Marketplace Lending Platforms for Borrowers and Investors

Abstract

Marketplace lending has substantially changed since the first peer-to-peer lending platforms emerged in 2006. The industry is now an alternative to bank lending, predicted to total $70 billion for consumer and business loans worldwide by 2030. Marketplace lending is often deemed less safe than bank loans, mainly due to these portfolios' high degree of hidden information. These include needing more information on borrowers and potential correlations between them, which might lead to higher risk than is apparent at first glance. Deterministic processes cannot capture tail risk appropriately, so platforms and lenders should employ stochastic processes. This chapter introduces a Monte Carlo simulation and machine learning (ML) process to evaluate and monitor portfolios. For marketplace lending to become a viable and sustainable alternative to bank lending platforms, they must better evaluate, monitor, and manage tail risk in marketplace loans and develop tools to monitor and manage financial risk losses.

Citation

Stagars, M. and Akkizidis, I. (2024), "Marketplace Lending Platforms for Borrowers and Investors", Baker, H.K., Filbeck, G. and Black, K. (Ed.) The Emerald Handbook of Fintech, Emerald Publishing Limited, Leeds, pp. 135-155. https://doi.org/10.1108/978-1-83753-608-520241012