Does marketplace lending represent a disruptive threat to
banks' core lending and deposit-gathering business? Or are they
a temporary phenomenon? And how should banks respond to these new
The combination of new technologies, increased regulation and
ever-evolving consumer demands is eroding many of the banks'
core competitive advantages, creating ideal conditions for new
market entrants to challenge the traditional banking model.
'Marketplace lending – a temporary
phenomenon?' analyses the extent to which the
traditional banking model is being disrupted by the rise of
Marketplace Lenders (MPLs) and seeks to answer the following
Is marketplace lending a temporary phenomenon? Does it
constitute a disruptive threat to banks' core lending and
deposit gathering business? Or is it, instead, a sustaining
What should banks do to react to the emergence of the MPL
MPLs are online platforms that enable investors to lend to
retail and commercial borrowers. Unlike banks, MPLs do not take
deposits or lend themselves; as such they do not take any risk onto
their balance sheets. They make money from fees and commissions
received from borrowers and lenders.
The rise of Marketplace lending has urged many commentators to
highlight the potential disruption that such new business models
may bring to traditional banking. Our research presents a different
opinion and instead concludes that MPLs do not currently have the
competitive advantage needed to threaten this traditional banking
model. However, while they may not fully disrupt the model, we do
expect them to be a continued presence within the ever evolving
We believe there is significant consumer benefit to be had by
supporting the development of an innovative MPL sector. Banks
should therefore view MPLs as complementary to the core model,
rather than as core competitors, and explore opportunities to
enhance their overall customer propositions through
The rise of marketplace lending may also present a unique set of
opportunities for asset managers by providing access to a new asset
class that will potentially offer higher returns and is gradually
becoming more investible. This is largely because:
Securitisations and a secondary market for these loans will
improve their liquidity
Asset managers can bring innovative funding vehicles, such as
closed end funds, that can make them stand out vs peers
The involvement of asset managers will help
'professionalise' the sector
As more asset managers move into this market, we expect to see
tighter regulation of MPLs, thereby broadening the appeal to a
wider range of asset managers
However, as more asset managers get involved in this market,
competition for these assets will rise, which may squeeze returns.
Competition is also likely to force asset managers to increase
exposure to smaller loan sizes and potentially riskier loans. Asset
managers must therefore make sure this maps up with their
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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