MPLs are online platforms that enable investors to lend to retail and commercial borrowers. Unlike banks, MPLs do not take deposits or lend themselves; as such they do not take any risk onto their balance sheets. They make money from fees and commissions received from borrowers and lenders.
The rise of Marketplace lending has urged many commentators to highlight the potential disruption that such new business models may bring to traditional banking. Our research presents a different opinion and instead concludes that MPLs do not currently have the competitive advantage needed to threaten this traditional banking model. However, while they may not fully disrupt the model, we do expect them to be a continued presence within the ever evolving banking landscape.
We believe there is significant consumer benefit to be had by supporting the development of an innovative MPL sector. Banks should therefore view MPLs as complementary to the core model, rather than as core competitors, and explore opportunities to enhance their overall customer propositions through collaboration.
As explored in Deloitte’s Banking disrupted and Payments disrupted reports, and Deloitte’s 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.