Marketplace lending and consumer loans

Marketplace lending continues to grow rapidly

There are now over 200 digital lenders in the US alone, and global volume is expected to reach $290B by 2020¹.Marketplace lenders are disrupting consumer and small business lending by combining innovative cultures with advanced technology and data to improve borrower experiences, decrease operating costs, and reach underserved markets. From innovative credit models and sophisticated anti-fraud tools to user-friendly online and mobile interfaces, marketplace lenders offer an attractive value proposition for borrowers and investors.

_{¹ Morgan Stanley Research: Global Marketplace Lending Disruptive Innovation in Financials, 2015}

Traditional financial institutions cannot afford to ignore the potential impact of marketplace lending

Changing consumer expectations, particularly in digital channels, are leading them to pursue various partnership options, as well as in-house development of their own enhanced digital experiences. However, marketplace lenders also face challenges as they strive to continue their rapid growth, including sourcing sustainable capital, efficiently and cost-effectively acquiring borrowers, building operational scale, and preparing for increased regulatory scrutiny.

Current trends in marketplace lending

Investor sentiment around marketplace lending has appeared to shift - while institutional capital remains available, it has become more discerning. A potential economic downturn could further reduce capital availability. Platforms should proactively prepare by obtaining a diverse set of sustainable capital. One area that investors will be looking at closely is servicing and collections. Platforms need to be prepared to demonstrate that they can protect investors’ returns across market conditions - whether performed in-house or by third parties.

Reducing borrower acquisition cost is another top priority Many platforms’ current costs are unsustainable; effective partnerships and data-driven segmentation strategies for direct marketing will be key differentiators.

Shaping industry dialogue around marketplace lending

PwC is in constant discussion with executives at MPL platforms and investors. We regularly publish thought leadership and industry points of view, and frequently speak at conferences and industry events.

PwC's marketplace lending team provides deep understanding of consumer lending dynamics and insights into the market. Contact us to start a conversation or to hear more of our perspectives on current trends in the industry.

How PwC can help

PwC has deep expertise in consumer lending and our teams have worked with leading financial institutions and marketplace lenders to address these challenges, innovate, and adapt to the rapidly changing environment.

Marketplace lending platforms

Growth and partnership strategies

Marketplace lenders are under significant pressure to continue their rapid pace of growth. In order to do this, platforms need to obtain investor capital and to acquire customers.

The following examples demonstrate how PwC assists our clients:

Capital Sourcing: Identify sources of and assist with obtaining diverse, sustainable investor capital Partnerships: Identify and assess strategic partnerships to acquire borrowers
Targeted marketing: Perform consumer segmentation analysis Infrastructure: Develop roadmap and scale operations to support incremental origination volume

Regulatory compliance and risk management

Marketplace lending operates in a complex and evolving regulatory environment, and compliance is critical. We assist our clients with identifying and mitigating consumer lending regulatory risks.

The following examples demonstrate how PwC assists our clients:

Compliance Management System Design: Assess program against regulatory and investor expectations
Third Party Risk Management: Assess program against leading industry practices, develop roadmaps, design program office, and conduct assessments
Fair Lending and other Regulation-Specific Assessments: Assess programs and controls around regulations to identify opportunities for enhancement
Consumer Complaints Management: Develop complaints management function focused on CFPB expectations

For more information on services, visit PwC’s US Audit and assurance services

Data and analytics

Effective use of data is considered a key differentiator for many marketplace lending platforms. Credit Modeling is not the only area where big data, machine learning, and advanced analytics techniques can provide a competitive edge - marketing and lead generation, pull-through and conversion, fraud prevention, portfolio surveillance, and collections can all benefit from improved data analytics.

The following examples demonstrate how PwC assists our clients:

Behavioral Modeling: Develop personas to use in behavioral modeling
Third Party Data: Analyze data collection techniques and integrations with third party data sources
Predictive modeling: Assist with creation of predictive analytics and forward-looking metrics Credit Risk Modeling: Design, enhance, or validate credit risk models for underwriting

For further reading
Analytics means business
PwC’s Benchmarking services

Operational efficiency

Marketplace lending platforms are facing unprecedented challenges as they strive to meet heightened expectations from customers, investors and regulators while managing costs to generate profitable growth. Platforms can enhance the efficiency of their operations in order to cut costs and create an improved borrower experience.

The following examples demonstrate how PwC assists our clients:

Loan Fulfillment: Automate Income and Employment Verification to reduce manual processing
Data Sourcing: Identify and assist with integration of third party data providers
Pricing: Assist with optimization of pricing models and development of dynamic pricing strategies

Servicing and collections

Marketplace lenders are responsible for defining their collections strategies and making sure their servicing operations effectively protect their investors' returns. In the event of an economic downturn effective collections may play as important of a role as strong underwriting models in keeping defaults under control and delivering strong returns.

The following examples demonstrate how PwC assists our clients:

Cost Reduction: Reduce servicing costs through automation and workflow optimization
Self-Service: Develop borrower self-service options for more efficient servicing and collections
Loss Mitigation: Establish loss mitigation options for borrowers Model Optimization: Develop collections scores, establish borrower profiles or perform other analytics
Customer Experience: Develop customer-centric strategies that improve borrower experience

Investors

Investment strategy and transaction support

Investors can enter into marketplace lending in a variety of ways, from equity investments in platforms to a range of debt structures such as whole loan forward flow agreements and securitizations. We can help investors find the right strategy and deal

The following examples demonstrate how PwC assists our clients:

Market Entry Strategy: Develop strategy with clients looking to enter marketplace lending
Opportunity Identification: Match buyers and sellers using whole loans, forward flow, or equity investments
Transaction Structuring: Advise on options related to an acquisition, such as deal structures, price, key terms, and conditions
Financial Analysis: Assist with modelling, valuation, and forensic cash flow analysis

Due diligence

Whether you are planning to invest in or partner with a marketplace lender, getting a clear picture of the lender's financial condition, operational and compliance capabilities is critical We can help investors conduct a range of due diligence assessments

The following examples demonstrate how PwC assists our clients:

Strategic Fit Assessment: Analysis of strategic fit for partnerships or acquisition targets
Risk and Compliance Assessment: Analysis of risk management and regulatory compliance functions
Financial and Operational Assessment: Analysis of financial conditions, operational capabilities and controls

Protecting your investments

Investors have great insights into their lending partners and are often the first to know about potential issues Investors can connect us with their lending partners to enhance targeted elements of those lenders' operations and make sure their lenders are able to meet risk management expectations and offer efficient operations.

The following examples demonstrate how PwC assists our clients:

Regulatory Compliance: Assess compliance capabilities and identify enhancement opportunities
Risk Management: Perform control assessments and identify potential risks
Borrower Aquisition: Help your lenders cost effectively acquire borrowers
Collections: Optimize collections performance to drive improved returns and provide downside protection

Traditional lenders

Digital strategy

As banks and other traditional lenders assess how to respond to marketplace lending, some have chosen partnerships, while others have chosen to develop their digital strategy. We can help assess the full range of options in light of your business objectives, internal capabilities, and risk appetite.

The following examples demonstrate how PwC assists our clients:

Capabilities Assessment: Assess current state digital capabilities and competencies for innovation and change management,
Target Operating Model: Identify target state capabilities, strategic objectives, risk appetite and strategic constraints
Strategic Roadmap: Develop a plan to meet target operating model requirements

Partner assessment and partnership model structure

For lenders who decide to partner, it's key to find the right partner and to structure that is consistent with your risk appetite and strategic goals.

Partnership Model Design: Assess and design target operating models to enable your strategic vision Partner Selection: Conduct a formal RFP process, risk assessment, and due diligence
Bank Oversight and Monitoring Readiness: Assess a marketplace lender's readiness to meet oversight requirements
Operating Model Alignment: Align people, process, and technology to enable optimal execution of business strategy

Implementation and internal capability development

As banks race to deliver better products and services technology executives are challenged to select and deploy solutions to accelerate the business agenda. Whether pursuing a partnership or developing capabilities internally, cultural and governance changes are required to increase the pace of innovation and development.

The following examples demonstrate how PwC assists our clients:

Waterfall to Agile conversion: Manage development of Agile capabilities and integration points
Implementation Support: Provide project management, data mapping, system conversion, and change management services
Development and Design Support: Assist with requirements, user stories, or other key elements of the software development life cycle (SDLC)
Process and Technology Roadmaps: Develop strategic roadmaps for software development or implementation
Managed Testing Services: Develop and execute user acceptance testing (UAT) programs
Data Structuring and Transfer: Manage data mapping, integration, and conversion efforts