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Five P2P Lending Predictions for 2014

by Peter Renton on January 3, 2014

Predictions for p2p lending in 2014

Happy New Year everyone. Here is my third annual predictions post where I review my previous years predictions and make some new ones for the new year.

Review of my 2013 Predictions

  1. Lending Club will issue $1.62 billion in loans in 2013
    Clearly I underestimated Lending Club on this one. As I said one year ago I expected the growth rate to slow down at Lending Club in 2013 from the 179% year over year growth experienced in 2012. Clearly I was wrong here. Their growth rate actually accelerated to 188% in 2013.
  2. Prosper will issue $340 million in loans in 2013
    I was a lot closer on my Prosper prediction with the actual loan volume coming in at $357 million. I have to admit, though, after their slow start to the year I thought my prediction was going to end up being overly optimistic. But Prosper had a phenomenal fourth quarter that exceeded everyone’s expectations.
  3. The Prosper class action lawsuit is settled
    I am happy to report that I was right on this one. The Prosper Class Action lawsuit that was brought in 2008 was settled in July for $10 million payable over three years.
  4. Peer to Business Lending will boom with at least five new companies
    I think I was right with this prediction as peer to business lending did indeed boom in 2013. I reviewed several new small business lenders on the blog including Funding Circle USA (formerly Endurance Lending Network), P2Binvestor, Funding Community and Dealstruck. Other platforms that launched in 2013 were Fundation and Quarterspot (review coming shortly).
  5. Lending Club will release a bankruptcy remote vehicle for all investors
    I was completely wrong here. Lending Club made no movement towards creating a bankruptcy remote vehicle for all investors. I think the fact that they are now profitable and in a very strong financial position has probably made this less of a hot button with investors.

My 2014 P2P Lending Predictions

Now on to 2014. Let me look into my crystal ball and give five predictions for the coming year.

  1. Lending Club will issue $5.3 billion in new loans
    While I have heard no official projections from Lending Club about their volume goals for 2013 their growth rate has to slow down eventually as they start coming up against the law of large numbers. But given this is their IPO year I expect growth will not slow down too much – the $5.3 billion total will represent annual growth of 157% down from their 188% in 2013.
  2. Prosper will issue $1.1 billion in new loans
    Prosper’s fourth quarter has really set them up for a potentially great 2014. Given the extraordinary growth in recent months I think they will carry that through into 2014. I am predicting an increase in the rate of growth to over 200% year over year which will put Prosper at around $1.1 billion in new loans.
  3. Google launches a joint venture with Lending Club around Google Wallet
    In May of last year Google announced their investment in Lending Club but since then all has been quiet. However, I think we will see some movement here, possibly before the IPO, that will generate a lot of excitement. The logical place for this alliance is with the Google Wallet product, a mobile payment system developed by Google. I think we will see Lending Club loans incorporated into Google Wallet so consumers will be able to choose Lending Club as a payment method at the point of sale or online.
  4. Mobile becomes widespread for both online consumer and business lending
    Speaking of mobile I think we will see much more movement in this area in 2014. There has been a distinct lack of a mobile strategy at the major p2p lenders and I think that will change in 2014, not so much on the investor side but on the borrower side. We will see see more consumers and small businesses take out loans via their mobile phones than ever before as the race to acquire borrowers heats up.
  5. Prosper will be profitable by Q3 2014
    Prosper has lost money every quarter since it began in 2006. This long run of red ink will end in 2014 and I predict we will see a profitable quarter (numbers based on their official SEC 10-Q filings) at Prosper by the third quarter this year.

Now, there is one prediction I have not included here because it is so likely that I can’t really call it a prediction. I am referring to the Lending Club IPO. Renaud Laplanche, the CEO of Lending Club, first stated his intention to take Lending Club public back in December 2012 and he continues to reaffirm that regularly in interviews with the press. The expected time frame is some time in the first half of the year and with the hot IPO market right now we may see this sooner rather than later in 2014.

What do you think? Am I way off base here or do you have any predictions of your own? As always I would like to hear your comments.

{ 15 comments… read them below or add one }

Simon Cunningham January 3, 2014 at 5:17 pm

I’ve said this before, but again, nice call with the class action settlement prediction. I couldn’t be happier. I think Prosper may surprise us with a slightly earlier profitability date than Q3, but you’re typically better with these predictions than me. I think you’re spot on with a $5B year for Lending Club (which is so exciting). The only prediction I’m doubtful of is the Google Wallet one. I think their investment was more about a conversation than a product, though I could be way off. But I do believe that, at some point in the future, they will have some sort of co-product.

Continually blessed by your analysis Peter.

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Peter Renton January 3, 2014 at 10:26 pm

Thanks Simon. You could be right on Prosper, they may hit profitability in Q2 and I will be happy to be wrong if that happens. And I realize the Google Wallet prediction is the least likely to come true but I really think that is coming at some point.

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dontvote January 3, 2014 at 6:11 pm

I think the Google Wallet prediction makes absolutely no sense. If you’re right I’ll eat this post.

A more daring prediction about prosper would be that it will stop taking individual money and become exclusively an institutional platform. Maybe that belongs on the ‘LC going public’ side since it’s basically already happened.

I’m not sure about the mobile prediction. Mobile is becoming more prevalent every day, every where, so it’s a safe call, but what’s the difference between applying on your phone or your computer? That is, who cares? How will that change the industry – oh I know! Maybe I can get a loan at plastic surgeon’s office for that augmentation I’ve wanted or at the store to make my capital investment or in the back of the squad car on the way to jail?

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Peter Renton January 3, 2014 at 10:35 pm

I think Google Wallet makes perfect sense although I may be a little early on this. I think in the not too distant future the phone will displace the credit card as the primary method of payment. And when people are used to using their phone to pay, it will become just as easy to use an LC account as a credit card inside Google Wallet.

I don’t see either Prosper or Lending Club abandoning the retail investor any time soon – if ever. Now the institutional investor is becoming a bigger part of the pie at both companies but it is an exaggeration to say either company has stopped taking money from individual investors.

And you can read this Washington Post article about how mobile is already impacting borrower behavior.

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dontvote January 7, 2014 at 3:50 pm

Welp, it’s a 2014 prediction so you have all year.

I love paying with my phone. I hate my wallet (and my wallet is awesome).

The reason I don’t think it makes sense to access my lending club account from my google wallet is that my LC account is an investment account, not a transactional account. I try to reinvest every dollar that pops in there to keep my return high and compound my earnings. If I take money out it’s in the form of a transfer to another investment or other account that is a transactional account.

You wouldn’t use your LC account for daily payments any more than you would use your brokerage account for them. In fact, brokers have established the Cash Management Account for just that reason.

I’m just going to let the Washington Post “article” go. I’m sure you can guess that I’m less than impressed by the reporting in that article. Neither of the examples cited made any sense except to have been ‘mentioned’ in a blog. I do like Kabbage’s website though.

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Peter Renton January 8, 2014 at 12:16 am

I obviously didn’t make myself clear with my Google Wallet prediction. This has nothing to do with investors per se, it is about borrowers. Borrowers can use their Google Wallet to make purchases and instead of using a credit card they could use a Lending Club loan. As investors we may be able to diversify our investments into short term, low dollar, point of sale loans that have been made possible through a Google Wallet-Lending Club partnership.

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dontvote January 8, 2014 at 1:10 pm

Go ahead and put me on a (probably) long list of investors that would want to filter those “can’t use a credit card but will take a shot at lending club” loans out immediately. If that happens this year I’ll eat this whole thread, with pics.

Peter Renton January 9, 2014 at 8:28 pm

The target borrower is not necessarily someone who can’t use a credit card but doesn’t want to use one. It will be interesting to see how a point of sale loan performs if and when they happen (and I think it really is a case of when not if).

Sunil January 3, 2014 at 7:15 pm

Being in Financial serviced for 20 some years , I don’t think the platform to process payments exist at this time for payments to be made from Lending Club account ? Not easy one ? But they could create one !

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Peter Renton January 3, 2014 at 10:37 pm

Sunil, You are right it doesn’t exist yet. But I believe it will be built soon.

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Sam Hu January 11, 2014 at 10:04 am

Hi Peter – long time. Nice post as usual. Would enjoying hearing your thoughts on my 2014 predicitions (blog.samuelhpc.com) – especially prediction #1 (i.e. LC not going public in 2014)

Cheers

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Peter Renton January 12, 2014 at 9:58 pm

Hi Sam,

Good to hear from you again. I like your post and it is interesting to hear a contrary view on the Lending Club IPO. I have heard Renaud Laplanche discuss the IPO many times in the past 12 months and lately he is talking more about the marketing benefits of the IPO. He seems to be in this for the long haul and he sees Lending Club as becoming a major financial brand so an IPO is a logical extension for them. I agree that they don’t really need to do an IPO but from a branding perspective it could be very positive. And it is not like they need to do a huge amount of new regulatory work – they are virtually a public company already.

I also like your prediction #2 of the revolving line of credit – in fact I was talking to a small business platform just last week that is launching this exact product. It will no doubt come to the consumer space as well some time.

For others interested in reading Sam’s predictions they are here:
http://blog.samuelhupc.com/2014/01/11/predictions-for-2014—p2p-lending-and-crowdfunding.aspx

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Brendan Ross January 11, 2014 at 5:55 pm

Great article! To date, new financial services startups have been divided between platform lending (all loans sold) and spread lending (loans retained using levered equity). 2014 will be the year when platform lending will be the dominant model for new lenders of all stripes who want to keep precious equity dollars focused on platform growth instead of using it to own loans.

Here are my five predictions for 2014.

1) A traditional bank does platform lending, probably by acquiring a p2p lender. Could be Prosper, or a US business lender, or even someone overseas. The point is that a bank that has only ever done spread lending (on their own balance sheet) will do platform lending.

2) A traditional credit card company offers 3 and 5 year amortizing loans, competing directly with LC and Prosper in their core business: balance transfers into amortizing loans.

3) Platform business lending will grow faster on a percentage basis than platform consumer lending. Sure it’s starting from a smaller base, but this would still be an impressive achievement given the momentum and (still) small size of LC and Prosper relative to their addressable markets.

4) At least two new business models will be introduced in platform lending, to complement the simple amortizing loans that predominate today. This could be asset backed business lines of credit, or it could be subprime auto loans, or perhaps some kind consumer goods purchase financing like Peter predicted with google wallet. Or maybe something novel in solar involving tax credits. No doubt my Fund will be buying any short-duration, high-yield standouts.

5) My Fund will grow from $21 million to $100 million in assets, and go from two platforms (IOU Central and QuarterSpot) to six platforms while still delivering unlevered, double-digit returns to investors.

It’s going to be quite a year.

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Peter Renton January 12, 2014 at 10:04 pm

Hi Brendan,

Thanks for chiming in – some interesting predictions here as well. Funny, I almost made the same prediction as your #1 but I decided I think it is more likely in 2015 – but could happen this year for sure.

I don’t see #2 happening this year but #3 is likely.

I agree this is going to be a very interesting year. Just in the past week I have been contacted by entrepreneurs with two new and different takes on the p2p lending model – these are ideas that have not been tried before. They are a long way from launch but as the space gets more attention entrepreneurs will be pushing the envelope here. So, I think your #4 is a safe bet.

And best of luck with #5 – that would be great.

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Penny January 15, 2014 at 10:55 pm

Hi Peter – P2P lending industry boomed in China in the past three years. Over one thousand P2P lending platforms were established here. What’s your prediction about the P2P lending in China this year? Hope to listen to your analysis.

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