Deloitte Uk Fs Marketplace Lending
Deloitte Uk Fs Marketplace Lending
Deloitte Uk Fs Marketplace Lending
lending
A temporary
phenomenon?
Foreword 1
Executive summary
11
23
24
30
32
Conclusion 35
Appendix 36
Endnotes 37
Contacts 40
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Foreword
Foreword
As explored in Deloittes Banking disrupted and Payments
disrupted reports, and Deloittes The Future of Financial
Services report, produced in collaboration with the World
Economic Forum, a combination of new technology
and regulation is eroding many of the core competitive
advantages that banks have over new market entrants.
These structural threats have arrived at a time when
interest rates are at historic lows, and seem likely to
remain lower for longer. Combined with an increase
in regulatory capital requirements, these changes are
making the goal of generating returns above the cost of
(more) capital a continuing challenge.
At the same time, customer expectations are changing.
Consumers experience of digital in industries such as retail,
accommodation and transport is heightening expectations
for convenience and immediacy. And consumers are
increasingly willing to experiment with new providers, even
for services where trust is required. This is creating ideal
conditions for technology-enabled entrants to challenge
the integrated banking model.
Marketplace lenders (MPLs) are leveraging all of these
trends to attack one of the core profit-generating
activities of commercial banks: lending. The MPL model
is built around modern technology that enables highlyefficient customer acquisition, approval and servicing
activities within a relatively light-touch regulatory
environment. Most banks operating models, by contrast,
include legacy IT expenses, significant regulatory
overheads and the mature collections and recoveries
function that is needed to service an aged book. All these
are factors that add to the average cost of a loan. Many
commentators recognise the significant cost advantage
that this will give MPLs and are highlighting the resultant
disruptive threat that MPLs represent to the traditional
banking business model.
Neil Tomlinson
Head of UK Banking
Executive summary
In this publication, we and our refer to Deloitte LLP, the UK member firm of Deloitte Touche Tohmatsu Limited.
2
Executive summary
Loan
Saving(s)
Loan(s)
MPL
Interest on
saving(s)
Depositor(s)
Bank
Interest and
loan repayment(s)
(Fees/commissions)
Borrower(s)
Lender(s)
Loan repayments
Borrower(s)
$22,732
CAGR:
163.3%
$20,000
$15,000
$10,653
$10,000
$4,114
$5,000
$1,529
$473
$0
2011
LendingClub
Prosper
2012
SoFi
OnDeck
2013
Avant
2014
2015
Other
Source: Direct Lending: Finding value/minimising risk, Liberum, 20 October 2015, p.6.
See also: http://www.liberum.com/media/69233/Liberum-LendIt-Presentation.pdf; Deloitte analysis
* Figures are rounded to the nearest million
Notary model
The widely adopted model for US marketplace lenders is
the so-called notary model,4 in which:
borrowers apply for a loan on a marketplace platform
accepted loan applications are then originated by a
partner bank (LendingClub and Prosper use Utah-based
WebBank); the MPL performs the underwriting of the
loans, using criteria agreed with the partner bank5
platforms purchase the loan from the partner bank6
the platform issues a note to lenders, instead of a
contract.7
Institutional investors
Institutions, including hedge funds, private equity
firms and banks, provide the bulk of lending through
marketplace platforms in the US.9 Such investors,
which are able to use due-diligence services offered by
intermediaries such as Orchard,10 can also use their own
risk models to cherry-pick under-priced loans on the
platforms. (The Peer-to-Peer Finance Association (P2PFA)
has prohibited this practice to its members in the UK.)11
Partnerships between banks and MPLs are becoming
increasingly common in the US. BBVA Compass bank,
for example, partners with OnDeck to originate small
business loans through the platform by referring
customers for smaller loan amounts.12
Securitisation
The development of marketplace lending in the US has
been so strong and rapid that there is now demand
for securities backed by marketplace loans, as they
have become an investment-worthy asset class in their
own right. This has added liquidity to the market, and
may help to lower the cost of funding. There were
approximately 40 MPL securitisations up until Q4 2015,17
and the market has also seen its first rated securitisations.
One MPL, SoFi, which offers loans to creditworthy
students at lower rates than the government or
traditional lenders, was the first to receive a triple-A
rating for a marketplace loan-backed securitisation.18
Prosper, too, has securitised US$327 million of its loans
with the participation of the BlackRock investment
management firm.19
What lies ahead?
The US market has already witnessed increased
collaboration between banks and marketplace lenders,
and Deloitte expects stronger integration of this sort
to take place in the future. Such partnerships will help
marketplace lenders to increase awareness among
borrowers and investors, gain scale and possibly lower
their customer acquisition costs.
338
165
23
29
6 26
2010
MPL business lending
32
6 62
2011
65
174
9
3
2013
CAGR:
87.3%
543
CAGR:
88.2%
126
CAGR:
83.8%
284
54
2012
669
2014
2015
2,739
CAGR:
109.4%
1,114
CAGR:
81.2%
1,625
CAGR:
171.6%
1,534
568
648
57
68
11 57
2010
91
34
125
2011
205
2012
80
284
2013
2014
2015
0.05%
0.96%
0.003%
0.51%
Source: Liberum AltFi Volume Index, AltFi Data, data as of 26 February 2016.
See also: http://www.altfi.com/charts/charts/uk-volume_chart.php; Bank of England; Deloitte analysis
*MPL business lending includes real estate loans and invoice trading, figures are rounded to the nearest million
966
364
Figure 5. Estimated aggregate institutional participation in loans originated by Funding Circle, Zopa and RateSetter
110.6
Loans originated (monthly, million) and share of institutionally funded loans (%)
103.4
100
88.5
Loans originated
84.0
80
71.0
62.1
60
52.2
53.4
57.8
59.1
0.1
0.1
84.1
80.6
71.5
57.4
57.5
56.1
64.5
81.2
0.2
0.4
1.6
6.6
65.5
7.3
6.5
Jul-14
10%
17.0
13.6
20.4
16.0
15%
70.1
61.1
20
0
25%
86.1
85.9
76.9
61.9
30%
20%
70.4
52.1
98.4
68.4
62.7
40
53.3
111.8
26.5
30.6
22.8
21.5
Jan-15
5%
120
0%
Source: Is P2P Lending a thing of the past?, AltFi Data, 19 May 2015.
See also: http://www.altfi.com/article/1055_is_p2p_lending_a_thing_of_the_past, Deloitte analysis
Finally, any search for a personal loan on key aggregator sites shows the increasing pervasiveness of MPLs. Overall, MPLs
look highly price-competitive, particularly for lower-value loans (see Figure 6).
Figure 6. UK personal loan annual percentage rates (APRs) for three-year duration loans, MPLs and banks
35%
30%
25%
20%
15%
10%
5%
0%
1,000
MPLs
5,000
10,000
25,000
Banks
Source: MPL and bank websites, Uswitch.com, Deloitte analysis. Data as of 23 February 2016
In addition, the amount of direct equity investment in MPL platforms (UK MPLs raised more than US$220 million in
equity capital in 201532), and the amount of institutional money being channelled through MPLs into consumer and
SME lending, suggest that sophisticated players are backing this sector to grow significantly.
The key question is whether the momentum we are currently witnessing could progress to cause a profound
disruption of banking (and possibly some elements of asset management), or whether MPLs will turn out
instead to be a sustaining innovation: one that forces incumbents to up their game in core markets and that
may pioneer the provision of credit into previously under-served segments, but that does not fundamentally
change the financial services landscape.
Given that the market-penetration achieved by MPLs is to date still well below one per cent, and that the ability to lead the
market for pricing on loans does not necessarily indicate superior or sustainable risk management or cost control, it is worth
investigating such broad assertions in detail. Essentially, the case for MPL disruption is built on four potential sources of
sustainable competitive advantage:
an ability to use public data to (safely) overcome incumbents data advantage in scoring risk,
potentially going on to achieve better risk-pricing by taking a more agile Big Data-based approach
an ability to better absorb and diversify risk by matching the appetite of borrowers and
investors for both risk and duration.
The next three sections review these factors to understand whether MPLs constitute a truly disruptive threat to banks.
We then use our findings to determine our view on the potential market size of marketplace lending in the UK.
10
+200 bps
-85 bps
800 bps
720 bps
+200 bps
+270 bps
460 bps
+215 bps
Loan operating
expenses
Deposits
operating
expenses
Funding
costs
Loan
losses
Fees,
Total Unsecured
commissions
personal loan
and other income
Total Retail
buy-to-let mortgage
Total Unsecured
SME loan
+500 bps
+45 bps
815 bps
715 bps
500 bps
+90 bps
+180 bps
Operating
Operating expenses Loan funding
expenses
attributable to
costs (ie. return
attributable to
lenders
to lenders)
borrowers
Platform
funding costs
Total Unsecured
personal loan
Total Retail
buy-to-let
mortgage
Total Unsecured
SME loan
11
MPLs costs
will rise by
more than
banks as
the credit
environment
normalises
and interest
rates
increase.
Figure 8. Costs of funding an unsecured personal loan: banks and MPLs, current and normalised credit environments
Bank loan, % of loan amount (bps)
Total cost of
attracting funds:
470 bps
270 bps
50 bps
60 bps
Total cost of
attracting funds:
530 bps
not interest
rate sensitive
Total cost of
attracting funds:
635 bps
90 bps
45 bps
total increase:
25%
not interest
rate sensitive
Total cost of
attracting funds:
795 bps
90 bps
55 bps
270 bps
70 bps
65 bps
interest rate
sensitive
90 bps
125 bps
Current credit
environment
Normalised credit
environment
500 bps
interest rate
sensitive
Current credit
environment
650 bps
Normalised credit
environment
Equity
Wholesale
Returns to lenders
Deposits
12
total increase:
13%
Base rate
1-Sep-07
1-Jan-07
1-May-07
1-Sep-06
1-Jan-06
1-May-06
1-Sep-05
1-Jan-05
1-May-05
1-Sep-04
1-May-04
1-Jan-04
1-Sep-03
1-Jan-03
1-May-03
1-Sep-02
1-Jan-02
1-May-02
1-Sep-01
1-Jan-01
1-May-01
1-Sep-00
1-Jan-00
1-May-00
1-Sep-99
1-Jan-99
1-May-99
1-Sep-98
1-Jan-98
Term deposits
1-May-98
1-Sep-97
1-May-97
1-Jan-97
1-Sep-96
1-Jan-96
1-May-96
1-Sep-95
1-Jan-95
0%
1-May-95
1%
Current accounts
Operating expenses
In this section, we compare the operating costs incurred by banks and MPLs by examining the structural advantages for each model in making and
servicing loans (considering the operating costs associated with lending activities alone).35
Figure 10. Operating expenses of an unsecured personal loan, banks and MPLs
Unsecured personal loan, % of loan amount (bps)
215 bps
180 bps
50 bps
40 bps
45 bps
115 bps
95 bps
50 bps
Bank
Loan acquisition costs
MPL
Loan processing and servicing costs
13
Aware?
53%
aware
Used?
4%
borrowed
53%
aware
5%
lent
MPLs
47%
not aware
47%
not aware
14
91%
not used
Aware?
Used?
76%
aware
4%
borrowed
61%
aware
3%
lent
MPLs
39%
not aware
94%
not used
24%
not aware
MPLs have used a wide variety of marketing methods to drive awareness. As MPLs are innovative, digital platforms, it is interesting to note that
traditional media (TV and radio advertising in particular) represent by far the greatest source of awareness. And while early growth in the industry
is often attributed to word-of-mouth, such recommendations are not a key source of awareness at this stage (see Figure 13).
Traditional media
29%
Traditional media
17%
10%
4%
60%
11%
Digital media
8%
7%
26%
Recommendation
5%
3% 8%
16%
Don't know
/cant recall
Other
Digital media
Online advertising
(excluding social media)
Social media
Online blog
9%
Recommendation
Recommendation from
a friend/colleague
Recommendation from
a financial advisor/bank
15
16
Acquisition
Unlike MPLs, banks tend to have large existing customer
bases and the ability to drive awareness via above-the-line
advertising across a wide product portfolio. While it seems
likely that these attributes give them a material advantage in
acquiring new personal and SME loans, our research in this
area suggests that MPLs already have a surprisingly good
level of awareness: one in two retail consumers (53 per
cent) and three in four SMEs (76 per cent) are aware that
they exist36 (see the customer awareness box). Conversion
is currently relatively low: only one in 25 retail consumers
who are aware of MPLs has actually borrowed from one.
However, the ability of MPLs to spread their message via
new digital channels, to use their speedy processes to
encourage purchase, and to leverage their structurallyadvantaged risk appetite (see credit risk below) points to
the potential they have to negate the banks advantages.
Two analogies, however, provide a counterpoint to this
optimistic view of MPLs acquisition costs.
Processing/servicing
Unlike in the customer-acquisition area, MPLs have a
potential advantage in processing/servicing thanks to their
ability to design from scratch purely online channels to
handle the loans on-boarding and servicing processes.
17
18
3. Investor understanding
Deloittes consumer survey shows that the general
population has a good understanding of the risks involved
in lending through MPLs. However, a significant minority
(see Figure 14) believes that savings accounts and
government bonds are riskier than investing through MPLs.
UK regulation outlook
MPLs have a favourable view of the current size and
scope of regulation. They believe the regulation is
not overly onerous, particularly in terms of capital
requirements, allowing them to maintain one of their
key competitive advantages over banks. This light-touch
regime also allows MPLs to concentrate on growth and
innovation rather than regulatory compliance.
This suggests that the industry has not yet attained the levels
of customer understanding that the FCA is looking for.
Figure 14. Risk of lending through an MPL platform compared to other savings/investment options, retail consumers
63%
Savings account
54%
Government bonds
Corporate bonds
Stocks
Other securities
(e.g. futures, options)
8%
11%
40%
18%
34%
27%
9%
25%
23%
9%
10%
19%
26%
34%
19%
13%
22%
36%
Dont know
19
Overall, our
research gives
us limited
grounds to
believe that
MPLs will
systematically
price risk
better in
areas where
banks have
an appetite
to play.
Credit risk
Overall, our research gives us limited grounds to believe
that MPLs will systematically price risk better in areas
where banks have an appetite to play.
Supporters of MPLs point to a number of potential
areas of advantage over the traditional bank model,
including:
2010
Funding Circle
2011
RateSetter
2012
Zopa
20
2013
MarketInvoice
2014
Sector average
2015E
Our analysis
shows that
banks have a
structural cost
advantage
over MPLs.
21
22
Figure 16. Drivers behind usage of MPLs to borrow money, retail consumers
81%
72%
72%
69%
Fast decision-making
Convenience of online platform
Competitive rates
55%
53%
Repayment flexibility
Little documentation required
39%
35%
30%
22%
18%
12%
23
Turning to the other side of the market (where investors participate to lend funds), there is a potential risk to banks. This
is that MPLs might provide easy access to a new, higher-yielding asset class (see Figure 17) for those deposit-holders
whose low returns currently provide banks with their advantaged funding base. (As noted above, this advantage is the
key to banks being able to sustain their position on the borrowing side of the market.)
n13
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Ju
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Ap
Ja
MPL
Ap
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3
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-1
3
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Annual returns
8%
7%
6%
5%
4%
3%
2%
1%
0%
Lenders are also increasingly attracted to several intrinsic qualities of the MPL model, such as:
24
Annual returns
10%
8%
6%
4%
2%
0%
0%
5%
10%
15%
20%
25%
30%
S&P 500
US credit card
Source: Direct Lending: Finding value/minimising risk, Liberum, 20 October 2015, p.18.
See also: http://www.liberum.com/media/69233/Liberum-LendIt-Presentation.pdf; Deloitte analysis
25
600
500
400
300
200
100
0
1995
1997
1999
MPL proxy
2001
2003
2005
2007
2009
2011
2013
2015
S&P 500
Source: Direct Lending: Finding value/minimising risk, Liberum, October 2015, p.18
See also: http://www.liberum.com/media/69233/Liberum-LendIt-Presentation.pdf
1996 Q4
Consumer credit
1999 Q4
Businesses
2002 Q4
2005 Q4
2008 Q4
Mortgages
26
2011 Q4
27
Our consumer survey illustrates both these points well. While still primarily driven by a search for yield, lenders also rate
customer experience and the ability to specify levels of risk aversion/return as key drivers (see Figure 21).
Figure 21. Drivers behind using MPLs to lend money, retail consumers
77%
62%
Convenient
56%
36%
35%
35%
24%
71%
68%
30%
12%
11%
28
29
15.0bn
3% penetration of addressable market
0.5bn
<1% penetration of addressable market
Unsecured SME loan
7.5bn
Unsecured personal loan
7.5bn
30
31
32
Options
Description
A bank-branded
MPL, for which the
bank provides only
the brand name
White
label
Example
Benefits
Challenges
Suitable for
No known examples
End-to-end MPL
model operated by
third-party MPL
Delivering joined
up customer service
to multi-product
customers
Managing customers
core UX expectations
Financial viability of
partner MPL
A bank-branded,
on balance sheet
lending service (i.e.
consistent with
current banking
model)
Capability
insource
Involves sourcing
elements of the
lending value-chain,
such as:
acquisition
origination
underwriting
JP Morgan Chase
provides loans to its
SME customers using
OnDecks platform57
OnDeck provides
origination,
underwriting and
servicing
Platform is externally
branded Chase
Maintaining
appropriate level of
control and oversight
without undermining
competitiveness of
insourced capability
Adjusting internal
processes and policies
to enable full benefits
of new capabilities to
be realised
Financial strength/
viability of supplier
MPL
servicing
Investing customer
deposits through an
MPL platform
Deploy
funds
Refer
borrowers
Need to perform
proper due diligence
on the underlying
model, as many MPLs
have a limited track
record
No immediate income,
if referral fees are
opted out
Responsible-lending
issues may arise from
economic interests
Referring less
profitable customers
or customers outside
of the banks risk
appetite to an MPL
platform
access to
competitive funding
risk appetite/capital
capacity
investment capacity
Banks already in the
market, with strong
demand and available
funds but which are
hampered by legacy
tech/processes and
want to improve
efficiency and cost
effectiveness
An enabler for
smaller banks with
limited customer
acquisition and/or
limited capability to
underwrite61
Banks with a low
loan-to-deposit ratio
seeking alternative use
of excess funds
Banks seeking to
create positive public
relations
Beyond such important choices relating to banks lending business, our research suggests that there is only a limited
need for banks to respond to the potential threat MPLs pose to their deposit-gathering activities. Deloitte believes that
they can be relatively relaxed about their choices regarding access to such investment opportunities alongside their
traditional savings products, and about how far they seek to create greater transparency around the uses to which
they put depositors funds. That said, banks aiming to create a specific brand positioning might find an interesting
opportunity in the transparency of the MPL model to bring such brand promises to life.
Marketplace lending | A temporary phenomenon?
33
34
Conclusion
Conclusion
35
Appendix
Figure 11: (Aware of marketplace lending?) For the following question, by peer-to-peer lenders, we mean lenders
other than banks or building societies that facilitate direct contact between borrowers and lenders via an online
platform. This excludes payday lenders such as Wonga. Before taking this survey, were you aware of the existence
of peer-to-peer lenders? Base: All GB adults (nationally representative), 2,090
(Aware of specific MPLs?) Before taking this survey, which, if any, of the following peer-to-peer lenders (Assetz Capital,
Folk2Folk, Funding Circle, Landbay, LendInvest, Lending Works, Madiston LendLoanInvest, RateSetter, Wellesley and Co,
Zopa) had you heard of? Base: All GB adults aware of peer-to-peer lenders (nationally representative), 1,168
(Used?) Which of the following statements (I have borrowed via a peer-to-peer lending platform; I have lent via
a peer-to-peer lending platform; I have both borrowed and lent via a peer-to-peer lending platform; I have neither
borrowed nor lent via a peer-to-peer lending platform) apply to you? Base: All GB adults aware of peer-to-peer lenders
(nationally representative), 1,168
Figure 12: (Aware of marketplace lending?) The following questions are about SME peer-to-peer lenders.
By this we mean lenders other than banks or building societies that facilitate direct contact between SME
borrowers and lenders via an online platform. This excludes payday lenders such as Wonga. Before taking this survey,
were you aware of the existence of peer-to-peer lenders for SMEs? Base: All SME senior decision makers (nationally
representative), 1,609
(Aware of specific MPLs?) Before taking this survey, which, if any, of the following SME peer-to-peer lenders
(Assetz Capital, Folk2Folk, Funding Circle, LendInvest, MarketInvoice, Platform Black, ThinCats, Wellesley and Co) had
you heard of? Base: All SME senior decision makers aware of peer-to-peer lenders for SMEs (nationally representative),
1,223
(Used?) Which of the following sentences (My business has borrowed via a peer-to-peer lending platform;
My business has lent via a peer-to-peer lending platform; My business has both borrowed and lent via a peer-topeer lending platform; My business has neither borrowed nor lent via a peer-to-peer lending platform) apply to your
business? Base: All SME senior decision makers aware of peer-to-peer lenders for SMEs (nationally representative), 1,223
Figure 13: How did you first become aware of each of the following peer-to-peer lending platforms (Assetz Capital,
Folk2Folk, Funding Circle, Landbay, LendInvest, Lending Works, Madiston LendLoanInvest, RateSetter, Wellesley and Co,
Zopa)? (Percentages add up to more than 100 per cent as data is aggregated for all of the above lenders) Base: All GB
adults aware of one or more of the above peer-to-peer lenders (nationally representative), 588
Figure 14: From a financial point of view, to what extent would you say that lending through a peer-to-peer lending
platform is more or less risky than each of the following, or is it about the same? Base: All GB adults aware of peer-topeer lenders (nationally representative), 1,168
Figure 16: Thinking about any occasions when you have borrowed money via a peer-to-peer lending platform...
On a scale of 1 to 5, where 1 is Not at all applicable and 5 is Very applicable, how applicable were each of the
following factors in your decision to use a peer-to-peer lender rather than another source? (Chart shows percentage
of respondents choosing 4 or 5 for each factor) Base: All GB adults who have borrowed via a peer-to-peer lending
platform (non-nationally representative), 89
Figure 21: Thinking about any occasions when you have lent money via a peer-to-peer lending platform...
On a scale of 1 to 5, where 1 is Not at all applicable and 5 is Very applicable, how applicable were each of the
following factors in your decision to use a peer-to-peer lender rather than another source? (Chart shows percentage
of respondents choosing 4 or 5 for each factor) Base: All GB adults who have lent via a peer-to-peer lending platform
(non-nationally representative), 161
36
Endnotes
1. The Future of Financial Services, World Economic Forum and Deloitte, June 2015, p.87.
See also: http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf
2. Can P2P Lending Reinvent Banking?, Morgan Stanley, 17 June 2015.
See also: http://www.morganstanley.com/ideas/p2p-marketplace-lending
3. LendingClub Statistics, LendingClub, accessed 18 March 2016. See also: https://www.lendingclub.com/info/statistics.action
4. Crowd-funding: An Infant Industry Growing Fast, International Organisation of Securities Commissions (IOSCO), 2014, p.18.
See also: http://www.iosco.org/research/pdf/swp/Crowd-funding-An-Infant-Industry-Growing-Fast.pdf
5. Lending Club Investment Analysis, Javelin Strategy & Research, 2009, p.2.
See also: https://www.lendingclub.com/fileDownload.action?file=javelin.pdf&type=press; Prosper Marketplace, Inc. Form 10-K for the
fiscal year ended 31 December 2012, United States Securities and Exchange Commission, p.8.
See also: https://www.prosper.com/Downloads/Legal/prosper10k12312012.pdf
6. Where Peer-to-Peer Loans Are Born, Bloomberg, 16 April 2015.
See also: http://www.bloomberg.com/news/articles/2015-04-16/webbank-where-peer-to-peer-loans-are-born
7. See endnote 4
8. Lending Club rejigs relationship with issuing bank, AltFi Data, 29 February 2016.
See also: http://www.altfi.com/article/1774_lending_club_rejigs_relationship_with_issuing_bank
9. Wall Street is hogging the peer-to-peer lending market, Quartz, 4 March 2015.
See also: http://qz.com/355848/wall-street-is-hogging-the-peer-to-peer-lending-market/
10. Orchard is a particularly high-profile facilitator for institutional investment, providing the industrys only benchmark index as well as
technology, data, and market research products and a platform that enable investors and loan originators to connect with each other
and transact efficiently.
11. Peer-to-peer body to ban institutional cherry-picking, Financial Times, 22 May 2015.
See also: http://www.ft.com/cms/s/0/c48aa7fc-ffa8-11e4-bc30-00144feabdc0.html#axzz3uIcNUxie
12. Why BBVA Compass Is Sending Customers to an Online Rival, OnDeck, 8 May 2014.
See also: https://www.ondeck.com/company/in-the-news/bbva-compass-sending-customers-online-rival/
13. Citigroup Joins the Lending Club, Bloomberg View, 14 April 2015.
See also: http://www.bloombergview.com/articles/2015-04-14/citigroup-joins-the-lending-club
14. A document committing the signatory to pay a certain sum of money to the payee on agreed terms. Often used to ensure the
repayment of a loan, Financial Times. See also: http://lexicon.ft.com/Term?term=promissory-note
15. Peer-to-Peer Lending: A Financing Alternative for Small Businesses, the Small Business Administration (SBA), 10 September 2015, p.10.
See also: https://www.sba.gov/sites/default/files/advocacy/Issue-Brief-10-P2P-Lending_0.pdf
16. Which States are Open to Lending Club and Prosper?, Lending Memo, 17 April 2015.
See also: http://www.lendingmemo.com/lending-club-and-prosper-states/
17. Marketplace Lending Securitization Tracker Q4 2015, PeerIQ, 2016, p.2.
See also: http://www.peeriq.com/wp-content/uploads/2016/01/PeerIQ-MPL-Securitization-Tracker-4Q2015.FINAL_.pdf
18. Marketplace Lending Securitization Tracker Q4 2015, PeerIQ, 2016, p.5.
See also: http://www.peeriq.com/wp-content/uploads/2016/01/PeerIQ-MPL-Securitization-Tracker-4Q2015.FINAL_.pdf
19. P2P consumer loans given landmark rating, Financial Times, 29 January 2015.
See also: http://www.ft.com/cms/s/0/a22edbe0-a749-11e4-b6bd-00144feab7de.html#axzz3yReE4WP6
20. Deloitte analysis
21. Exchange rate correct as of 1 March 2016, mid-price, OANDA historical currency converter (1 = 1.2828)
22. Liberum AltFi Volume Index Continental Europe, AltFi Data, accessed 10 March 2016.
See also: http://www.altfi.com/data/indices/EURvolume
23. Opinion of the European Banking Authority on lending-based crowdfunding, European Banking Authority, 26 February 2015, pp. 36-37.
See also: https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-03+(EBA+Opinion+on+lending+based+Crowdfunding).pdf
24. Prt dUnion Ready for European Expansion With 31 Million of New Funding, Lets Talk Payments, 3 July 2015.
See also: http://letstalkpayments.com/pret-dunion-ready-for-european-expansion-with-e31-million-of-new-funding/
25. Funding Circle launches across Europe with deal for Rocket Internet-backed Zencap, Funding Circle, 20 October 2015.
See also: https://www.fundingcircle.com/blog/press-release/funding-circle-launches-across-europe-with-deal-for-rocket-internet-backed-zencap/
26. Unique Platform-Bank Alliance Forms, AltFi Data, 13 May 2015.
See also: http://www.altfi.com/article/1044_unique_platform_bank_alliance_forms
27. Aegon Invests 150 million through Auxmoney, AltFi Data, 20 October 2015.
See also: http://www.altfi.com/article/1444_aegon_invests_eur150_million_in_auxmoney
28. Trust Buddy website, accessed 25 February 2016. See also: https://www.trustbuddy.com/en/
37
29. TrustBuddy Loses Trust, Crowdfund Insider, 13 October 2015. See also: http://www.crowdfundinsider.com/2015/10/75669trustbuddy-loses-trust-peer-to-peer-platform-closes-following-suspected-misconduct-swedish-police-contacted/
30. Tight bank lending, lush bond market, Deutsche Bank Research, 15 April 2014, p.3. See also: https://www.dbresearch.com/
PROD/DBR_INTERNET_EN-PROD/PROD0000000000333212.PDF;RWSESSIONID=85E223C348274613A547D113BAE542ED.
srv-tc1-dbr-com
31. Aggregate P2PFA member data, 4th Quarter 2015, P2PFA, 2015. See also: http://p2pfa.info/data
32. Direct Lending: Finding value/minimising risk, Liberum, 20 October 2015, p.24.
See also: http://www.liberum.com/media/69233/Liberum-LendIt-Presentation.pdf
33. The Deloitte UK Retail Banking Insight Team developed a UK MPL opportunity-assessment model. There were three main
components to this. Firstly, we examined the costs incurred in the current credit environment in originating and servicing loans
through a stylised traditional bank and compared these to the costs incurred in originating and servicing equivalent loans through
a simulated MPL. In doing so we determined if MPLs have any intrinsic cost advantage that will enable them to price more
competitively than banks. Secondly, we repeated this analysis revising our inputs to reflect a normalised credit environment.
Here we assumed that reference rates (including Libor and the bank rate) increase and that spreads on deposits and wholesale
issuances widen to the levels typically seen prior to the last financial crisis. We then re-examined the costs incurred by the
simulated bank and MPL respectively and determined the extent to which any cost advantages would endure in this situation.
Finally, we combined this analysis with our findings on the non-cost advantages offered by MPLs (principally their enhanced userexperience in terms of speed and convenience) and determined the extent to which these advantages as a whole would endure
in different future scenarios. Combining this with the outputs of our consumer survey, we were able to estimate the market share
MPLs could feasibly capitalise on across these different scenarios. The underlying data used in compiling this analysis came from
publicly available sources, including the Bank of England, the reports and disclosures made by a range of UK banks and MPLs, as
well as our own proprietary data sources and the Deloitte survey of consumer attitudes to MPLs, conducted with YouGov as the
source research agency.
34. We estimate the non-interest costs of running a deposit book at approximately 310 bps of the total deposits held. Approximately
60% of this is attributable to the costs of the branch network, with the remainder relating to acquisition, processing and servicing
expenses. Furthermore, we assume that in a normally capitalised banking book with sufficient liquidity reserves, total deposits will
equal approximately 87% of total loans. As such, we compute the non-interest costs incurred in attracting and retaining deposits
at approximately 270 bps of the total loans funded by the deposits.
35. Banks and MPLs clearly do incur other operating costs: banks must service their deposits and branch networks, while MPLs must
service their investors. However, we have factored these into the fully-loaded costs of attracting funds set out in the previous
section.
36. As part of this research, Deloitte constructed two questionnaires around the awareness, usage and potential future usage of
marketplace lenders one for consumers and one for SMEs, using YouGov as the source research agency. In collecting the data, a
hybrid model was used. Questions around awareness and potential future usage were asked to a nationally representative sample
of 2,090 consumers and 1,609 senior SME decision-makers. Questions about previous usage were asked to a non-representative
sample group of 4,296 consumers and 1,671 senior SME decision-makers, in order to obtain a statistically relevant sample size.
The objective was to understand the factors driving and inhibiting usage, and the potential for future growth, of MPLs.
37. P2PFA. See also: http://p2pfa.info/
38. Price comparison websites start to mature, Financial Times, 8 December 2014.
See also: http://www.ft.com/cms/s/0/2edf54a2-7ec8-11e4-a828-00144feabdc0.html#axzz44HJAdnLy
39. Top Spenders, Top Keywords in U.K. Paid Search, AdGooroo, 28 October 2014.
See also: https://www.adgooroo.com/resources/blog/top-spenders-in-uk-paid-search/
40. Credit card market study: interim report, Financial Conduct Authority, November 2015, p.40.
See also: http://www.fca.org.uk/static/documents/market-studies/ms14-6-2-ccms-interim-report.pdf
41. Retail Banking Market Investigation: Statement of Issues, Competition & Markets Authority, November 2014, p.7.
See also: https://assets.digital.cabinet-office.gov.uk/media/5462302a40f0b6131200001a/Issues_statement.pdf
42. The FCAs regulatory approach to crowdfunding (and similar activities), Financial Conduct Authority, October 2013, p.5.
See also: http://www.fca.org.uk/your-fca/documents/consultation-papers/cp13-13
43. The FCAs regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other
media, Financial Conduct Authority, March 2014, pp.18-22.
See also: https://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf
44. The FCAs regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other
media, Financial Conduct Authority, March 2014, p.22.
See also: https://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf
45. The FCAs regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other
media, Financial Conduct Authority, March 2014, p.32.
See also: https://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf
46. The FCAs regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other
media, Financial Conduct Authority, March 2014, p.28.
See also: https://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf
38
Endnotes
47. The FCAs regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other
media, Financial Conduct Authority, March 2014, p.30.
See also: https://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf
48. Governance over mortgage lending strategies, Financial Conduct Authority, March 2015, p.3.
See also: https://www.fca.org.uk/static/documents/thematic-reviews/tr15-04.pdf
49. As part of this research Deloitte spoke to several UK marketplace lenders, banks, and investment managers. The objective was to
understand their perspective on developments in lending, and how they felt incumbent banks should respond. We asked these
experts questions about attractiveness of MPLs, advantages and future growth of the model.
50. Private Debt In Europe: Q4 2015, Preqin, October 2015.
See also: https://www.preqin.com/docs/reports/Preqin-Private-Debt-Europe-October-2015.pdf
51. Tracking Bond Benchmarks, The Wall Street Journal, accessed 8 March 2016.
See also: http://online.wsj.com/mdc/public/page/2_3022-bondbnchmrk.html
52. Individual Savings Accounts (ISAs) are tax-exempt savings accounts available to individuals in the UK. ISAs can be held in cash or
stocks and shares, and individuals can hold up to 15,420 in ISAs as of the 2015/16 financial year. From 6th April 2016, individuals
are able to receive the same tax benefits from lending through P2P platforms through the Innovative Finance ISA (IFISA) as they
can currently receive through cash and stocks and shares savings/investments.
53. Deloitte analysis
54. See endnote 33
55. Deloitte defines the addressable market as the UK consumer unsecured personal lending market, the UK small and medium-sized
business lending market, and the UK retail buy-to-let market. To estimate the size of the addressable market, Deloitte has taken
data relating to consumer and SME lending published by the Bank of England and applied prudent growth rates to estimate
market size in 2025. In addition, Deloitte has taken data relating to UK retail mortgage lending from the Bank of England and
carved out an amount commensurate with current buy-to-let mortgage lending. Deloitte has then applied prudent growth rates to
arrive at an estimated market size in 2025. In combination, these amounts represent our estimated addressable market.
56. See endnote 33
57. An In Depth Look at the OnDeck/JPMorgan Chase Deal, Lend Academy, 4 December 2015.
See also: http://www.lendacademy.com/an-in-depth-look-at-the-ondeckjpmorgan-chase-deal/
58. Metro Bank strikes deal to lend through P2P site, Financial Times, 19 May 2015.
See also: http://www.ft.com/cms/s/0/efadf6fc-fd67-11e4-9e96-00144feabdc0.html#axzz41GVCjr8e
59. RBS strikes peer-to-peer alliance, Financial Times, 22 January 2015.
See also: http://www.ft.com/cms/s/0/58af3792-a20f-11e4-aba2-00144feab7de.html#axzz44UocTJJP
60. SME finance: help to match SMEs rejected for finance with alternative lenders, HM Treasury, 18 December 2014.
See also: https://www.gov.uk/government/consultations/sme-finance-help-to-match-smes-rejected-for-finance-with-alternative-lenders
61. Lending Club, Small U.S. Banks Plan New Consumer-Loan Program, The Wall Street Journal, 9 February 2015.
See also: http://www.wsj.com/articles/lending-club-small-u-s-banks-plan-new-consumer-loan-program-1423458187
39
Contacts
Neil Tomlinson
Partner, Consulting
Head of UK Banking
+44 20 7303 2333
[email protected]
Ian Foottit
Partner, Consulting
Head of UK Financial Services
Strategy
+44 20 7303 4152
[email protected]
Margaret Doyle
Partner, Insight
Head of UK Financial Services
and Real Estate Insight
+44 20 7007 6311
[email protected]
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