggesting that it will become increasingly intertwined within the broader lending landscape.

The report considered the fact that the sector remains untested through a downturn at length. The authors asserted that while a fall in credit cycle seems unlikely in 2017, there are signs that “point to perhaps the beginning of a downward trajectory on the not-too-distant horizon”.

The report cites several factors, such as the continued relaxing of bank standards, in evidencing this downward trajectory. Meanwhile there are clear signs of credit standards loosening within the US marketplace lending sector, with auto-lending seeing a particularly noteworthy spike in sub-prime borrowers.

Nevertheless, Deloitte remains “convinced that marketplace lending itself will survive and thrive as a model as the success cases continue to execute with rigor, and become ever more entwined into the lending market as a whole”.

The report also stressed that marketplace lending remains very small in the context of outstanding unsecured consumer credit in the US, which stands at $3.7 trillion.

Playing into Deloitte’s sense of confidence is the continued maturation of the marketplace lending sector. Key facets of that process are the recent changes that have been made by some of the sector’s leading players. Interest rate adjustments from the likes of Prosper and Lending Club, in response to movements in the Fed rate, and increasingly hybridised funding models were each cited by the report as evidence of maturation.

Continued activity within the securitisation space was also pointed to. “Analysts who pontificated that the end of the Prosper-Citi securitization relationship was a sign that the market for marketplace lending-backed securitization was faltering have been proved wrong,” wrote the report’s authors. “The pace and depth of securitizations in the online lending space has not abated.”

Commenting on the formation of such organisations as the Marketplace Lending Association and the Innovative Lending Platform Association, the report also said that the industry had “astutely grasped that establishing a position in a sector that has historically been rife with economy-breaking transgressions requires proactive measures”.

And while regulatory problems such as the Madden vs. Midland case continue to plague the industry, Deloitte believes that the proposed OCC federal fintech charter could be a game-changer.

Equally ground-breaking, according to Deloitte, would be the widespread adoption of blockchain technology, which the consultancy firm seems as a natural fit for marketplace lenders.

The report states the following: “Marketplace lending is a natural to join the pioneer use cases for blockchain in that it: 1) is a small and focused enough market with transaction volume for a shared network; 2) comprises techsavvy companies open to integrating new technology; and 3) comprises nimble players without the size and baggage of complex legacy systems that inhibit integrating blockchain into their core operations.”

The continued growth of the industry, both in terms of volumes and sophistication, has Deloitte forecasting increased convergence between marketplace lenders, banks, and other parties – in tandem with the broader lending industry becoming more and more reliant on technology.

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