Tag: crowdlending

Funding The Future

Author
Ted Hurlock
Date

[avatar user=”Ted Hurlock” /]

Any endeavour which requires an investment for growth and advancement is a worthy candidate for crowdfunding. In the case of businesses finance it is required to drive growth and increase profits.

Education is also a worthy endeavour. It drives growth and aims to increase value to the community at large, albeit in the longer term. Even excluding higher education and focusing at primary school we can appreciate the inherent value in education and some would argue an inalienable right.

Education as in any investment for future value comes at a cost. The cost of education is not insignificant and can vary greatly in different cultures and societies. It can be too easy for communities to forgo education or narrow the scope of catchment to those deemed more worthy, better financed, or a ‘better investment’.

In the past the possible avenues for individual candidates to seek educational loans have been restricted and what routes were available have continued to dry up or become constrained.

Taking a crowdfunding approach to educational investment is at an early stage of evolution but one that could become main stream.

Unfortunately In the USA the concept has not found good traction. Some of the personal loan venders such as LendingClub and Prosper have withdrawn education as an accepted purpose for a loan.

Although it is very difficult to get any data on education loans in the USA this sort of data is more readily available in Europe. Bondora, one of Europe’s rapidly growing marketplace lenders offers loans for educational purposes and the demand is growing rapidly.

Education is also a long bet with expected returns coming in after a long run. And with the very dynamic nature of the internet, and a real prospect of change, potential lenders could be quite fickle in regard to making an altruistic investment which will mature so far in the future.

As a concept crowd funded education makes for a good emotional story. But seemingly it needs the right marketing message to get real engagement.

 

Lending Club’s IPO: A watershed moment for P2P Lending?

Author
Tom Mitchell
Date

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As the autumn nights have drawn in, many financial analysts have begun to reflect on a year that has already seen the peer-to-peer industry break numerous records globally. Yet recent news from the US suggests that our fledgling industry is set to achieve another significant milestone before the year is out.

Having launched in 2007, Lending Club fast became the largest peer-to-peer lending platform in the USA – and, indeed, the world – having originated over $6.2 billion of loans to date. As such, news of the platform’s planned Initial Public Offering (IPO) on the NYSE has been greeted with enormous interest, with numerous investment banks vying to manage the deal.

This event, which is currently scheduled to take place later this month, carries real significance for two key reasons in the author’s opinion. Firstly, it serves to validate the peer-to-peer experiment begun by Zopa in the UK, and followed in the US by Lending Club and Prosper. As Orchard’s Matt Burton puts it, “No one took social media seriously until Facebook IPO-ed. For all the people who are not taking this space seriously it’s harder to ignore once you have companies go public.” Lending Club’s CEO Renaud Laplanche has echoed these sentiments, explaining in an interview that it is a perfect opportunity to strengthen their brand and develop awareness.

Secondly, and equally importantly, the value that is ascribed to Lending Club by the market will naturally set a precedent for all future platforms that look to issue equity in the capital markets. As it stands, many analysts predict that a valuation of between $4 billion – $5 billion is the likely outcome. However, given that the platform will be the first peer-to-peer lender to IPO, an obvious question arises: how should the company actually be valued? In predicting a valuation of over $4 billion, the majority of analysts have chosen to align Lending Club with technology firms such as Twitter and Facebook, which often trade at many times book value and other multiples. But to value Lending Club as a pure technology company is problematic, for it ignores the fact that, despite its new and innovative structure, Lending Club is also a financial services provider. More traditional financial institutions, such as banks, usually trade at much lower multiples than technology firms, and as a result the platform’s current valuation leaves it at odds here.

One would hope that analysts’ current appraisals of Lending Club prove to be a true reflection of the company’s future earnings potential. Whatever value the market ultimately places on the platform, though, the ramifications from its IPO will be substantial.

Why Banks want in on P2P Lending

Author
Ian Anderson
Date

[avatar user=”Ian Anderson” /]

As the P2P industry has matured, a new class of investor arrived aggressively in 2013 and included the very institutions that P2P was meant to bypass, the Banks. In the US big financial firms, not small investors, are now dominating lending on the two biggest leading platforms, Prosper and Lending Club.

At Prosper, which has been aggressively courting institutional lenders over the past year, more than 80 percent of the loans went to those firms in the last quarter. Lending Club and Prosper now set aside a randomly selected pool of loans for institutions which prefer to swallow up whole loans rather than finance a piece of them, meaning 100s or millions of dollars and pounds have now been lent from banks.

But why do they want in?

Ageing and creaking Bank technology with outdated risk models has significantly held back banks in recent years. Their ability to widen their offering and effectively manage the decision making process is further bottlenecked at branch level with inexperienced staff.

Banks recognise that the technology of P2P platforms and their innovative risk analysis, often using ‘big data’, gives them a fast way to lend without the investment in their own technology or increasing their overheads. P2P is also transparent, investors are matched to risk appetite and all risks are known up front with no hidden fees – quite frankly it’s surprising to this author that it has taken them so long to get involved.

One thing is for sure, Banks will come to dominate the future of P2P lending and it’s just one reason why in the US the sector now refers to itself as Marketplace Lending to better reflect this seismic shift in investor.