March 30, 2021 | Stamford, CT — A combination of technological innovation, improved transparency and investor demand for yield has put the $250 billion marketplace lending market on a trajectory for explosive growth. 

In a period of historically low interest rates and high market volatility, personal loans are an attractive target for investors. They are relatively short in duration, have relatively high yields and are uncorrelated to traditional stocks and bonds. However, until very recently, factors like the market’s small size, limited transparency and lack of a liquid secondary market limited institutional investment. 

A new breed of fintech providers is using technology to address these issues and create a foundation that could open up fascinating new possibilities for borrowers and investors alike. 

“With fintech firms now at the heart of nearly 40% of all personal loans, their impact on the asset segment is growing and increasingly drawing in institutional investors who, in the past, have seen the market as too small or lacking in transparency,” says Kevin McPartland, Head of Research in Greenwich Associates Market Structure and Technology and author of The Next Phase of Marketplace Lending: Transparency and Trading.

Better Technology and Data Creating Virtuous Circle
These new technology platforms collect and verify data from borrowers, often hundreds of non-standard data points, and make this information available to potential lenders. Potential lenders can then pair historical borrower data with historical loan performance to make precisely risk-managed borrowing positions. This essentially enables anyone with quantitative modeling skills to underwrite consumer loans as if they were a legacy bank.

“We expect continuous innovation in this space to attract not only issuers and long-term investors, but also institutional market makers who are always seeking a new market in which to apply their quantitative trading skills,” says Kevin McPartland. “It’s a virtuous circle.”