Author Topic: Competing with institutional lenders for notes.  (Read 24517 times)

berniemadeoff

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Re: Competing with institutional lenders for notes.
« Reply #15 on: July 17, 2013, 07:50:54 AM »
LC has more than enough institutional backing to survive going forward.  Is it necessary to keep kissing up to these big guys?  Prosper will soon too.

Pony up and pay for a service?  Did you carefully read my reposted message?  You might be able to compete for now by signing up for NSR, but the big boys are the ones who will develop the fastest and the most efficient APIs, which you and I have no access to or can't afford.  All they need to do is to beat NSR by 1 second or fraction of a second to soak up the best of loans, especially when they are allowed to take 50 or 75% of the loans.  If you are talking about frontrunning, big boys will always win.  Ask Goldman Sachs if you are not sure.
So what?  Speculation and what-ifs about the big boys is just more of what I don't understand.  And it's so common on this forum, I've been trying to figure out the source.  Still not certain of it.

At the end of the day, you can spend your time stressed, complaining, or worried about what-ifs and the like.  I'll just spend my time investing and practicing my clicking skills :)

At 24, you probably know more about investing, p2p lending, etc than 99.99% of the public, but some of us here have been investing and involved in the capital markets for almost as many years as you've been alive.  We have seen that good things have a tendency of becoming not good over time.  Call it arbitrage, whatever.  But I think there are some of us here that want to see p2p investing remain open to the little guy.  Once the hedge funds and institutions overrun this market, all of your clicking will be done.

GS

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Re: Competing with institutional lenders for notes.
« Reply #16 on: July 17, 2013, 08:32:53 AM »
There are a few ways discussed in the past to keep the "little guy" in the game.

One was already mentioned, and that would be limiting the investments in any loan to a small amount (like $100) for a set period after it's posted (like 4 hours).

One would be the opposite of the "Whole loan program", a "Fractional Loan program", where a percentage of the loans are set aside for small amounts (like $100) for the first 24 hours.  For example, a randomly selected 25% of loans are set for whole purchase only, 25% are set for fractional investing only, and the other 50% are a free for all for, for the first 24 hours.

Another would be set a hard cap on how much large investors can contribute to a loan.  I understand it's capped it 75% now, but a loan could still be grabbed in seconds by two large investors who both kick in 50%.  Perhaps, saying that 25% of the loan has to be funded with investments of $100 or less would work.

I'm sure there are other ideas.  The question is does LC care about retaining the small investor.  The bad part is, as pointed out before, there is not an easy way to get out of a LC IRA, it could take years to unwind while your payments sit idle.  I think LC owes a responsibility not to throw the small investors under the bus.


TonySaunders

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Re: Competing with institutional lenders for notes.
« Reply #17 on: July 17, 2013, 01:22:09 PM »
If you like the returns from selecting the "Cream of the crop", then pony up and pay for a service that lets you compete.

I would do that. But I'd be surprised if any automated service were even attempting to resolve this issue; I bet those services are intended for general automated investing, not competing for access during a 15 second window of opportunity.

I'm a software development engineer, so I think I could develop my own auto-investor that could do it, but I still have my fingers crossed that LC will implement some way to provide equitable access. That approach is just an arms race anyway, LC involvement is the only way to fix it. I can think of several strategies and I'm sure that the folks at LC are quite aware of them.

There's not enough for everyone to have everything they want, but there's no reason everyone can't have a fair share.

TonySaunders

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Re: Competing with institutional lenders for notes.
« Reply #18 on: July 17, 2013, 01:24:01 PM »
I literally took 10 seconds to select 4 notes at 10am this morning. I got 3 of them, I was pretty happy to get such good results this time.

yojoakak

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Re: Competing with institutional lenders for notes.
« Reply #19 on: July 17, 2013, 01:58:16 PM »
I literally took 10 seconds to select 4 notes at 10am this morning. I got 3 of them, I was pretty happy to get such good results this time.

So what you're saying is, the big investors are actually doing us a favor by leaving us with so few choices of which loans to invest in.

An interesting perspective!

TonySaunders

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Re: Competing with institutional lenders for notes.
« Reply #20 on: July 17, 2013, 02:04:47 PM »
I literally took 10 seconds to select 4 notes at 10am this morning. I got 3 of them, I was pretty happy to get such good results this time.

So what you're saying is, the big investors are actually doing us a favor by leaving us with so few choices of which loans to invest in.

An interesting perspective!

I can't quite tell if you are joking, or maybe I'm just dense and I don't get it. :)

Just to be clear, I was happy because I got most of the notes I wanted, instead of getting elbowed out entirely.

Tony

LonghornSF

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Re: Competing with institutional lenders for notes.
« Reply #21 on: July 17, 2013, 02:05:22 PM »
You guys need to think of it from LC's perspective. They don't care if the "little guy", aka individual investors, fund loans or institutions do it. All they want is for the loans to get funded. LC has absolute zero incentive to set aside loans for individual investors, or stretch out the funding process any longer than the market requires. If LC could get every loan funded instantly by institutions they would go that route. In fact, I wouldn't be surprised at all if the platform were closed to individuals in a few years given that individuals are probably a bigger hassle to deal with.

TonySaunders

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Re: Competing with institutional lenders for notes.
« Reply #22 on: July 17, 2013, 02:08:44 PM »
You guys need to think of it from LC's perspective. They don't care if the "little guy", aka individual investors, fund loans or institutions do it. All they want is for the loans to get funded. LC has absolute zero incentive to set aside loans for individual investors, or stretch out the funding process any longer than the market requires. If LC could get every loan funded instantly by institutions they would go that route. In fact, I wouldn't be surprised at all if the platform were closed to individuals in a few years given that individuals are probably a bigger hassle to deal with.

Institutional investors are competing with each other too. (It only takes two of them for it to be a problem) I'm sure they are also interested in more equitable access that doesn't depend on race conditions, and it's in LC's interest to keep as many of them happy as possible.

yojoakak

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Re: Competing with institutional lenders for notes.
« Reply #23 on: July 17, 2013, 02:21:31 PM »
I can't quite tell if you are joking...

Only half-joking.

The Tyranny of Choice
http://www.swarthmore.edu/SocSci/bschwar1/Sci.Amer.pdf

GS

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Re: Competing with institutional lenders for notes.
« Reply #24 on: July 17, 2013, 03:03:47 PM »
You guys need to think of it from LC's perspective. They don't care if the "little guy", aka individual investors, fund loans or institutions do it. All they want is for the loans to get funded. LC has absolute zero incentive to set aside loans for individual investors, or stretch out the funding process any longer than the market requires. If LC could get every loan funded instantly by institutions they would go that route. In fact, I wouldn't be surprised at all if the platform were closed to individuals in a few years given that individuals are probably a bigger hassle to deal with.

I disagree with some things you said.  First, LC is going through a lot of trouble to attract small investors, offering no-fee IRAs, and bonuses to people who invest as little as $2500.  Why do this, then not take some minimal action to ensure that those investors they are enticing are not shut out of all the decent loans.  There is room here for everyone to play.

Secondly, I don't think there is any advantage to LC, the barrowers, or the investors, if the loan is funded in seconds or over several days.  I'm not exactly sure how long the average time from posting to issuing is, but is probably a week or more.  And it's rare that I see a loan more than 2 days old on the platform.  As long the average time for funding is not greater than the average time for approval, I think funding time is a non-issue.

That said, I do agree that LC may not care about individual investors, or do not want to do anything that would be seen as an affront by the institutional investors.  It would be a good question to ask the LC execs., whether or not they have a plan to keep the small investors in the game.   

Zach

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Re: Competing with institutional lenders for notes.
« Reply #25 on: July 17, 2013, 03:55:49 PM »
You guys need to think of it from LC's perspective. They don't care if the "little guy", aka individual investors, fund loans or institutions do it. All they want is for the loans to get funded. LC has absolute zero incentive to set aside loans for individual investors, or stretch out the funding process any longer than the market requires. If LC could get every loan funded instantly by institutions they would go that route. In fact, I wouldn't be surprised at all if the platform were closed to individuals in a few years given that individuals are probably a bigger hassle to deal with.

+1 I can't even tell you how much I agree with this!

The only possible incentive is that us small investors could provide great PR/word-of-mouth marketing to the borrower side - and possibly the investor side. They will always have incentive to make their brand more well-known. This may be the sole reason they are keeping us around.

rawraw

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Re: Competing with institutional lenders for notes.
« Reply #26 on: July 17, 2013, 03:58:21 PM »
LC has more than enough institutional backing to survive going forward.  Is it necessary to keep kissing up to these big guys?  Prosper will soon too.

Pony up and pay for a service?  Did you carefully read my reposted message?  You might be able to compete for now by signing up for NSR, but the big boys are the ones who will develop the fastest and the most efficient APIs, which you and I have no access to or can't afford.  All they need to do is to beat NSR by 1 second or fraction of a second to soak up the best of loans, especially when they are allowed to take 50 or 75% of the loans.  If you are talking about frontrunning, big boys will always win.  Ask Goldman Sachs if you are not sure.
So what?  Speculation and what-ifs about the big boys is just more of what I don't understand.  And it's so common on this forum, I've been trying to figure out the source.  Still not certain of it.

At the end of the day, you can spend your time stressed, complaining, or worried about what-ifs and the like.  I'll just spend my time investing and practicing my clicking skills :)

At 24, you probably know more about investing, p2p lending, etc than 99.99% of the public, but some of us here have been investing and involved in the capital markets for almost as many years as you've been alive.  We have seen that good things have a tendency of becoming not good over time.  Call it arbitrage, whatever.  But I think there are some of us here that want to see p2p investing remain open to the little guy.  Once the hedge funds and institutions overrun this market, all of your clicking will be done.
And all the complaining in the world will do what to change the course?  I don't see any value add by any of this complaining and speculation, so I struggle to see why we as a community even bother.

I think everyone gets fixated on just one side of this equation.  Obviously currently investment exceeds demand.  There are plenty reasons to guess and speculate as to why this is occurring.  But demand is increasing and the possible market is quite large, while the attractiveness of other fixed income investments will likely improve in the short to medium term (unless something goes awry in the economy). 

In banking, there is a few reasons you get deposit relationships.  One of the main ones is they also bring loan relationships.  I'd be surprised if that isn't a fundamental part of LC's business model as well.
« Last Edit: July 17, 2013, 04:02:58 PM by rawraw »

rawraw

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Re: Competing with institutional lenders for notes.
« Reply #27 on: July 17, 2013, 06:50:00 PM »
Hey guys! 

Since I've always have noticed groups will demonize the other side before actually talking to them, I emailed LC about the topic of this thread.  I told them we as a forum were worried about P2P become B2P (loved that, whoever came up with it). 

Well, I just got off from a phone call from LC today (called me the same day).  A gentleman named Eric wanted to talk and tell me why LC is not forsaking retail investors.  He started by noting I'd been investing since 2009 with LC, so he knew I've seen rapid changes.  These were the takeaways:

1) The average note takes 5 hours to fund. 

2) LC has tried to balance the amount of retail and institutional money.  LC is actually designing a few products that are coming out in a the next few months geared to helping retail investors out.  I didn't ask specifics about this.

3) In the past month or two, both retail demand and institutional demand has increased dramatically and they haven't gotten enough increase in borrowers yet.

4) The problem with the high yielding notes disappearing quickly is known by LC.  The problem is that the high grade notes represent a small amount of the total notes offered, but it represents a large amount of the type of notes investors want.  Roughly 40% of notes are A and B and roughly 70% are ABC.

5) LC is very concerned about retail investors and view them as the source of long term success for both loans and investors.   They want to be very proactive in making sure they aren't edged out.

He said that if I was concerned about the platform edging out retail investors, feel free to email or call him with additional observations.  He thanked me for bringing this to his attention.
« Last Edit: July 17, 2013, 06:53:30 PM by rawraw »

Peter

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Re: Competing with institutional lenders for notes.
« Reply #28 on: July 17, 2013, 07:03:13 PM »
Thanks Rawraw, I have heard similar sentiment when I talk with LC management. What no one has mentioned here is the importance of retail investors for marketing. With an IPO coming up perception is going to be important. If LC turns into a place only for the Hedge Funds and Insurance companies to play that is not a very interesting story.

I believe LC really wants to keep retail investors around not because they like us, but because they need us. Lending Club does not mention peer to peer any more and haven't for several years now, but they don't want to be perceived as just a playground for the super-rich. For true disintermediation to occur they must be inclusive of all investors and this is the story they want to tell the world.
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Lovinglifestyle

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Re: Competing with institutional lenders for notes.
« Reply #29 on: July 17, 2013, 07:18:23 PM »
I can't quite tell if you are joking...

Only half-joking.

The Tyranny of Choice
http://www.swarthmore.edu/SocSci/bschwar1/Sci.Amer.pdf

I wasn't able to access more than the first two paragraphs of this article, but it sounded interesting so I went to check a book I have and enjoyed tremendously about choices.  Didn't realize it is by the same author! (The Paradox of Choice)