OREANDA-NEWS. U.S. marketplace lenders are increasingly looking at ABS as a viable funding source but key challenges need to be addressed before moving from niche product to mainstream, according to Fitch Ratings in a new report.

Marketplace lending has become a more mainstream source of borrowing in a short time for consumers and small businesses. One main reason is the ability of marketplace lenders to connect with consumers and small businesses directly. Borrowers in-turn find the ease of use and bypassing traditional banks appealing. Cost savings are being passed on to borrowers via lower interest rates as these platforms benefit from more efficient online operations and fewer regulatory burdens.

That said, marketplace lending remains an industry with a limited track record, according to Senior Director Tracy Wan. 'Credit performance so far has been stable across most marketplace lending platforms, though it has yet to be tested through a full economic cycle,' said Wan. 'The rapid growth of marketplace lending is also drawing increasing attention and scrutiny from various regulators like the CFPB.'

Non-balance sheet marketplace lenders in particular face more regulatory uncertainty due to the concern of 'true lender' status. The recent ruling with Midland Funding, LLC also highlights the risk that exemption of usury laws may be challenged when accounts change hands.

Nonetheless, there's no denying the growing acceptance among institutional investors of marketplace lending. And as the sector evolves, so is Fitch's approach to analyzing marketplace lending-backed securitizations.

'The Rise of Marketplace Lending ABS' is available at 'www.fitchratings.com' or by clicking on the above link.