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Submitted via electronic submission

Docket ID: TREAS-DO-2015-0007


September 30, 2015
Ms. Laura Temel
Attention: Marketplace Lending RFI
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW, Room 1325
Washington, DC 20220
Re: Marketplace Lending Request For Information

Dear Ms. Temel,


In response to the U.S. Department of the Treasurys Request for Information,
we are pleased to submit these comments on behalf of Orchard Platform, a technology,
infrastructure, and market data provider to the marketplace lending industry that powers
the interaction between institutional investors and loan originators. Many of these
comments build on our previous discussions at the Departments Roundtable on
Marketplace Lending held on August 5, 2015.
Orchard provides order management, benchmarking tools, and data and
analytics services to institutional investors that enable them to understand, access, and
execute marketplace lending investments. Orchard also helps marketplace loan
originators across multiple asset classes diversify their capital structure by increasing
awareness of their platforms and providing market insights. Based in New York City,
Orchard was founded in 2013 and is backed by venture capital firms Spark Capital,
Canaan Partners, and Thrive Capital, individual investors such as Tom Glocer, John
Mack, Vikram Pandit, and Jon Winkelreid, and numerous other investors of note.
As Orchard is neither an investor in nor an originator of marketplace loans but
rather a technology service provider to both sides of the industry, we have limited our
comments to those areas about which we believe we have particular insight.
2. Role of Electronic Data Sources
What role are electronic data sources playing in enabling marketplace
lending? For instance, how do they affect traditionally manual processes

or evaluation of identity, fraud, and credit risk for lenders? Are there new
opportunities or risks arising from these data-based processes relative to
those used in traditional lending?
Marketplace lending has been directly enabled by the proliferation of electronic
data sources about borrowers and market conditions as well as the increased
willingness of consumers and small businesses to conduct meaningful transactions
online. We believe that by harnessing data volunteered by borrowers and combining it
with readily available public sources of data, lending platforms can better assess
borrower tendencies and improve underwriting quality in a fair and transparent manner,
which in turn drives investor confidence in the product. Leading industry participants,
looking to manage massive amounts of data and harvest these actionable insights, are
hiring best-in-class data scientists and data engineers to improve borrower acquisition,
credit underwriting, and a host of other areas. At the same time, borrowers benefit from
the quick and seamless processing power afforded by this technology, which removes
barriers to entry and enables them to get funded quickly. This virtuous cycle - which
would be impossible without the rich sources of data that have only recently become
available with the advent of online financial services - is part of what has contributed to
the growth of the industry in the last several years. A key fact here is that borrowers are
willingly and knowingly participating in this process. With so many choices now
available, borrowers have the leverage in this relationship, not necessarily the
marketplace lenders.
While we are aware of the risks present when any meaningful transaction is
conducted online, we do not see that any greater risk is posed by marketplace lending
as against, for example, online retail banking or the online management of personal
health information. As consumers and small businesses come to move more of their
lives and operations online, enabling them to access reasonable and fast sources of
credit in the same manner only makes sense. Furthermore, the increased reliance on
algorithmic underwriting processes - while subject to the same risks inherent in the
automated systems that are ubiquitous in modern financial markets - has the added
benefit of reducing the possibility of improper human bias and error during the
underwriting process.

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While access to troves of data about peoples personal lives could in theory lead
to lending decisions being made based on improper criteria, there is little or no reason
to believe this is happening today, and in any event we believe it is a contingency that
can be controlled for and, if necessary, audited without a wholesale rethinking of the
industry. Regulations concerning such practices already exist and apply to marketplace
lenders through their banking partners.
Moreover, we believe that the marketplace lending community has distinguished
itself by a commitment to transparency - one might even call it radical transparency. For
example, Lending Club and Prosper - two of the leading providers of unsecured
consumer financing - have made data available to the general public on every single
loan they have ever issued. This is something that few, if any, traditional lenders could
claim to have done, and they have done it without creating any material issues
regarding either the privacy or security of their borrowers personal financial information
or the quality of their underwriting practices. By and large, borrower data is taken from
sources that are used for a variety of financial and non-financial purposes and the
practice of such data gathering is neither new nor unique to marketplace lending.
Furthermore, bad actors are more easily singled out in marketplace lending than in
other areas of finance because of the social nature of the industry and their reliance
upon a continuous stream of new investors.
Another positive side effect of the rise of electronic data sources is that it has
encouraged companies that might otherwise not have considered issuing credit to enter
the lending space, which is a boon to borrowers. For example, payment technology
companies have been aggressively moving into the small business financing space.
Square, Amazon, and PayPal, who have the unique advantage of sitting on top of
proprietary streams of payment data from consumers and merchants, have all launched
lending programs. Square Capital, for example, offers merchants currently in their
network, many of which are small businesses, seamless access to working capital,
leveraging their existing data about those merchants to make informed financing
decisions. As a result, the rise in electronic data is not only enabling marketplace
lending by traditional borrowers or lending entrepreneurs, but is incentivizing nontraditional participants to begin extending credit. This must be viewed as a net positive,
as traditional large banks have slowed lending to consumers and small businesses in
the post Dodd-Frank era. According to a recent study by the Federal Reserve Bank of
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Atlanta, only 54% of businesses that applied for credit received any funding, and only
33% were fully funded.1 In addition, traditional banks have not kept up with advances in
technology - either from a borrower-facing or credit underwriting perspective - and thus
the entry of non-traditional, technically savvy participants facilitating credit is a positive
development.
Although no great change comes without risk and some turbulence, we believe
that increased transparency and reliance on novel and rich sources of data is the future
not only of marketplace lending but of finance in general, and we believe this is a good
thing. For this reason among others, we refer to marketplace lending as part of the new
Sunlight Banking system, as opposed to the Shadow Banking of the past.
4. Expanding Access to Underserved Market Segments
Is marketplace lending expanding access to credit to historically
underserved market segments?
During the financial crisis and its aftermath, traditional providers of capital for
small business and consumers markets withdrew, creating an opportunity and need for
a new type of non-bank credit provider. Fueled by competition among marketplace
lending platforms for creditworthy borrowers and an infusion of institutional capital,
borrowers have more options than ever in attempting to satisfy their credit needs.
Although comprehensive data about the marketplace lending industry is not yet
currently available and the size of the market is still small relative to the overall credit
market, there is good reason to believe that marketplace lending has the potential to
increase access to credit to historically underserved borrowers, and in some segments
has already begun doing so.
The small business lending space, for example, has notoriously been
underserved by traditional banks, as compared to consumer lending, due to the
associated high transaction costs and difficulty in evaluating creditworthiness of

See Federal Reserve Bank of Atlanta, Small Business Credit Survey (Third Quarter 2014), p. 5:
https://www.frbatlanta.org/research/small-business/survey/14q3.aspx?panel=3.
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borrowers. According to a recent Harvard Business School working paper (citing


statistics from the Federal Reserve Bank of New York):
[A]bout 37 percent of all small businesses applied for credit in the fall of
2013. About 45 percent did not apply, presumably because they did not
need credit, but about 20 percent did not apply because they were
discouraged from doing so, either because they felt that they would not
qualify or because they thought the process would be too arduous to
justify the time commitment. Of businesses that did apply, over 40 percent
either received no capital at all or received less than the amount that they
requested. This underscores the manner in which seeking bank credit can
be difficult, though not necessarily impossible, for many small businesses
to secure.2
In response, companies like OnDeck, Funding Circle, and the numerous other
platforms focused on the small business market, have stepped in to solve these
problems by leveraging technology to match investors with borrowers looking to grow
their businesses. These originators take a more comprehensive view of borrowers
profiles, looking well beyond a basic credit score to include novel data sources flowing
from every corner of the digital world. This use of big data has led to an improved result
for borrowers: the previously referenced study by the Federal Reserve Bank of Atlanta
notes that while small businesses were approved at a 31% rate by large banks, they
were approved at a 38% rate by online lenders.3 Several of the small business
marketplace platforms have also sought out the niche of small businesses that are
either of a size or require funding in an amount that is too small for most banks to fund
in a cost-effective manner. These qualified but underserviced business owners can
now access capital through marketplace platforms, enjoying an increasingly fast and
simple application process, a quick decision, and a demonstrably higher level of
customer service than is typically provided by large banks.

Mills, Karen G., and Brayden McCarthy. The State of Small Business Lending: Credit Access During the
Recovery and How Technology May Change the Game. Harvard Business School Working Paper, No.
15-004, July 2014, p. 23.
3
See note 1, p. 15.
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Institutional capital is also pressing for broader access to borrowers. Given the
supply constraints on the major lending platforms, investors are looking beyond them in
the search for volume and higher yield and are thereby incentivizing lending into
segments such as near-prime. As investors go farther out on the risk spectrum,
responsible origination requires a greater level of predictive analytics to evaluate risk
and a very finely tuned system for investment execution and portfolio management.
However, given the amount of capital out there willing to invest in a riskier but higheryielding blocks of loans, new origination platforms are sprouting up to meet the demand,
servicing new types of borrowers, delivering differentiated products, and ultimately
broadening access to credit.
9. The Role of the Federal Government
What roles, if any, can the federal government play to facilitate positive
innovation in lending, such as making it easier for borrowers to share their
own government-held data with lenders? What are the competitive
advantages and, if any, disadvantages for non-banks and banks to
participate in and grow in this market segment? How can policymakers
address any disadvantages for each? How might changes in the credit
environment affect online marketplace lenders?
Although a complete accounting of the current and ideal potential role of the
federal government in marketplace lending is beyond the scope of this comment, we
would like to highlight several prominent themes in the feedback we hear daily from
investors and current and prospective originators in this space.
First and foremost, if it wishes to facilitate positive innovation in lending, the
federal government must provide a clear, comprehensive regulatory framework so that
all market participants understand the risks and opportunities of investment and the
requirements for offering new credit products. A core segment of institutional investors
have already demonstrated a substantial interest in investing in marketplace loans, but
to unlock the potential of this space to provide much needed credit to underserved
individuals and small businesses, larger and more risk-averse institutions will expect a
greater level of certainty as to the legal framework within which loan originators operate

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and how it fits within the larger regulatory landscape.4 The Department of the Treasury
surely has a role to play here, as does the Consumer Financial Protection Bureau, the
Securities Exchange Commission, the Federal Trade Commission, and other
administrative agencies. We believe it is critical that these agencies work together in
creating a holistic and clear approach to marketplace lending, rather than something
piecemeal and internally inconsistent. Regulatory complexity and uncertainty - perhaps
more than any other factor - is to blame for the slowness with which the entrepreneurs
and innovators of Silicon Valley have entered the financial services technology field,
and it is this same complexity that could slow or halt the pace of progress.
Building off that general point, it will be critical to clarify the roles that non-banks
are permitted to play within this market segment. Non-banks enjoy a number of
practical advantages over banks - advantages that can and should inure to the benefit
of the borrowing public if they are properly supported, including the ability to rapidly
update technological systems, a scaled-back and simplified business model, and - as
noted in an earlier comment - access to rich and unique sources of data, whether as
exhaust from their principal lines of business or through partnerships and data feedback
loops unique to online businesses. While it is clear that a baseline set of borrower
protections can and must apply to anyone who presumes to lend money, there are
innumerable areas of banking law that are inapplicable to such an enterprise, and
therefore a streamlined regulatory framework ought to be made available to encourage
its growth. In addition, inconsistent case law regarding the same statutes or regulations
- as evidenced by the controversy surrounding the recent decision of the United States
Court of Appeals for the Second Circuit in the case of Madden v. Midland Funding underscores the need for a clearer framework for non-banks relationship to banks and
how an originator operating nationwide is to navigate the overlapping regimes of federal
and state banking laws. This uncertainty could be cured by clear federal legislation or
regulation.
There is good precedent for a holistic and industry-friendly regulatory approach
to marketplace lending, namely in the U.K., where the Financial Conduct Authority
(FCA) has adopted a light touch approach designed to facilitate the growth and
4

Regulatory uncertainty was cited as a high concern by respondents in a recent survey of market
participants. See Richards Kibbe & Orbe, 2015 Marketplace Lending Survey, p. 3:
http://www.rkollp.com/newsroom-publications-346.html.
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adoption of this new pathway to credit while ensuring a baseline set of protections for
consumers.5 After taking control of the regulation of marketplace lending - referred to in
the U.K. as loan-based crowdfunding - in April 2014, the FCA re-affirmed its support of
the industry in a report in February 2015, saying [w]e recognise that it is still early but,
at present, we see no need to change our regulatory approach to crowdfunding, either
to strengthen consumer protections or to relax the requirements that apply to firms.6
In addition, we would emphasize - as many have before us - that many aspects
of marketplace lending are already regulated in the U.S. Platforms that issue member
payment dependent notes, for example, are regulated by the SEC and partner with
originating banks that are either nationally- or state-chartered and therefore such activity
is subject to all of the banking laws of their respective jurisdictions. Therefore, without
delving into the pros and cons of the specific details of the U.K.s regulatory model, we
believe that the U.S. government should follow its lead in adopting a light touch and
seek to streamline and harmonize existing regulations in a way that will support this
nimble and borrower-friendly industry.
12. Investor Considerations
What factors do investors consider when: (i) Investing in notes funding
loans being made through online marketplace lenders, (ii) doing business
with particular entities, or (iii) determining the characteristics of the notes
investors are willing to purchase? What are the operational
arrangements? What are the various methods through which investors
may finance online platform assets, including purchase of securities, and
what are the advantages and disadvantages of using them? Who are the
end investors? How prevalent is the use of financial leverage for
investors? How is leverage typically obtained and deployed?

See Policy statement 14/4,The FCAs regulatory approach to crowdfunding over the internet, and the
promotion of non-readily realisable securities by other media, March 2014:
http://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf.
6
See A review of the regulatory regime for crowdfunding and the promotion of non-readily realisable
securities by other media, February 2015: http://www.fca.org.uk/static/documents/crowdfundingreview.pdf.
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Over the past several years, marketplace-funded loans to consumers and small
businesses have become an attractive and increasingly popular investment. While
peer-to-peer lending gained initial popularity with individual investors, the vast majority
of capital invested in the space now comes from institutional sources. These
institutional investors look to marketplace lending as a way of building portfolios that
offer desirable yield, stable cash flows, and predictable returns. Institutions investing in
marketplace lending assets now include hedge funds, family offices, business
development companies, specialty income funds, closed-end funds, and banks.
In evaluating potential investment opportunities, institutional investors consider a
number of factors. As these firms are among Orchards core client base, we believe we
have significant knowledge of the most important variables in making these decisions.
The track record of results offered by a marketplace lending originator is clearly
of great importance to any investor considering investment in the originators loans. On
this dimension, lenders with several years of performance history are best qualified to
attract large amounts of capital, particularly when they are able to demonstrate solid
and consistently improving results. In particular, the early platforms in the space,
including LendingClub and Prosper, have been able to demonstrate a clear and
monotonic improvement in credit quality and performance of successive vintages, owing
to their ability to continuously refine their risk management practices over time. Metrics
of importance to investors include gross asset yields, charge-off rates, recovery rates,
and prepayment rates. In addition to reviewing the credit performance data supplied by
an originator seeking investment, many investors also elect to perform detailed
diligence of an originators operational practices. This may at times involve one or more
on-site visits with the originators risk management, finance, operations, and investor
services teams. As noted above, because of the social nature of marketplace lending,
information regarding many originators track records and reputations is widely
available, and thus investor capital deployment becomes a meritocracy over time.
People want to make money working with platforms that have demonstrated a
commitment to integrity.
As marketplace lending has grown, there has been a proliferation of new
originators who, by definition, do not possess the extensive track record of the more
established players. In our experience, investors, when evaluating such originators,
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tend to place more emphasis on platform-specific risks, necessitating deeper analysis of


the management team, borrower acquisition channels, and operational aspects such as
backup servicing and collections. In certain cases, early-stage originators have offered
equity stakes in their platforms - for example, in the form of warrants - to institutional
investors who demonstrate the confidence to commit capital early on.
In evaluating investment opportunities, investment managers want to ensure that
they will be able to deploy sufficient capital to drive meaningful results relative to the
size of their funds. The availability of assets in which to invest has been an important
factor in the evolution of the type and size of funds participating in marketplace lending.
As the volume of marketplace lending originations has increased, larger and more
established funds have entered the space. Given the attractiveness of these assets
among certain classes of investors, the most well-established marketplace originators
find themselves in a strong position when choosing which investors may participate on
their platforms.
Given the relatively recent vintage of marketplace lending, the availability of inplace technology to handle these assets on behalf of institutional investors is not a
given. Investors require robust, reliable, and usable technology solutions in order to
facilitate the acquisition, management, analysis, and reporting relating to marketplace
loans. The execution technology used to facilitate the selection and purchase of assets
will vary greatly depending on whether the buyer is employing an active or passive
selection strategy, as we will discuss below, with the former necessitating a greater
degree of technological sophistication. Investors will also require portfolio management
tools to track the status, performance, and returns of marketplace loans in detail.
Finally, investors require the ability to generate detailed reports on the volume,
composition, and performance or marketplace loans for consumption by portfolio
managers, internal operations/accounting teams, fund investors, and third-party service
providers such as administrators and custodians. It was, in part, to provide these
services that Orchard was founded and has built its business to date.
The availability of service providers who are familiar with marketplace lending
assets is also of importance to investors. In setting up an investment program,
managers typically need to work with various parties, which may include custodians,
fund administrators, valuation firms, and backup servicers. While there is no shortage
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of existing companies in each of these areas, a growing handful of providers have more
recently built practices specifically focusing on marketplace lending.
Institutional investors typically acquire assets from originators in one of two ways
actively or passively. So-called passive investment generally involves the investor
and the originator agreeing to a pre-determined volume of loan inventory meeting
certain criteria and distribution requirements. In this case, investors do not have the
ability to select specific loans, though they are able to see full credit and performance
data on these loans once they have been purchased. Such investors are generally
making their investment decisions based on broad originator-level allocations as
opposed to analysis of specific loans. Alternatively, active investors have the ability to
choose specific loans offered by originators and to build a portfolio that is closely
tailored to their particular investment objectives. Given the range and variety of assets
available, there exists a wide variety of active investment strategies, variously
prioritizing yield, volume, and/or risk mitigation. Active investment strategies often
involve making programmatically-facilitated investment decisions based on data made
available by the originator around a given borrowers credit profile and loan terms.
Certain institutional investors employ the use of a credit facility from a senior
lender to finance their marketplace lending investments. Currently, there are several
commercial banks offering such facilities to qualified investors. Leverage providers
generally conduct their own diligence of the originators and servicers in order to ensure
the quality of the collateral, and as such, the availability of a senior lender willing to
provide leverage is often a key component in an investors decision to work with a given
originator. In our experience to-date, we have seen the application of leverage to be
widespread in its prevalence but measured in its implementation, with generally
conservative advance rates and the establishment of comprehensive covenants and
collateral eligibility criteria.
13. Secondary Market
What is the current availability of secondary liquidity for loan assets
originated in this manner? What are the advantages and disadvantages of
an active secondary market? Describe the efforts to develop such a
market, including any hurdles (regulatory or otherwise). Is this market
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likely to grow and what advantages and disadvantages might a larger


securitization market, including derivatives and benchmarks, present?
The secondary market for marketplace loans today is fairly limited. If a
secondary market is interpreted literally as a forum for the direct resale of an instrument
by a primary investor to a secondary investor, there is no organized secondary market
for marketplace loans today. We are aware of the one-off resale or transfer of whole
loans or portfolios of loans by a primary investor to another investor, but to the best of
our knowledge this process is entirely manual, off-platform, and both dependent upon
and subject to the discretion of the loan originator, given that many if not most products
are structured to require the originators consent for transfer and continuation of
servicing. An exception to this rule exists for certain member dependent payment
notes, where the issuers have established a relationship with a dedicated broker-dealer
that permits note holders to post these securities for sale. However, even in such
circumstances, investors are limited to the use of a dedicated broker-dealer that
understands and is equipped to handle these instruments.
Taken more broadly to mean any vehicle for transferring ownership of loans
away from either the originator or an investor, the only meaningful secondary market
today is securitization. Securitization of marketplace lending can be broken into two
categories: (1) securitization directly by an originator, and (2) securitization by investor
aggregators. Originators like SoFi, OnDeck, CAN Capital, and Avant have securitized
loans directly off their balance sheets and used the proceeds of the sales to fund
additional origination within their platforms. More relevant to the question of a
secondary market, investors like Eaglewood Capital, Garrison Capital, and BlackRock
have successfully securitized portfolios of marketplace loans and sold the underlying
bonds to other investors. As investment in marketplace loans increases, the frequency
and size of these securitizations are both expected to grow. Notwithstanding that
general optimism, however, there are a number of obstacles that the market must
overcome for this financing technique to reach scale in this space.
First, the Madden v. Midland Funding decision referenced earlier has given some
underwriters pause with respect to affected loans and has generally caused some
unrest in the industry with respect to the enforceability of marketplace loans. Although
the primary near-term effect seems to be an adjustment in underwriting criteria to
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account for Madden issues with loans originated in the affected states, the long-term
impact of Madden - particularly if the reasoning comes to be adopted by other Circuits is difficult to predict. It may only be a matter of time before we see other Maddens pop
up, and this has given investors pause. Second, as Karen Mills and Brayden McCarthy
noted in the aforementioned working paper with respect to small business loan
securitization (but their point is generalizable to other loan categories):
Congress removed regulatory obstacles to the securitization of small
business loans in 1994, but securitization of small business loans has
historically been weak due to the lack of standardized lending terms, the
lack of uniform underwriting guidelines, the historical nature of relationship
lending to small businesses, and the dearth of historical data on credit
performance.7
Third ratings agencies are still familiarizing themselves with marketplace loans as
securitizable assets and many securitizations in the space are still unrated, limiting the
pool of investors that are able or willing to participate. The short track record and
limited historical data - as well as the lack of collateral typical for this market - have
made ratings agencies cautious in supporting investment in this space. Moreover, the
prepayment risk of most loans makes valuation difficult.
Notwithstanding these challenges - indeed, perhaps because of them - we
believe that a fully functioning secondary market for marketplace loans - whether in the
form of a direct market for the resale of loans or member payment dependent notes or
in the form of securitizations - is critical for the growth of this industry. Many larger
institutional investors are hesitant to invest in loans if the only meaningful option is to
lend-and-hold,8 and a secondary market will facilitate both greater liquidity and more
meaningful price discovery, which will have a number of salutary effects. First, it will
lead to smarter and more targeted pricing of loans to investors, as originators will have
a better sense of their loans value. Second, faster, more liquid markets will open up
7

See note 2, p. 41.


The absence of a meaningful secondary market was the 3rd highest cited risk factor in the Richards
Kibbe & Orbe survey of market participants, while the addition of a mature secondary market would be
the number 1 development that would lessen participants concerns about investing in the space. See
note 4, p. 3-4.
8

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more capital to be passed through to borrowers, increasing access to credit. Third, the
lower transaction costs associated with a fluid, secondary market should ultimately
redound to the benefit of borrowers in the form of reduced costs in the primary market.
As all market participants spend less on middlemen and infrastructure during capital
acquisition, prices for these instruments should come down. Fourth, as secondary
markets become more available, assets with longer dated maturities will be marketable
as prospective investments, opening up still more funding possibilities.
As such, in our view, anything that the federal government can do to encourage
and allow for the development of a fully functioning secondary market is welcome. We
recognize there is a healthy debate to be had regarding the rules by which marketplace
loans and other assets should be securitized, and we are all familiar with the risks that
highly abstracted derivatives - should they be developed for this asset class - can
present. However, we should not take our eyes off the ball by inadvertently stifling the
development of a healthy market that is providing much needed credit to U.S.
consumers, students, and small businesses.
14. Key Trends in Marketplace Lending
What are other key trends and issues that policymakers should be
monitoring as this market continues to develop?
Marketplace lending, which began as a small community of lenders, investors,
and borrowers forsaken or frustrated by traditional financing options, has become an
increasingly diverse and expansive lending ecosystem.9 Originators, armed with more
data and insight into borrowers, continue to develop new products and validate current
ones. Investors have deployed capital with increasing confidence into a growing number
of lending products and platforms. Borrowers, in turn, enjoy more financing options,
accessibility, and rates from these competing enterprises. Orchards position in the
marketplace - sitting squarely between loan originators and investors - has afforded us
a privileged view of how the various market participants are evolving, and we have
observed several material trends in the course of the last few years.
9

For our own visual representation of the marketplace lending universe and how the various players
interact, please see our Orchard Lendscape at https://orchardplatform.com/company/lendscape.
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Investor Diversification. One of the most pronounced trends in marketplace


lending has been the diversification of investors participating in the market. When this
pathway to credit first opened up, investors in the space were primarily comprised of
curious retail participants and a few hedge funds and family offices with a fairly high risk
tolerance. Today, as previously noted, sophisticated investors are entering the market
in force, including top-tier investment banks, long-only investment funds, multi-sector
asset managers, business development companies, and hedge funds - and several of
these are focused largely or exclusively on marketplace lending. This diversification of
participants is a meaningful validation of the marketplace lending model, as more and
more investors of differing risk tolerances have come to understand and believe in the
promise of these loans as offering a safe and meaningful return on investment. The
influx of capital has in turn enabled the rapid growth of global originations, not only in
terms of quantity but also efficiency. Whole loan funding has allowed for the
compression of average funding time, enabling borrowers to acquire loans more quickly.
It is important to note, however, a potential downside to the influx of institutional
capital, which is that retail investors increasingly feel marginalized by deep-pocketed
investors hoarding all of the desirable loans. Some originators have responded by
setting aside inventory for retail investors and building other safeguards and limits to
protect their access to this investment opportunity, while others view the move away
from retail as a natural development of a growing credit class and have done little to
stand in its way.
Novel Types of Originator. The recent success of marketplace lending platforms
such as Lending Club, Prosper, SoFi, and OnDeck has induced a highly diverse class of
entrepreneurs, venture capitalists, banking veterans, and financial services outsiders to
invest substantial resources and capital into the development of novel origination
platforms. Some are distinguished by the relative narrowness of their focus - e.g. a
platform devoted entirely to loans for the purchase of solar panels - while others are
distinguished by their original approach to borrower acquisition or their approach to
credit underwriting. Another prominent trend, as noted earlier in our comments, is the
entry into the space by businesses that formerly did not extend credit, including
specialty finance companies and payment processors. Specialty finance companies
include alternative lending businesses that are interested in expanding to online direct
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lending as a new source of both borrowers and capital. Data or payment service
providers such as Square and PayPal, referenced earlier, are also getting into the
lending business, realizing an opportunity to leverage existing transaction data to make
better informed financing decisions and exploit an in-place repayment and servicing
infrastructure. Social media companies represent another potential area for significant
expansion in this space, especially considering their user and capital bases. This
vertical integration of lending offerings into other services products will almost surely be
seen as a net positive by consumers and small businesses, giving them more choice,
ease of use, and presumably better pricing when it comes time to seek financing, but it
will be important for there to be a clear regulatory framework within which all of these
originators can compete on a level playing field.
*

In conclusion, Orchard believes wholeheartedly in the ability of marketplace


lending to transform the global system of credit in a way that increases access for
underserved borrowers and promotes economic growth. If the industry delivers on the
promise of extending much needed credit to a broad spectrum of borrowers and
commits to building and developing Trust, Technology, and Transparency with all of its
stakeholders, we can help usher in a new era of Sunlight Banking and create a brighter
future for U.S. consumers and small businesses.
Orchard appreciates the constructive approach and open dialogue that the
Department of the Treasury has adopted in exploring this novel and exciting space.
Please let us know if we can be of any additional service as you continue your analysis.

Respectfully submitted,
Matthew Burton
Chief Executive Officer
Mark Solomon
General Counsel

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