The Institute for Financial Services Zug IFZ of the Lucerne School of Business, the Swiss Marketplace Lending Association (SMLA) and TMF Group, launched The Marketplace Lending Report, the first comprehensive analysis on the financing of Swiss companies, public corporations, and private individuals with debt capital via the internet.
The report highlights that new technologies, the low interest rate environment, and changing customer behaviours are eroding some of the banks' core competitive advantages and are leading to the emergence of new business models that might challenge the traditional banking model. Online platforms of marketplace lenders enable investors to lend debt capital to commercial and retail borrowers as well as to public corporations. Lenders can be private individuals or professional and institutional investors such as insurances, funds, pension funds, banks, family offices, or other legal entities. Unlike banks, marketplace lenders do not take deposits or lend themselves. Therefore, they do not add any risk to their balance sheets.
More specifically, the development of marketplace lending is interesting as it has the potential to disrupt traditional banking models: the transaction volume on these platforms in Switzerland reached CHF 15.4bn in 2020, the report reveals. The first comprehensive analysis on online financing solutions in Switzerland also shows which marketplace lending models are evolving and what market share the marketplace lenders have in the various segments.
Market volume almost tripled since 2017
The study reveals that the total volume of new debt capital brokered through online platforms reached about CHF 15.4bn in 2020. Since 2017, the volumes of marketplace lending transactions in Switzerland almost tripled. From 2019 to 2020, the overall market volumes (new loans/bonds) grew by 42.5%. However, the volumes and growth rates of the segments are very different. The segment of crowdlending loans reached CHF 448.0m in 2020. The market segment of mortgage loans brokered on platforms and financed by institutional and professional investors reached CHF 5.5bn in 2020. The segment of loans and bonds for mid-sized and large corporations as well as public entities reached CHF 9.4bn in 2020.
Crowdlending segment impacted by Covid-19 crisis
While the crowdlending segment grew overall by 7.1% in 2020, certain types of loans were heavily affected by Covid-19. The decline in SME lending was a direct effect of the Swiss government's Covid-19 loan programme. Between March and July 2020, businesses could submit loan applications to banks to bridge Corona-related liquidity shortages. The government's programme resulted in crowdlending platforms transacting significantly fewer loans during this period. The consumer loan segment was also heavily affected by the Covid-19 crisis, as consumption of private individuals declined in 2020, leading to fewer applications for consumer loans. On the other hand, mortgage-backed loans grew strongly and led to an overall growth of the volume in the crowdlending segment.
Mortgage loans on brokerage platforms with a market share between 3% and 3.5%
Mortgage loans constitute Switzerland's largest debt capital market in terms of volume. Brokerage platforms reached a volume of approximately CHF 5.5bn in 2020, representing a market share in the range of 3 to 3.5% of new mortgage loans issued in 2020. Such platforms have been online since 2012. Banks have also started to build up these marketplaces in recent years.
Loans to public entities a well-established market on platforms
Measured by the market share, the segment of loans to public entities has clearly reached the highest relevance of all marketplace lending segments. The study authors' estimate that around 10 to 15% of all loans to municipalities, cities and Cantons in Switzerland are brokered on platforms. The loan volume was 9.4bn in 2020.
Platforms for debt capital are innovation drivers in Switzerland
Simon Amrein and Andreas Dietrich, authors of the study, commented: "Many platforms for online debt financing are innovation drivers in the Swiss debt capital market. Crowdlending platforms, for example, were among the first to provide mainly digital lending processes for SME and consumers in Switzerland. Platforms for lending to public entities (municipalities, cities, cantons) have already captured a substantial part of this market segment and brokered a high number of these loans at lower costs since 2016. Finally, 2020 has seen the first digital bond issuances on Swiss platforms, establishing a new segment online and increasing book building transparency of such transactions. Moreover, we expect the market to recover and growth rates to accelerate post-Covid."
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