Marketplace Lending: From the Inside, Looking Out

Abstract

Over the past decade, we have seen the emergence of a new class of investing known as “marketplace lending,” a growing phenomenon that uses technology to fund billions of dollars in loans across multiple asset classes. At its most basic level, marketplace lending refers to the distributed funding of loans to consumers or businesses, which may or may not take place through a bank intermediary. As an alternative or supplement to balance sheet funding and securitization, loan originators can choose to fund their lending activity through whole-loan sales to diverse groups of investors using an online marketplace. Within a few short years, a multibillion-dollar market with a diverse ecosystem of participants has developed. Although an increasingly large percentage of loans are being gobbled up by asset managers, banks, insurance companies, and hedge funds, institutional capital is finding additional ways to penetrate the market, given the insatiable appetite of yield-hungry investors and a supplyconstrained industry. The overwhelming demand has given rise to a number of marketplace lending securitizations. The U.S. Department of Treasury held its first-ever Marketplace Lending Forum this summer, to discuss 1) the potential for marketplace lending to serve as a new avenue for access to credit by underserved segments of consumers and small businesses and 2) the need to resolve regulatory uncertainty in an efficient and mutually beneficial way. We see all of this activity as a validation of the efforts of so many to develop this industry into a meaningful part of the financial landscape.

TOPICS: Fixed income and structured finance, legal/regulatory/public policy