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I always wondered why big banks didn't get into the business that Lending Club started. I figured that it was due to inefficiencies in the consumer credit model

I always wondered why big banks didn't get into the business that Lending Club started. I figured that it was due to inefficiencies in the consumer credit model that made it such that "high risk" borrowers were ineligible for secured loans and that LC found a better way to accurately measure that risk. Who knew it came down to accounting?

prostoalex 12y ago
Personal loans and personal lines of credit have been around https://www.wellsfargo.com/personal_credit/ https://www.wellsfargo.com/personal_credit/ http://www.eloan.com/personal-loans http://www.eloan.com/personal-loans https://www.discover.com/personal-loans/ https://www.discover.com/personal-loans/ My guess is that they constitute such a small revenue stream for the banks, that banks skip on marketing and execution.
- kourt 12y ago
  "personal loan" does not mean "peer-to-peer loan"
  - melvinmt 12y ago
    Banks are actually all about "peer-to-peer" loans, where do you think their massive funds come from? You deposit money, the bank lends it out. In reality it's a bit more complicated than that but that's the essence of banking.
    - rjtavares 12y ago
      But there's no connection between the lenders and the depositors. So it's more server based than peer-to-peer.
      - melvinmt 12y ago
        It's a bit similar with Lending Club. They give out the loans and you buy the notes for those loans from LC.
  - prostoalex 12y ago
    Well, Lending Club is no longer pure peer-to-peer either http://blog.lendingclub.com/a-note-on-our-recent-loan-volume/ http://blog.lendingclub.com/a-note-on-our-recent-loan-volume... But would be the bank's role in a peer-to-peer transaction? Pure servicer?
dragonwriter 12y ago
> I always wondered why big banks didn't get into the business that Lending Club started. LC didn't start it, it followed a number of other generally similar "peer-to-peer" lending services (Prosper.com is the first US one I'm aware of -- about two years before LC -- and ISTR there was at least one UK one about the same time as Prosper). And banks don't get into it because it would involve risking the resources on a new business whose success outcome would be driving customers to account choices where the bank keeps less of the income from lending. If the quasi-peer-to-peer-model becomes popular, banks will grudgingly get into it because then the choice will be between giving up all of the money to competitors rather than giving some of it up to investors in quasi-P2P loans, but they'd rather not stamp their imprimatur on the model while it still might fail to become a significant factor in how people invest and seek loans.
- technotony 12y ago
  Zopa was the UK one. It launched before Prosper and is a really interesting case study for why you should launch first in the US and not your random smaller home market. As a result they were late to launch in the US and as a consequence lost the larger market, which is why lending club is IPOing first. One major reason they had to withdraw from the US was because they had an existing (working) operation in the UK they couldn't take regulatory risk: the other US operations launched with an illegal model and later got shut down while they restructured, Zopa tried to launch a legal, but less attractive to users, model and failed to gain traction as a result. Really interesting startup case study!

prostoalex 12y ago

Personal loans and personal lines of credit have been around https://www.wellsfargo.com/personal_credit/ https://www.wellsfargo.com/personal_credit/ http://www.eloan.com/personal-loans http://www.eloan.com/personal-loans https://www.discover.com/personal-loans/ https://www.discover.com/personal-loans/ My guess is that they constitute such a small revenue stream for the banks, that banks skip on marketing and execution.

kourt 12y ago
"personal loan" does not mean "peer-to-peer loan"
- melvinmt 12y ago
  Banks are actually all about "peer-to-peer" loans, where do you think their massive funds come from? You deposit money, the bank lends it out. In reality it's a bit more complicated than that but that's the essence of banking.
  - rjtavares 12y ago
    But there's no connection between the lenders and the depositors. So it's more server based than peer-to-peer.
    - melvinmt 12y ago
      It's a bit similar with Lending Club. They give out the loans and you buy the notes for those loans from LC.
- prostoalex 12y ago
  Well, Lending Club is no longer pure peer-to-peer either http://blog.lendingclub.com/a-note-on-our-recent-loan-volume/ http://blog.lendingclub.com/a-note-on-our-recent-loan-volume... But would be the bank's role in a peer-to-peer transaction? Pure servicer?

dragonwriter 12y ago

> I always wondered why big banks didn't get into the business that Lending Club started. LC didn't start it, it followed a number of other generally similar "peer-to-peer" lending services (Prosper.com is the first US one I'm aware of -- about two years before LC -- and ISTR there was at least one UK one about the same time as Prosper). And banks don't get into it because it would involve risking the resources on a new business whose success outcome would be driving customers to account choices where the bank keeps less of the income from lending. If the quasi-peer-to-peer-model becomes popular, banks will grudgingly get into it because then the choice will be between giving up all of the money to competitors rather than giving some of it up to investors in quasi-P2P loans, but they'd rather not stamp their imprimatur on the model while it still might fail to become a significant factor in how people invest and seek loans.

technotony 12y ago
Zopa was the UK one. It launched before Prosper and is a really interesting case study for why you should launch first in the US and not your random smaller home market. As a result they were late to launch in the US and as a consequence lost the larger market, which is why lending club is IPOing first. One major reason they had to withdraw from the US was because they had an existing (working) operation in the UK they couldn't take regulatory risk: the other US operations launched with an illegal model and later got shut down while they restructured, Zopa tried to launch a legal, but less attractive to users, model and failed to gain traction as a result. Really interesting startup case study!