Author Topic: Fairer Solutions to Excess Investor Demand  (Read 82567 times)

Randawl

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Re: Fairer Solutions to Excess Investor Demand
« Reply #135 on: September 09, 2013, 08:01:38 PM »
Randawl,

I'm not sure that future growth of the retail investor base is a big concern, because as the investor base grows LC will also be growing the borrower base. They can pull other tricks to try to balance that out. The major problem is that a couple big bots are chomping up all the fractions, leaving slow humans in the dust. I think a better use of the existing whole loan program solves this issue. LC will have to prevent multiple accounts (of the same institution) from buying tons of $100 increments, though.

Bryce

"I'm not sure that future growth of the retail investor base is a big concern, because as the investor base grows LC will also be growing the borrower base."

This is not entirely true.  Sure, the "problem" (as we retail investors like to call it) is mostly due to institutional involvement in the fractional pool, but the investor and borrower bases are not growing in parallel.  As time progresses, we will continue to see an increasing number investors for a certain selection of loans that is not increasing at nearly as high of a rate.

"I think a better use of the existing whole loan program solves this issue."

It may ameliorate things for a time.  I am in favor of a small adjustment to the percentages if they implement my other suggestions, but it has got to stop somewhere. 

"LC will have to prevent multiple accounts (of the same institution) from buying tons of $100 increments, though."

Limit it by SSN as I've discussed and a similar ID system for institutions in order to restrict the fractional pool to retail investors, if only for a brief time.   Even then, let them buy as much of a loan as they want, from any pool, just allow retail investors a certain time frame to express interest then open it up for institutions.  Similar to the way whole loans are dumped into the fractional pool after a time.  Call it the institutional pool (with whole loans initially) and the retail pool (with fractional loans initially) where after a certain time frame loans that are not fully funded are allowed full access by any investor type.

With all that said, I still think it goes back to what I've been saying all along:

The Solution: Combine Investment Limit per Loan Fraction (for a set time period), a Round Robin (or similar distribution system after a certain amount of time of investor interest), and Stricter Whole & Fractional Pools by Investor Type.  This allows for a fully scalable solution even if LC were to grow to unforeseen levels.

Randawl

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Re: Fairer Solutions to Excess Investor Demand
« Reply #136 on: September 09, 2013, 08:05:15 PM »
Loans getting funded fast is good for LendingClub and good for borrowers.

Any change that slowed down the pace of new loans getting funded even for a day, maybe even for an hour, would never fly.


The only way I could see you getting them interested is if you moved your filters to LendingClub, and agreed to auto-invest in any loan that matched the filter as soon as it came out. Sort of like a mini-LC Advisors.

However, this would require LendingClub to add a new feature to their website. And I think we all know that that is never going to happen.

"Any change that slowed down the pace of new loans getting funded even for a day, maybe even for an hour, would never fly."

If this were true, the whole loan pool would not exist.  Every day, loans go entirely unfunded for twelve hours by institutions that skip them and let them get dumped into the fractional pool.  The approval and verification process lasts a few to several days at best.  Allowing funding to occur during this period instead of a few seconds would result in no adverse change for the company.

brycemason

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Re: Fairer Solutions to Excess Investor Demand
« Reply #137 on: September 09, 2013, 08:46:35 PM »
This is a supply-demand issue -- not an operation issue (e.g., whole-loan vs. fractional, max note amount per note) -- and we need a supply-demand solution.

Hi Fred,

In general you're right, of course, but to the extent that LC has made a commitment to human interface, there is a separate operations issue of human users not being able to get availability of like quality loans. They have to solve both sides of this thing.

Peter

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Re: Fairer Solutions to Excess Investor Demand
« Reply #138 on: September 10, 2013, 09:29:32 AM »
Just a heads up on the issue that was discussed yesterday of reducing the fractional pool to say $100 max. The trouble right now is that there are agreements in place with many large investors that allow them access to the fractional pool at a certain percentage maximum up to 75%. To make a change to a $100 max per loan Lending Club would have to renegotiate these agreements and that is something they do not want to do. They have other ideas for helping retail investors and will start implementing some this month.

BTW, Renaud said he has been reading this thread and taking note of all the ideas. So, even though he doesn't participate here you can be sure your ideas are at least being taken into consideration by the CEO at Lending Club.
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cfb

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Re: Fairer Solutions to Excess Investor Demand
« Reply #139 on: September 10, 2013, 09:57:59 AM »
One obvious solution is to lower the interest rates -- this will reduce investors demand and simultaneously increase borrowers supply.


Lowering the interest rates enough to stimulate demand would lower my interest in lending.  I'd have to slide down one grade from d-g to e-g, and then I'd have few notes to choose from and I'd have to take less return for higher risk.  Not going to work for me.

brycemason

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Re: Fairer Solutions to Excess Investor Demand
« Reply #140 on: September 10, 2013, 10:24:04 AM »
Awesome, Peter. I encourage Renaud to consider renegotiating those deals with the institutions. He can offer them a much larger sized whole loan program. I wouldn't think any institution would balk at having to buy the remaining 25% of a loan. It only takes 2-3 million dollars to achieve reasonable diversification with whole loans. Retail investors don't need many loans carved off for the fractional loan program, we just need automation to invest in them every single release time. If we catch them all, we'll get invested just as fast.

Peter

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Re: Fairer Solutions to Excess Investor Demand
« Reply #141 on: September 10, 2013, 10:48:45 AM »
There are many tools coming for investors, one of which will be automation.

But Bryce, they are not going to go back and renegotiate these deals with large investors. Keep in mind these large investors are even less happy than us. They are demanding more access to loans as well. LC is not going to go back to them with any program that reduces access to loans going forward.

One point to say about interest rates. They emphatic on this issue. They are not lowering interest rates. Why? Because they don't need to. Borrower demand is not the issue. They could have 10,000 loans on the platform tomorrow if they chose to, but that would break all their systems and so they will not do that. Let me repeat this: borrower demand is not the issue. There are billions of dollars in unmet demand for borrowers.
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rlv99

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Re: Fairer Solutions to Excess Investor Demand
« Reply #142 on: September 10, 2013, 11:13:57 AM »
Peter

Lowering of interest rates would send me back to greener fields.  I almost left in May-June when LC lowered some interest rates.

However, on the other issues, you are sounding more and more like an LC advocate.  You do not represent the retail investor!

Chuck

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Re: Fairer Solutions to Excess Investor Demand
« Reply #143 on: September 10, 2013, 11:28:55 AM »
Peter's comments make sense to me.  I assume that the larger investors negotiate a lower admin fee (many basis points below the 1% they charge us) from LC as well.  If LC were to try to make life harder for the larger investors, they would likely increase LC's admin overhead, have a hard time getting out of existing contracts, and generally upset the apple cart of an attractive flow of investment.   I assume whole loans create the lowest cost for LC from an admin/compliance/payment perspective.

I'm a big fan of LC's disruptive business model - even with the growing pains of supply/demand issue.  I keep my glass "half full" by thinking of this as a big online game or competition - it's actually pretty funny around the house:  every four hours I'm logging in for the next big note drop - my kids think it's hilarious to watch Dad head to the computer on a schedule.

I also find it fascinating to see notes disappear in $5k and $10k chunks during the note drops every four hours - there are some deep pockets out there snapping up large amounts of notes.  If someone has the resources to do that, more power to them.

Some of my friends pay money to play online games (think of games like WoW or Tapped Out)... with LC, I get the same kind of gaming excitement looking for notes, I get to earn interest and get all the fun of trying to catch the high yield notes - all with pretty darn low volatility and predictable risk.

-Chuck

edward

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Re: Fairer Solutions to Excess Investor Demand
« Reply #144 on: September 10, 2013, 11:49:05 AM »
"However, on the other issues, you are sounding more and more like an LC advocate.  You do not represent the retail investor!"

Respectfully, I'm not sure Peter's role here is to necessarily advocate for one side versus the other, as an attorney does. I think it's great that Peter makes this forum available for us, and with his knowledge and background, and that of all the posters here, we all have the opportunity to learn a great deal, and vent our frustrations.

Peter holds a very special place here other than that of founder of this forum--he gets to talk with the very top at Lending Club, Prosper and others, and we get to know that our (retail) voice is being heard. But Peter also must maintain his confidences, otherwise he would not be privy to the level of information that he is. I'm glad to have him around and I just want to say thanks to Peter for all his hard work--most of which we never see or know about.

Lovinglifestyle

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Re: Fairer Solutions to Excess Investor Demand
« Reply #145 on: September 10, 2013, 12:37:25 PM »
I agree with you, and I very much appreciate the information Peter shared with us today on this thread.  Hearing more than one perspective is always illuminating.  Were it not for Peter's forum, we'd not know our voices were being heard as much as they are.

Thank you, Edward, for expressing what you did so well.  You speak for many of us.

yojoakak

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Re: Fairer Solutions to Excess Investor Demand
« Reply #146 on: September 10, 2013, 12:49:11 PM »
...Borrower demand is not the issue. They could have 10,000 loans on the platform tomorrow if they chose to, but that would break all their systems and so they will not do that...

For a long time it seemed like the only jobs they advertised for were sales. I guess now they're trying to play catch up with the technology.

LC Adv

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Re: Fairer Solutions to Excess Investor Demand
« Reply #147 on: September 10, 2013, 01:21:46 PM »

One point to say about interest rates. They emphatic on this issue. They are not lowering interest rates. Why? Because they don't need to. Borrower demand is not the issue. They could have 10,000 loans on the platform tomorrow if they chose to, but that would break all their systems and so they will not do that. Let me repeat this: borrower demand is not the issue. There are billions of dollars in unmet demand for borrowers.

I am noticing more technical "glitches"daily , including this afternoons feeding frenzy (1 PM eastern time) in which i was logged off by LC and after signing back in my order basket was still full. Additionally I have a open ticket for a reporting problem that is ongoing for 2 weeks. LC's system has to function perfectly or the entire jig is up. After all this is real money they are dealing with, not bitcoins

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #148 on: September 10, 2013, 05:07:28 PM »
Borrower demand is not the issue. They could have 10,000 loans on the platform tomorrow if they chose to, but that would break all their systems and so they will not do that. Let me repeat this: borrower demand is not the issue. There are billions of dollars in unmet demand for borrowers.

I'm not quite sure what to read into this.  If 10k loans would "break all their systems" that implies there is a software limitation.  Or "systems" can mean people as well.  Both can be solved in not all that much time.

The more interesting issue is this:  If there are more borrowers knocking at the door than LC can handle, that means a large percentage of them who otherwise meet baseline criteria are being turned away.  I can only speculate as to what kind of formula they use to decide who gets turned away but it's a pretty safe bet that they're not turning away the cream of the crop.  This would seem to mean that whenever these borrowers do start to be accepted (after the LC systems issues are resolved) then the default rate may very well increase.  Possibly significantly.

Peter

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Re: Fairer Solutions to Excess Investor Demand
« Reply #149 on: September 10, 2013, 05:41:57 PM »
I'm not quite sure what to read into this.  If 10k loans would "break all their systems" that implies there is a software limitation.  Or "systems" can mean people as well.  Both can be solved in not all that much time.

The more interesting issue is this:  If there are more borrowers knocking at the door than LC can handle, that means a large percentage of them who otherwise meet baseline criteria are being turned away.  I can only speculate as to what kind of formula they use to decide who gets turned away but it's a pretty safe bet that they're not turning away the cream of the crop.  This would seem to mean that whenever these borrowers do start to be accepted (after the LC systems issues are resolved) then the default rate may very well increase.  Possibly significantly.

Systems in this case means people and technology. What Renaud was saying yesterday was that there is a huge borrower pool. But he never said these people are knocking at the door at LC. Borrowers come to the platform through marketing - snail mail and online campaigns. Spend more money on marketing means more borrowers. LC are trying to grow as fast as they can while creating a sustainable business and not causing internal problems.

Every borrower on the platform has some kind of human interaction with LC and for this reason they cannot add 10,000 borrowers immediately. And judging from some of the glitches we are seeing today maybe their IT would not be able to handle it either.
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