Author Topic: Whole Loan Program - Fair or Not?  (Read 12560 times)

ee1x

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Re: Whole Loan Program - Fair or Not?
« Reply #15 on: June 05, 2013, 02:18:19 PM »
Are they still going to call it p2p lending when it's no longer peer to peer?   There's likely a portion of borrowers who make a better effort to stay current just because they think "real people" are on the other end.  How little will they know.  If after all the "peers" are squeezed out it seems a bit dishonest to continue the deceit.  Perhaps this was their plan all along.  They could have some chatbots do some sterile free-form Q&A just for effect.

http://www.economist.com/news/finance-and-economics/21578670-peer-peer-lending-needs-new-name-end-peer-show
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core

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Re: Whole Loan Program - Fair or Not?
« Reply #16 on: June 05, 2013, 02:25:29 PM »
Snippet from the article for those who don't have time to read it:

Quote
As for the supply of capital, institutional investors now account for two-thirds of loan volumes. “We haven’t used the term ‘peer to peer’ for the past three years, just like Facebook doesn’t call itself a social network,” says Mr Laplanche.
(...)
“We are a more efficient way of consumer lending and capital allocation,” says Mr Laplanche. That description may not have the romantic ring of peer-to-peer lending but it does set the stage for the industry to have a greater impact.

berniemadeoff

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Re: Whole Loan Program - Fair or Not?
« Reply #17 on: June 05, 2013, 03:45:25 PM »
If they lose the peer aspect then why are they different than any other lender who makes loans, packages them up and sells them to investors.  Other than a fancy website, what else is differentiated at the end of the day if they act simply as a channel to underwrite loans for institutional investors?

I think dropping the peer angle is a big mistake, imo.  BofA or Wells Fargo could set up a website like LC's and start making loans tomorrow.  With the scale and institutional client reach of an international bank, LC would be driven out of the market in no time... disintermediation will work for p2p lending as long as you don't start to encroach on much larger, lower cost competitors... just my opinion.

Look at something like Square in the payment processing space.  All the banks, Paypal and others aren't going to cede business without a major fight.


Peter

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Re: Whole Loan Program - Fair or Not?
« Reply #18 on: June 08, 2013, 10:06:25 AM »
My feeling is that both Prosper and Lending Club would have been happy to stay with peer to peer. It just isn't scalable or profitable. Lending Club would still be losing money hand over fist if not for the institutional investors and we saw that Prosper dropped down to under $10 million a month when the big investors stopped putting their money in. Maybe in a few years a true p2p lender will emerge but today there are just not enough retail investors to make it sustainable.
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berniemadeoff

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Re: Whole Loan Program - Fair or Not?
« Reply #19 on: June 08, 2013, 11:54:43 AM »
My feeling is that both Prosper and Lending Club would have been happy to stay with peer to peer. It just isn't scalable or profitable. Lending Club would still be losing money hand over fist if not for the institutional investors and we saw that Prosper dropped down to under $10 million a month when the big investors stopped putting their money in. Maybe in a few years a true p2p lender will emerge but today there are just not enough retail investors to make it sustainable.


I think there's a way to properly serve both types of customers.  JPMorgan, BofA and other global banks service the largest corporate clients while trying to keep small business and retail clients happy. 

Problem with the scale argument is if they lose the P2P niche and try to scale to compete with other major consumer lenders, they will fail. Remember, banks use virtually free customer deposits as capital and lend to credit card and small business borrowers to earn a net interest margin.  It's a borrow short, lend long strategy, and they use massive scale (call centers, centralized underwriting, etc) to drive down cost and maximize the spread. 

LC is a transactions driven revenue model with the P2P angle and their website as the key differentiators. LC can't compete on scale... Also, if LC tries to compete with banks for institutional investors, they will have a hard time keeping up with banks that have expertise in securatizing loans, customizing products and marketing to major institutional clients (insurance, pensions, endowments, etc).  LC has to stick with P2P or they get run over, imo.