Marketplace lending platforms and banks employ business models that are fundamentally different. The former only act as online intermediaries without using their own balance sheets. Not granting loans themselves, they instead facilitate institutional and private investors’ direct investment in debt. In 2022, debt capital worth CHF 21.4bn was brokered through online platforms when in the previous year, it had been CHF 15.4bn. This amounts to a hike of 16 per cent. In the past five years, the volume has even quadrupled. This was among the findings of the new Marketplace Lending Report issued by the Lucerne University of Applied Sciences and Arts (HSLU), the Swiss Marketplace Lending Association (SMLA) and the APEX Group. The report is the only comprehensive analysis of debt financing among Swiss corporations, public entities, and private individuals via online platforms.
Development of Swiss marketplace lending from 2017 to 2022 (by segment): In the previous year, debt financing via online platforms grew by 16 per cent to CHF 21.4 bn, or to four times the volume of 2017. At an estimated CHF 14.7bn, online loans and bonds for large corporations, SMEs and public entities have seen the steepest growth. They make up 65 per cent, and therefore the lion’s share, of debt financing online. Online loans have become an important source of funding for public entities. (click to enlarge)
Online platforms popular with public entities
However, the volumes and growth rates of the different segments of marketplace lending (see box for definitions) vary significantly. At CHF 13.7bn, loans and bonds for mid-sized corporations, large corporations and public entities make up nearly 65 per cent of all debt financing through online platforms. “For public entities such as municipalities, cities or, for instance, hospitals and transport companies, marketplace lending has become an important source of funding,” says Prof Dr Andreas Dietrich, one of the study’s co-authors. He and his and his fellow authors estimate the sector’s share of debt financing via online platforms to be at around 15 per cent. “Many have now realised that that this funding option can be particularly attractive from a cost perspective,” Dietrich continues.
Slower growth in online mortgages
Intermediaries of mortgage loans achieved a volume of CHF 6.2bn in 2022. The study’s authors estimate this to be equivalent of a 3.5 per cent market share. However, the growth dynamic of online intermediaries has been steadily slowing over the past three years. According to the study’s authors, the reasons for this are manifold and include rising interest rates, the demise of Credit Suisse and entrenched customer behaviour. That is why certain mortgage intermediaries have adjusted their business model too, focusing less on the platform’s business with direct end-customer contact (B2C area). That is why the study’s authors expect no further growth in the B2C online mortgage market in the next two years.
Institutional investors and fintechs important for the Swiss financial market
With the exception of crowdlending, marketplace lending is open to institutional investors only. However, in crowdlending, about half of the capital invested comes from institutional investors as well. Pension funds and external asset managers in particular actively invest via crowdlending platforms or indirectly via the corresponding fund solutions. “The involvement of institutional investors is absolutely essential for the development of the market in Switzerland, as the demand for loans can be met quickly given the high investment volume,” says a co-author of the study, Dr Simon Amrein.
Marketplace Lending (MPL) – definitions
The study differentiates between three segments that constitute marketplace lending.
- Crowdlending loans: Private individuals and professional investors grant loans to other private individuals (consumer credits, mortgage-backed loans) or SMEs (corporate loans, mortgage-backed loans).
- Mortgage loans through online brokerage platforms: Professional investors fund mortgage loans for residential or investment properties. In contrast to crowdfunding platforms, the investor base is professional-only (e.g., asset managers, family offices and pension funds).
- Online loans and bonds for mid-sized corporations, large corporations, and public entities: This segment includes loans to public entities (municipalities, cities, cantons, state-affiliated businesses) as well as mid-sized and large corporations. There are professional investors only in both sub-segments