Banks fight off threat of MPLs to keep dominant position on lending

Non-traditional lenders may only account for approximately £35.5bn of the borrowing market by 2025, suggesting that banks will continue their dominance of the lending market now and in 10 years’ time, according to Deloitte, the business advisory firm.

Deloitte’s Marketplace Lending report, published today, estimates that by 2025 marketplace lenders (MPLs) might control up to 6% across key segments, including personal lending, SME business lending and the retail buy-to-let market in the UK, which, together, may represent approximately £600bn of lending. This is provided current interest rates prevail and banks make no changes to their operations when it comes to digital products or services. MPLs face an even lower share of the market of just 1% or £0.5bn by 2025, if interest rates normalise and banks innovate. Deloitte estimates MPLs currently have less than 1% market share in both consumer and SME lending.

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.

MPLs have grown rapidly in recent years, lending a total of $23bn in the US, £2.7bn in the UK and €669m in continental Europe*.

Neil Tomlinson, head of UK banking at Deloitte, said: “Contrary to a number of commentators, we do not see MPLs as a major threat to banks in the mass market. Borrowers like the benefits of speed and convenience of MPLs, but those willing to pay a material premium to access loans quickly are in the minority. Whilst banks are yet to replicate the benefits of the MPL model, we believe it is only a matter of time before they use their size and scale to overtake and sustainably under-price MPLs.”

Deloitte’s research shows that while banks will maintain a healthy proportion of the lending market, lessons can still be learnt from MPLs.

Ian Foottit, banking partner at Deloitte, said: “While MPLs look unlikely to grow sufficiently to displace banks, banks can benefit from adopting some of their best practices, particularly around customer experience. Unlike banks with legacy systems, MPLs use modern technology, streamlined processes and innovative risk scoring that can make it quicker and easier to get a loan. Collaborating with or acquiring MPLs, banks can benefit from this enhanced customer experience to deliver faster, more convenient access to credit at a very competitive price point."

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*Figures according to Liberum, AltFi Data and Deloitte analysis.

Notes to editors

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

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