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Lending Club is building a two-sided marketplace, which is always hard. I've been lending on the platform for almost 3 years now. It was always difficult for me

Lending Club is building a two-sided marketplace, which is always hard. I've been lending on the platform for almost 3 years now. It was always difficult for me to find loans that met my criteria. Borrowers have 14 days to get their loans funded by lenders and loans were typically funded by lenders within 1 day. So lenders were outnumbering borrowers. Starting in January this year, however, loans started taking longer and longer to fund. Recently, I've seen them timing out. This means that in the marketplace, the balance shifted and borrowers outnumbered lenders. Another indication that Lending Club was experiencing a shortage of lenders: they began offering bonuses up to $2,000 for new accounts. Finally, this earnings release indicates that loan originations, while still growing, has slowed considerably. That is the formal evidence confirming a significant slowdown in new lenders. I suspect that there was a lot of pressure internally for sales personnel to bring in new capital through either retail of commercial lenders (they've served both markets for quite a while), and, someone or some group got too aggressive. Whether LaPlanche knew and ok'd the deal, or whether he was just 'person in charge' and has to take the fall, I don't know. But this will be a major wound. It's really sad that it is self-inflicted.

forgetsusername 11y ago
>So investors were outnumbering borrowers. A microcosm of the global economy: we're awash with capital, hence no one is willing to pay much in the way of interest rates.
- loceng 11y ago
  Interesting idea perhaps of capital that has an accelerating half-life - invest it or lose it. I can imagine technology and society would develop at a much faster pace.
  - msandford 11y ago
    Too bad the capital stock isn't determined by individuals but rather the Fed; who knows what the interest rate would be in real life if there wasn't massive money printing. Sorry, "quantitative easing"
  - Phlarp 11y ago
    So, something like inflation along with centrally directed GDP growth targeting?
  - maaku 11y ago
    Demurrage money.
  - toomuchtodo 11y ago
    This is exactly how negative interest rate central bank policy is designed to work. http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp http://www.investopedia.com/terms/n/negative-interest-rate-p... "A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe."
  - fulldecent 11y ago
    Just look at the price of gold since 1970. And turn the chart upside down. That is the halflife of dollars.
  - deleted 11y ago
    [deleted]
thaumasiotes 11y ago
> Borrowers have 14 days to get their loans funded by investors and loans were typically funded by investors within 1 day. So lenders were outnumbering borrowers. > Starting in January this year, however, loans started taking longer and longer to fund. Recently, I've seen them timing out. This means that in the marketplace, the balance shifted and borrowers outnumbered lenders. I'd really like to see some different terminology here. Everything you describe is perfectly compatible with there being one lender, or any other number.
- 11thEarlOfMar 11y ago
  Not sure what terms to use. Each loan is funded by multiple lenders, sometimes more than 100. And each lender loans to multiple borrowers. It's not a one-to-one matching. It would be more precise to make the statement in terms of dollars rather than 'borrowers and lenders'. I don't know whether the average lender has invested more or less in Lending Club than the average borrower has borrowed. In dollar terms, the total dollars being invested is less than the loans being offered, which is a shift as of January, 2016. I did edit out 'investors', perhaps that was what you meant. Thanks.
pc86 11y ago
I refinanced two credit cards for what I thought was a large amount ($9k + I included the LC fees) and I was honestly skeptical that it would even get funded. It was funded by a single investor in less than two hours. I've often thought about investing in the platform but I've always been skeptical of the ability to make consistent returns on it - it seems like a platform where unless you have significant capital invested, one or two defaults above what you expect and you could be wiped out.
- 11thEarlOfMar 11y ago
  It is important to lend to many borrowers. Lending Club recommends at least 100. That normalizes the risk. My returns have been consistently 9.5-10.5%, net of defaults. I started with an experiment: $2,500 loaned $25 at a time to 100 borrowers. Lending Club forecasts the default rate based on their own credit rating. It went well and the actual return was about 1% higher than they forecast.
  - briffle 11y ago
    I am literally doing the same thing right now, with my tax returns.. Anxious for the end of this month, when the first payments are due..
    - Twirrim 11y ago
      >Anxious for the end of this month, when the first payments are due.. Anxious because you need the money, or just anxious because you don't know how it's going to go?
    - CodeCube 11y ago
      Take my advice ... forget about it for a while, and check back in in a few months :) Generally speaking, first payments tend to come in ... it's not until later that lates and defaults happen ;)
  - shostack 11y ago
    How savvy with lending would you say one needs to be to see those sorts of returns with relatively controlled risk? Is Lending Club for Joe Investor?
ChuckMcM 11y ago
> I suspect that there was a lot of pressure internally > for sales personnel to bring in new capital through > either retail of commercial lenders If this is the case it would be another notch in the 'incentivize without adequate controls' poison pill that seems to kill off AdTech companies and executives regularly.
- 11thEarlOfMar 11y ago
  It's a significant problem for companies that grow too fast. Groupon and Yelp come to mind. Both got into trouble for allegedly over-aggressive sales practices. It has to be difficult to both on-board the personnel at a high rate, and, keep them educated and mindful of the ethical aspects of their activities. Bad practices take a long time to recover, particularly with respect to market perception.
cm2187 11y ago
This is why I have always been skeptical about peer to peer lending. There aren't that many type of investors in the system. I can think fundamentally of four with big volumes. 1. Banks who have lots of depositors, who are retail investors, but who do not wish to take any risk. They see their deposits as quasi-cash. So the bank takes the risk if a loan goes bad, which is why most of the loans are secured on property (mortgages). And why a smaller fraction will be invested in unsecured loans. 2. Pension funds, again investors with very little appetite for risk, who do not make investment decisions themselves, you just let your pension fund invest the money for you, and they are not in the business with taking big risks. 3. Insurance companies, who invest the proceeds from the premium paid on insurance contract until a claim is made. Again not in the business of taking massive risks. 4. Asset managers, which can manage investment from retails clients, but for who the majority of clients do not manage their portfolio actively and rely on asset managers to make the decisions for them. All 4 are massive and constitute the backbone of the financial system. All 4 have in common that the ultimate investors (depositors, pension contributors, insuree and retail investors) do not make any investment decision themselves. For p2p lending to make more than a tiny dent in this market, they need these investors to fundamentally change their behavior, to stop relying on someone else to analyse the risk, and to start actively doing their own due diligence, choose a p2p company, trust them with their money, and start reviewing credit profiles and underwrite the loans. Sure, there are some active retail investors who spend their days on online broker websites, who read lots of articles and research. But in term of volumes, not many. I just can't see where the money would come from for p2p lenders to make a difference.

forgetsusername 11y ago

>So investors were outnumbering borrowers. A microcosm of the global economy: we're awash with capital, hence no one is willing to pay much in the way of interest rates.

loceng 11y ago
Interesting idea perhaps of capital that has an accelerating half-life - invest it or lose it. I can imagine technology and society would develop at a much faster pace.
- msandford 11y ago
  Too bad the capital stock isn't determined by individuals but rather the Fed; who knows what the interest rate would be in real life if there wasn't massive money printing. Sorry, "quantitative easing"
- Phlarp 11y ago
  So, something like inflation along with centrally directed GDP growth targeting?
- maaku 11y ago
  Demurrage money.
- toomuchtodo 11y ago
  This is exactly how negative interest rate central bank policy is designed to work. http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp http://www.investopedia.com/terms/n/negative-interest-rate-p... "A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe."
- fulldecent 11y ago
  Just look at the price of gold since 1970. And turn the chart upside down. That is the halflife of dollars.
- deleted 11y ago
  [deleted]

thaumasiotes 11y ago

> Borrowers have 14 days to get their loans funded by investors and loans were typically funded by investors within 1 day. So lenders were outnumbering borrowers. > Starting in January this year, however, loans started taking longer and longer to fund. Recently, I've seen them timing out. This means that in the marketplace, the balance shifted and borrowers outnumbered lenders. I'd really like to see some different terminology here. Everything you describe is perfectly compatible with there being one lender, or any other number.

11thEarlOfMar 11y ago
Not sure what terms to use. Each loan is funded by multiple lenders, sometimes more than 100. And each lender loans to multiple borrowers. It's not a one-to-one matching. It would be more precise to make the statement in terms of dollars rather than 'borrowers and lenders'. I don't know whether the average lender has invested more or less in Lending Club than the average borrower has borrowed. In dollar terms, the total dollars being invested is less than the loans being offered, which is a shift as of January, 2016. I did edit out 'investors', perhaps that was what you meant. Thanks.

pc86 11y ago

I refinanced two credit cards for what I thought was a large amount ($9k + I included the LC fees) and I was honestly skeptical that it would even get funded. It was funded by a single investor in less than two hours. I've often thought about investing in the platform but I've always been skeptical of the ability to make consistent returns on it - it seems like a platform where unless you have significant capital invested, one or two defaults above what you expect and you could be wiped out.

11thEarlOfMar 11y ago
It is important to lend to many borrowers. Lending Club recommends at least 100. That normalizes the risk. My returns have been consistently 9.5-10.5%, net of defaults. I started with an experiment: $2,500 loaned $25 at a time to 100 borrowers. Lending Club forecasts the default rate based on their own credit rating. It went well and the actual return was about 1% higher than they forecast.
- briffle 11y ago
  I am literally doing the same thing right now, with my tax returns.. Anxious for the end of this month, when the first payments are due..
  - Twirrim 11y ago
    >Anxious for the end of this month, when the first payments are due.. Anxious because you need the money, or just anxious because you don't know how it's going to go?
  - CodeCube 11y ago
    Take my advice ... forget about it for a while, and check back in in a few months :) Generally speaking, first payments tend to come in ... it's not until later that lates and defaults happen ;)
- shostack 11y ago
  How savvy with lending would you say one needs to be to see those sorts of returns with relatively controlled risk? Is Lending Club for Joe Investor?

ChuckMcM 11y ago

> I suspect that there was a lot of pressure internally > for sales personnel to bring in new capital through > either retail of commercial lenders If this is the case it would be another notch in the 'incentivize without adequate controls' poison pill that seems to kill off AdTech companies and executives regularly.

11thEarlOfMar 11y ago
It's a significant problem for companies that grow too fast. Groupon and Yelp come to mind. Both got into trouble for allegedly over-aggressive sales practices. It has to be difficult to both on-board the personnel at a high rate, and, keep them educated and mindful of the ethical aspects of their activities. Bad practices take a long time to recover, particularly with respect to market perception.

cm2187 11y ago

This is why I have always been skeptical about peer to peer lending. There aren't that many type of investors in the system. I can think fundamentally of four with big volumes. 1. Banks who have lots of depositors, who are retail investors, but who do not wish to take any risk. They see their deposits as quasi-cash. So the bank takes the risk if a loan goes bad, which is why most of the loans are secured on property (mortgages). And why a smaller fraction will be invested in unsecured loans. 2. Pension funds, again investors with very little appetite for risk, who do not make investment decisions themselves, you just let your pension fund invest the money for you, and they are not in the business with taking big risks. 3. Insurance companies, who invest the proceeds from the premium paid on insurance contract until a claim is made. Again not in the business of taking massive risks. 4. Asset managers, which can manage investment from retails clients, but for who the majority of clients do not manage their portfolio actively and rely on asset managers to make the decisions for them. All 4 are massive and constitute the backbone of the financial system. All 4 have in common that the ultimate investors (depositors, pension contributors, insuree and retail investors) do not make any investment decision themselves. For p2p lending to make more than a tiny dent in this market, they need these investors to fundamentally change their behavior, to stop relying on someone else to analyse the risk, and to start actively doing their own due diligence, choose a p2p company, trust them with their money, and start reviewing credit profiles and underwrite the loans. Sure, there are some active retail investors who spend their days on online broker websites, who read lots of articles and research. But in term of volumes, not many. I just can't see where the money would come from for p2p lenders to make a difference.