“To Borrow Is Human, To Lend Divine”: How online lending is radically changing the way we can make and save money in a ZIRP environment

With geopolitics all over the place and markets wobbly, the last couple of weeks may have been somewhat too volatile for comfort for some.

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Not so in P2P and Online Direct Lending land. The first quarter of the year saw some of the most exciting news flow in the industry, and from what I can see, hear and experience hands on, it’s only accelerating.

Following a recent in-house update from senior management at some of the leading platforms (Lending Club,Prosper,Funding Circle), it became all but clear that things are going more than well, at many levels. We had confirmation that the balance between borrowers and lenders/investors has dramatically shifted indeed. Less than 18 months ago (around the time a first levered fund investing in consumer P2P loans launched), borrowers were in the lead, with too few lenders stepping up to the plate. Today, the problem is the exact opposite: too much investment capital wanting to get involved, with a number of these platforms having to severely restrict access so as the keep a balance. Over that period, Lending Club and Prosper went from $88M and $12M of respective monthly loan volume (November 2012) to $272M and $77M (March 2014). As this growth rate continues to increase, focus is now shifting to finding more creditworthy borrowers. I therefore fully expect some very interesting announcements and partnership deals to help make this happen.

Some other highlights during that period would include:

  • Zopa (UK) raising $25M from a London based hedge fund

  • Santander being disclosed as a major buyer on Lending Club loan volume

  • The first AltFi Summit in London focused on the industry

  • P2P loans/investing becoming allowed in ISA’s

  • Continued positive press coverage from the likes of Financial Times, Bloomberg News, Wall Street Journal, American Banker, Economist, Fortune, etc.

  • First institutional coverage of a listed equity (Liberum/TrustBuddy)

  • Wells Fargo first restricting employees to get involved, then retracting that decision

  • OnDeck raising $75M from Tiger Global (SME lending)

  • LendAcademy’s Peter Renton announcing starting an asset manager

  • GLI Finance (London) adding RaiseWorks (US) stake to its stable of participations

  • Lending Club announcing the start of a small business loan product

  • Rocket Internet rolling out its brands (Lendico & ZenCap) in HST fashion all over Europe

  • SoFi (US), going from student loans to mortgages, raising another $80M along the way

  • RealtyMogul (US), now really the “Lending Club” of real estate, after Canaan Partners funding a $9M Series A round

  • Lending Club just announcing a first acquisition, buying Springstone Financial LLC for $140M, while adding T. Rowe Price, Wellington, BlackRock and Sands Capital as new capital providers.

  • A first regulated investment fund in Luxembourg dedicated to P2P & online lending (consumer and small business) scaling rapidly

  • Marshall Wace acquiring a controlling stake in Eaglewood Capital to create MW Eaglewood

I’ll stop here, as you get the picture.

In the meantime, we’re getting ready for LendIt2014, the industry conference now with a second edition in San Francisco, hometown to both Lending Club and Prosper.

And while most people still have to discover the exciting new opportunities in P2P and Online Lending, other, more novel models and platforms are being developed as we speak.

  • Pave & Upstart are trying to introduce a radical new way to look at student (loan) financing, by letting people raise money in exchange for a small share of their income over a longer period of time – backers therefore invest directly in (a pool of) a person, less so in an idea or a business;

  • EquityKey and RealtyMogul are radically changing the way people will look at real estate investing; the former by letting you exchange the possibility of future appreciation for the certainty of cash today; the latter by “democratizing access to deal flow” in a P2P Lending kind of way (calling themselves the “Lending Club of real estate”, a fitting description after the most recent funding round with Canaan Partners as lead, the same party that has been an early backer of Lending Club);

  • Energy efficiency, also sometimes called the Fifth Fuel (after coal, petroleum, nuclear and alternative energy) clearly being the low hanging fruit in the renewable energy investment space, until now a difficult proposition; that may all change with the likes of Joule Assets who have been creating investable ERA’s (Energy Reduction Assets) that have been generating proven returns for decades, pretty soon accessible via a fund structure, maybe a platform later on.

So while I continue to watch the space carefully and get involved in a number of these situations, I cannot help but be positively impressed by the imagination of all these entrepreneurs that make it all happen.

And get this. The other day, in his first interview (on Bloomberg TV) after leaving Pimco, Mohamed El-Erian admitting going all tech and being very surprised and excited by what he’s been missing.  Also, in an accompanying write-up, he says: … “More promising examples, albeit less well-known, may be found in Internet-driven lending and borrowing clubs or, more generally, the peer-to-peer initiatives in consumer financial services. By seeking to compress net interest margins, including through lower expenses and more efficient data assessments and aggregation, and by targeting an enhanced consumer experience, such empowerment schemes could serve to reduce the cost of financial intermediation while providing for fairer risk-pooling outcomes and better credit underwriting. Likewise, so-called digital wallets and mobile transfers are efforts to improve payments and settlement in a retail financial sector that gets a lot less attention than its institutional peers.” (http://bit.ly/1i92FBD)

So who is he going to get involved with next?

“I skate to where the puck is going to be, not where is has been” (Wayne Gretzky)

“Pedestrian, it is not” (Master Yoda – paraphrasing) 

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