Payday Lender Taps Wall Street For Cash As Regulations Bite

A payday lender is looking for more ways to boost their lending.

The alternative finance market has exploded since the end of the financial crisis.

Traditional lenders and peer-to-peer lenders have blossomed as banks, constrained by regulation, have pulled back from certain areas of the lending market seeking better returns on capital elsewhere.

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The growth of online loan markets in the peer-to-peer sector has exploded over the past ten years, and research expects this trend to continue going forward. According to Transparency Market Research, the global peer-to-peer lending market could expand at a whopping 48.2% CAGR between 2016 and 2024. At this pace, the market’s valuation is expected to rise from $26.2 billion in 2015 to $898 billion by 2024.

As lenders grow, they’re turning to the ABS market for funding as a natural step of diversifying. Securitisation trades began in 2014 and are slowly gaining traction around the world. Last year, P2P Global Investments Plc and Zopa Ltd. produced Europe’s first securitization of unsecured consumer loans originated online. The $179 million transaction was backed by 27,137 lines from individuals. This deal followed Funding Circle’s first securitization of peer-to-peer loans, comprising small-business debt — another first for Europe.

Payday Lender Taps Wall Street For Cash As Regulations Bite

Payday Lender Taps Wall Street For Cash

And as the pace of securitization picks up for peer-to-peer, other short-term non-traditional lenders are looking to get into the market. According to the June 30 issue of the Asset-Backed Alert, payday lender DFC Global is eyeing securitization as a funding source.

According to the newsletter, DFC —  formerly known as Dollar Financial Corp. — Operates 1200 retail outlets in the US, Canada, UK and five other countries and is making a move in response to regulations that are expected to make it harder for payday lenders to fund their operations. At least one other payday lender, Check ‘n Go, is known to be looking at the asset-backed bond market as a funding source.

Under Consumer Financial Protection Bureau rules set to take effect October 22, lenders will be required to verify borrowers abilities to repay and to reduce loan rollovers. These restrictions will undoubtedly impact profits and lending growth as loan rollovers are known to be a significant contributor to payday lenders’ loan book growth and earnings.