Marketplace loan securitisation goes mainstream

Bolstered by regulatory changes, low interest rates and new data-driven technologies, marketplace lenders are starting to revamp global credit markets and revive the flailing securitisation industry.

Marketplace loan asset-backed securities will become more commonplace, due to the extra control that online lending platforms can exert over the securitisation process, according to John Owen Waller, managing director of London-based SCI, the structured credit investor.

“It seems like a different era. Just two years ago, the phrase 'marketplace lending' was a relatively obscure term, used interchangeably with peer-to-per lending to describe the creation of credit via start-up platforms serving individuals who were being badly served by traditional banks," he noted.

“Marketplace lending is now an established sector, banks are now in on the act too, and securitisations of marketplace loans, now mainstream, will reach a cumulative US$25 billion in value sometime this year.

“The prospect of securitisation of marketplace loans created some frankly embarrassing headlines in the mainstream press about risky securities; we were apparently back to collaterised debt obligations (CDOs) and the roof was about to fall in again,” he added referring to CDO’s shouldering the blame for the global financial crisis.

As Waller sees it, marketplace loan ABS deals are now mostly rated, are generating a track record and many platforms and funds are becoming regular issuers. “This naturally ticks a lot of boxes for institutional investors."

Interest in tapping the rated ABS market is growing among some marketplace lending platforms because securitisation offers a way for them – as originators of cashflow assets – to finance their assets and attract a new class of investors who are attracted to the yields and diversification offered by marketplace lending securitization.

Most loans are bought from more than one loan originator since a multi-seller deal offers more originator diversification and is potentially less risky. Some research houses see as much as US$290 billion in global marketplace loan issuance by 2020.

“Outside the US, China, the UK and at some point Australia, are pegged as markets to watch,” Waller added.

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