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Is Retail Money Making a Comeback in the US?

Lending Club has well and truly turned on the retail money taps.

hands holding bundles of money

What may appear to be a fairly insubstantial shift in the mechanics of the way that Lending Club and LendingRobot interact may in fact have grand implications in terms of the composition of the former company’s funding supply. LendingRobot is an automated investment service for the marketplace lending space. Think Orchard, but for private investor money. As of yesterday, investors may open an account with Lending Club through the LendingRobot website.

Prior to the integration of the two websites, investors had to visit the Lending Club site, open and fund an account, enable API access, sign up to LendingRobot, link their accounts and determine their investment criteria before LendingRobot could begin to work its magic. Now investors seeking exposure to Lending Club loans via LendingRobot need only pay a visit to the latter of the two websites. LendingRobot caters exclusively to individual investors, with a maximum account size of $5m.

Emmanuel Marot, CEO and Co-Founder of LendingRobot, explained the significance of the shift in process:

“This first of its kind integration with the largest player in the game is a real vote of confidence. Increasing ease of use and promoting more entrants into the marketplace lending universe is our core mission and works to everyone’s benefit. The simpler we make it for new investors to come online, the larger the marketplace lending industry will grow helping borrowers and lenders alike.”

We must assume that other marketplace lenders will soon begin to integrate with LendingRobot in the same way that Lending Club now has. But the real news here is that this integration represents another signal that Lending Club is seeking to attract a greater weight of retail money into the marketplace. 

LendingRobot recently announced that it would be facilitating transactions on the Lending Club secondary market; automatically listing, pricing and repricing all of the platform’s loans, and then reinvesting user income within the secondary market according to pre-determined criteria. This service circumvents the need for retail investors to compare the thousands of notes available on the Lending Club secondary market by hand. It's an innovation that is clearly designed to streamline the private investor experience.

Perhaps more tellingly, Lending Club recently launched a new tool by the name of Lending Club Open Integration (LCOI). This tool allows online advisors and broker-dealers to quickly and efficiently showcase Lending Club investment products to their clients. Advisors can effectively use the plug-in to replicate the Lending Club experience on their own websites, in a move that is clearly contrived to loosen the purse strings of individual investors.  

This all ties in nicely with a point that was made by AltFi Data in a recent study of the state of institutional investment in the UK P2P market. As Lending Club appears poised to rebalance the composition of its marketplace by driving up retail investment volumes, several UK players have cast out in the opposite direction. In July, Zopa – which has for the greater part of ten years dealt mostly with retail investors – saw 56.3% of its loans funded by institutional capital. The platform rattled past the £1bn mark in cumulative lending on Tuesday, thanks in part to the increased influence of institutional money.

Rather than there being a natural equilibrium of institutional and retail capital for marketplace lending platforms, it feels as though the optimum balance is constantly shifting – depending a platform’s strategic objectives, market conditions, origination flows, and so on. And whilst the UK market is clearly in the midst of a growth phase that favours greater sums institutional money, one wonders if Lending Club’s movements signal the beginnings of a shift in emphasis towards retail capital in the US. That’s by no means to say, of course, that the institutional river will suddenly run dry. Rather the suggestion is that retail money might be on its way to becoming a more important component in the US marketplace lending ecosystem. 

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