Welcome to our alternative credit research initiation – the ‘Marketplace Lending 1.01’ . We will be progressively adding chapters onto the 1.01 blog as we expand our work over the coming weeks and months. Our team have been in consumer asset securitization markets since 2000 and we hope we can bring a refreshing perspective to the challenges of institutional investment in marketplace lending - an emerging and dynamic alternative credit asset class.
Structural changes in the US Consumer credit – ‘RIMS’
In our introductory research we define our investment case that structural changes in US consumer credit–the ‘R-I-M-S’ effect – is driving the growth in online consumer lending.
RIMS’ is short for “Recovery”, “Investors”, “Millennials” and “Securitisation” and defines the structural opportunity in US alternative credit (marketplace lending) being: (i) the Recovery of US consumer credit to pre-crisis levels; (ii) Investors search for yield in credit markets; (iii) the emergence of the ‘Millennial’ population and (iv) the 81% ‘downsizing’ in the Securitization market in 2016 compared to 2007. We believe market growth for online lending can continue for a generation: Let’s take a look at each of these drivers in more detail.
1) A $1 trillion Recovery in US Consumer Credit
It has taken the U.S. economy 8 years or almost a ‘lost decade’ to recover $1.5 trillion of consumer lending post-crisis to reach $12.6 billion outstanding by end of Q4 2016 (New York Fed & Equifax data). The online lending story from our perspective begins at the last peak in Q4 2008 (at $12.7 trillion) when over the subsequent 19 quarters until Q2 2013, US consumer credit outstanding contracted by $1.5 trillion to a low of $11.1 trillion (see figure 1). In those 4 years of consumer credit contraction, U.S. online lenders transformed themselves from unregulated start-ups to Top 20 US consumer lenders.