A marketplace lender (MPL), Prodigy Finance, has secured $240m to expand its lending operations in the US. The lender is going after a niche market – namely, international students, in particular those at prestigious American universities. Such students often find it difficult to obtain a bank loan, as they do not have a credit rating in the US.
Prodigy Finance is a great example of how MPLs represent sustaining innovation, rather than disruption, as explored in our report – Marketplace lending – a temporary phenomenon? Banks’ lower funding costs give them an enduring advantage over MPLs, particularly if and when interest rates normalise, and we therefore do not expect MPLs to pose a significant threat to banks in the mass market.
However, MPLs can still find profitable niches outside of banks’ risk appetite, as Prodigy Finance has done, enabling them to thrive and play a valuable role in society.
International students struggle to get loans to pay their fees because they generally do not have a credit rating in the place where they are studying. Traditional bank lending to students is often not structured to assess foreign risk or enforce international loan repayment.