The U.S.alternative finance market, which includes the rapidly growing marketplace financesegment, reached $36.17 billion of funding activity in 2015, an astronomic 213%increase from the previous year. And the U.S. was not even the world's largest market,as the Chinese alternative finance market booked $101.7 billion in volume during2015.
The figurescome from new research billed as the first comprehensive survey of alternative finance,defined as marketplace lending and crowdfunding. The report was presented at LendItUSA, a conference on marketplace lending held in San Francisco April 11 and April12. Titled "Breaking New Ground," the 80-page report was produced by theUniversity of Cambridge and the University of Chicago, in partnership with KPMGand CME Group Foundation. The report focused on the Americas, and the collaborativeeffort in March published a report on Asia's alternative finance market.
Marketplace/peer-to-peer consumer lending remains the largestsource of alternative financing activity in the Americas, accounting for 71% ofthe total volume, or $25.74 billion. Marketplace/P2P business lending volume was$2.62 billion in 2015.
In theU.S., LendingClub Corp.remains the nation's largest player, by far, with $8.4 billion of origination volumein 2015, according to Peter Renton, president of Lend Academy. Rounding out thetop five consumer lenders were SoFiwith $5.1 billion, Prosper MarketplaceInc. at $3.7 billion, Avant at $2 billion and Marlette Funding at $1.3billion. Renton said small business lending was led by OnDeck Capital Inc. with $1.9 billion in originations, followedby CAN Capital with $1.5 billion and Kabbage at $1 billion.
Rentonpresented the figures ahead of a panel discussion on the Cambridge-Chicago report.That report, focused on the Americas, found the U.S. dominated the market, accountingfor 99% of transaction volume for North America and South America combined. RobertWardrop, executive director of University of Cambridge's Centre for AlternativeFinance and one of the study's authors, said he found the lack of marketplace lendingactivity in Canada to be surprising.
Evenafter accounting for population, Canada's marketplace lending market is borderlinemoribund with $5.82 per capita in 2015, compared to $113.43 per capita for the U.S.Wardrop said regulatory differences are the main driver of the gulf.
Duringthe panel discussion of the report, Renton raised the possibility that marketplacelending would trend toward a wealth management tool. Fiona Grandi, a partner withKPMG, said she agreed and that pension funds will increasingly want to invest inunsecured consumer loans originated by marketplace lenders.
"It'sjust a component of what you should have in your portfolio. So, my balanced portfolioshould have a tranche of loans by investing in the platforms," Grandi said."I think that's where we're headed."
Anotherkey takeaway from the report has been the reliance among U.S. marketplace lendersupon funding from institutional investors. The report found that institutional investorsprovided 72% of funding for marketplace small-business loans and 53% of marketplaceconsumer loans.
"Thereis a reason we don't call it peer-to-peer anymore," Grandi said.
However,the case is very different across the pond, as retail investors continue to constitutea majority of funding for U.K. marketplace lenders. Wardrop said that could serveas a model of expectations for the U.S. as companies get comfortable with RegulationA+, a new framework from the SEC that eases investing requirements.
The reportwas not the only new research released at LendIt. A survey jointly released by RichardsKibbe & Orbe LLP and Wharton FinTech gauged expectations among marketplace lenders,finding that 80% of respondents expressed high or moderate optimism, an increasefrom 71% a year ago. Also, the survey reported that the vast majority of respondents,72%, believe consolidation lays ahead for the industry.
Regulatoryconcerns are among the top priorities for marketplace lenders after the TreasuryDepartment issued a request for information, a move that typically precedes rulemaking.However, the survey found that 40% of legal and compliance professionals at marketplacelenders were either "not at all" or "just a little" familiarwith the regulatory framework.
Separately,PayNet, a company that provides credit ratings for small businesses, released astudy that found cumulative industry defaults range from 7.7% to 9.7% for loansoriginated between the 2012 fourth quarter and the 2015 second quarter.