Marketplace lending as we know it is a relatively new phenomenon. This is why the associated terms can be confusing at first. Learn everything there is to know about the marketplace lending universe.

What is Marketplace Lending ?

As a reaction to the increasingly cumbersome lending process of banks, the lack of digitalisation and quickly available funding, a new way of lending was born around 2005. Marketplace Lending (also p2p lending) refers to the practice of lending through digital platforms. To put it in simple terms: Instead of having the classic intermediary of a bank, borrowers ask for loans online on platforms called Marketplaces and are connected with lenders who borrow them the required money.

The Marketplace: what is it and what does it do?

Marketplaces are online platforms that help connect individuals, businesses and organizations that need debt financing with people looking for investment opportunities. The Marketplace usually charges a small fee for the services it offers. Besides hosting the website on which these loans are offered to potential investors, the marketplaces usually perform a set of checks to assure that each borrower is credit worthy and/or that each loan fits certain criteria, according to which it will be given a rating.

Loan Originators: Creating Loans

There are essentially two ways in which loans can be financed in Marketplace Lending. The first would be for a lender to offer a loan on a marketplace to look for investors. Once enough investors accept the offered return and the entire loan sum is financed, the loan is given out. The second way in which a loan can be granted, involves the so-called loan originators. In this case the loan is given out immediately and financed by the loan originators, which then in turn offer the loan on a marketplace, giving investors the opportunity to buy parts of it.

The borrowers: what types of loans are there? How do they differ?

There is a vast variety of different loan types, and knowing the differences and the ramifications that come with those can be vital. We shall therefore have a look at the different types of loans hereafter. If you want more detailed information about the different types of borrowers and the benefits they draw from marketplace lending, go have a look at our article on that topic.

The main categories of loans are as follows:

SME loans: Loans to businesses.
Consumer loans: Loans to individuals for any kind of consumables (Furniture, electronics etc.)
Factoring and reverse factoring: Loans that help businesses with supply chain optimization.
Mortgage loans: Financing real estate.
Car loans: An alternative to leasing. Individuals can finance their car to avoid being trapped in a leasing contract.
Agricultural loans: Financing of farming equipment and financing to bridge the long sowing to harvest cycle.
Pawn loans: Helping finance pawn business transactions.

The Lenders: who invests in MPL

In its early stages, the p2p market initially attracted private retail investors. These were primarily tech-savvy individuals looking for financial freedom through investment in interesting innovative opportunities Over time the sector has grown and even though individual investors still are part of it, it has developed and become more professional. This is not only the case for the platforms themselves where an ongoing selection has taken place but also the investors themselves have become more varied. Professionals and institutions have discovered for themselves, the advantages that MPL brings and now constitute a large percentage of the investors on the market.

The hurdles: risks and potential problems

As with any emerging market and technology there are obviously some things to consider when looking at MPL. Specifically, the young sector is still fairly unregulated and the quality of offered loans and the participating marketplaces as well as loan originators differs quite drastically. This has the consequence that for the new and uninformed investor there is a non-negligible risk of losses. Depending on the marketplaces, the track-record is often limited and the screening of the loan applicant might be not thorough enough. As a result, estimated default rates might be significantly higher. This can be a problem for the investors as they lose some of their investments, but in some cases these events can even bring down entire marketplaces, creating large losses.

The solution: how Anthedon can help professionals invest in Marketplace lending

The previously mentioned problems are one reason why, as with any smart investments, a strategy of diversification and selected aggregation is essential to success in the area of MPL. Furthermore it is crucial to have as much information as possible at your disposal when investing. However, the process of accumulating this information can be a daunting and cumbersome task. The area of MPL being relatively young and small in comparison with stocks or bonds. Unlike the stock market, where platforms and services like Bloomberg offer detailed insights, there are no comprehensive databases offering in depth analysis. That makes it even harder to find historical data and experienced people to rely on.

Having started investing in Marketplace Lending in 2015, Anthedon is the brainchild of 4 entrepreneurs that soon realized that in order to efficiently invest into MPL, a fully digital and smart software approach was needed. Anthedon is the cumulation of all that expertise and IT prowess, offering you bankable products in the area of MPL, tailored to the professional investor’s personal needs.

But above all, our approach is one of continuous analysis and evaluation coupled with unprecedented transparency. The utilized software gathers millions of datasets and uses these to re-evaluate all the different elements of the lending chain, such as loan originators, marketplaces, lenders, loan types and many more parameters. This is used to create a perfectly diversified and aggregated portfolio. Lastly, this is all put together into a product that can be bought by you. We want to give investors as much insight as possible while guaranteeing an unrivaled amount of transparency.