The online peer lending business will develop into a trillion dollar market by 2023. Fiona Grandi of KPMG told delegates at the Cayman Alternative Investment Summit, which took place in Grand Cayman last week (February 4-5).
Grandi made the forecast, saying that the speed and access these platforms provide is incredible, resulting in some fundamental changes for the business of getting credit. “Some people will never walk up to a teller window,” she said.
The consumer finance business has evolved, because banks are not providing loans and there is a high need for credit, while investors have been searching for yield. Banks like Deutsche Bank are invested and Nicole Byrns of Deutsche said they take a strong underwriting view, with a strong focus on the verification process, which gives the platforms the ability to find high quality borrowers.
Ron Suber, president at Prosper Marketplace, described the underlying market dynamic as a secular change. “My kids don’t do anything the way that we did and that generation is looking for something different. We are reimagining and disrupting banking, just like the auto industry is with driverless cars and Uber,” he said.
Chris McChesney of Brown Brothers Harriman said the structural change to the banking sector has taken place in response to the pressure on the banks and their retreat. “We are seeing the development of a completely new category of private equity,” he said. “It’s quite remarkable.”
Online non-bank lending has become an important source of credit and there is now $100 billion of activity with around 100 funds participating, McChesney said. “There is broad participation by fund sponsors, with private equity and fixed income managers involved.”
Deutsche’s Nicole Byrns said it is very much a partnership between the banks and the alternative lenders and the development of the securitisation market is a key focus for the banks. Prosper has led the charge, she said highlighting the recent sale of a large block of Lending Tree loans to JP Morgan, adding that Deutsche wants to see the development of a secondary market, where these loans can be traded.
Cayman Alternative Investment Summit, Fiona Grandi, KPMG, Cayman