The digital age has altered the way consumers and financial institution lenders are doing business, and the emergence of online marketplace lending, particularity in the mortgage space, has provided a medium for transactions to occur between the two from anywhere.
The U.S. Department of Treasury issued a white paper titled, “Opportunities and Challenges in Online Marketplace Lending,” Tuesday that dives into the sector of online mortgage lending taken from 100 responses to a request for information (RFI) from online marketplace lenders, trade associations, consumer and small business advocates, academics, investors, and financial institutions.
"Advances in technology and data availability are changing the way consumers and small businesses secure financing. Leveraging these developments, online marketplace lenders offer faster credit to consumers and small businesses," the report said. "Over the past ten years online marketplace lending companies have evolved from platforms connecting individual borrowers with individual lenders, to sophisticated networks featuring institutional investors, financial institution partnerships, direct lending, and securitization transactions."
The online lending marketplace is just a small part of the overall market but is growing at a rapid pace. The Treasury noted that market analysts identify a $1.0 trillion addressable market for online marketplace lenders (excluding mortgages), and estimate loan origination volumes could reach $90.0 billion by 2020. Although these online marketplace lenders are beginning to offer mortgage and auto loans, it is still a small share of the total market.
"Beyond general unsecured consumer, student, and small business loans, online marketplace lenders are moving into the mortgage and auto loan markets. Although still nascent businesses for online marketplace lenders, existing online marketplace lenders view auto loans and mortgages as having the potential to help them broaden and retain their customer bases," the report said. "Additionally, some new entrants are building niche businesses that focus exclusively on mortgages or auto loans. RFI responses acknowledged the potential role of technology and data in the residential housing market.The mortgage lending and auto loan markets are still in early stages of development for online marketplace lenders, and Treasury will continue to monitor origination volumes and loan performance as the sector matures."
The Treasury made the following suggestions to the federal government and private sector participants to encourage safe growth and access to credit through the continued developments of online marketplace lending:
1. Support more robust small business borrower protections and effective oversight;
2. Ensure sound borrower experience and back-end operations;
3. Promote a transparent marketplace for borrowers and investors;
4. Expand access to credit through partnerships that ensure safe and affordable credit;
5. Support the expansion of safe and affordable credit through access to government-held data; and
6. Facilitate interagency coordination through the creation of a standing working group for online marketplace lending.
Click here to view the full report.