By Ryan Weeks on Wednesday 5 October 2016
More marketplace lenders will tap up financial markets for access to “stable funding”, according to new report from Moody’s.
Major ratings agency Moody’s thinks that securitisation could come to form a key funding channel for marketplace lenders. Moody’s, which only last week rated the senior tranche of Zopa’s inaugural securitisation AA, has published a new report entitled: “Cross Sector: Marketplace Lending Securitisation to Fund Fintech Lenders' Pursuit of UK Banks' Consumer Loan Business”.
The report says that the temporary institutional financing facilities that are currently prevalent across the marketplace lending space are a natural fit to be converted into securitisation structures upon their expiry. MW Eaglewood was the original investor in the securitised Zopa loans in Moca 2016-1. KLS Diversified Asset Management was the initial investor in SBOLT 2016-1 – Funding Circle’s debut securitisation – which Moody's also rated.
"Most Fintech consumer lenders may tap financial markets for their growth trajectory, liquidity, and for a more stable funding. Securitisation will provide access to new investor bases, widening their access to institutional capital," said Greg O'Reilly, an Assistant Vice President and Analyst at Moody's.
Moody's was at pains to highlight the differences between the UK and US consumer marketplace lending sectors. The key distinction drawn by the report was that UK lenders – like Zopa and RateSetter – have mostly focused on prime borrowers, while US lenders have tended to focus on borrowers with weaker credit profiles. Moody’s says that this is reflected in the lower default rates that have been experienced by UK-based platforms to date, and reflected in turn in the higher default projections for US marketplace lending transactions that have been rated by Moody’s. The report does note, however, that the need to “cover the fixed costs of brand-building, customer acquisition, and technological investment” may cause some lenders in the UK to move down the credit scale.
As of July 2016, UK net consumer lending grew to £121bn, up from £115bn in the previous year, according to the report. The UK’s marketplace lending sector originated £1,118,774,262 in consumer loans across that same period, according to AltFi Data Analytics. Moody’s says that marketplace lending platforms accounted for 3 per cent of the UK’s net consumer loans in Q2 2016, and have been pivotal in the growth of “fintech consumer lending” in the UK.
The below tables (taken from the report) show that demand for consumer credit in the UK is growing, while also giving some context as to how competitive the rates charged by marketplace lenders are.