What follows is a work of fiction. It paints a picture of a possible future for p2p lending in the year 2020.
It is September 2020. I am in San Francisco to give a speech at the fifth annual conference of the Direct Lending Association (DLA), the industry trade group. The name p2p lending all but disappeared with the founding of the DLA in 2015 as direct lending was considered a more accurate term.
I have just bought the new iHolo2, Apple’s latest holographic phone, at the Apple store using my new Lending Club Visa card. Investors initially baulked at Lending Club providing banking services but the credit card division has proven to be one of Lending Club’s most profitable business units. Even though Lending Club has had a banking license since 2017 they have tried to stay true to their direct lending roots. Investors who choose to invest in Lending Club’s credit card business enjoy some of the highest returns available in direct lending.
In the taxi to my hotel I put on my new Google glasses so I can check the latest news as well as browse the new listings at my five favorite direct lenders. The script running on my wearable computer knows my search filters and only displays the loans that have met my criteria.
I am feeling that I need to expand my direct lending real estate portfolio today so I look at the commercial loan listings on Prosper, Lending Club, Peerform, iDirect and Money360. I invest $100 each in a new hospital being constructed in Las Vegas, an office building in Des Moines, a shopping mall in Seattle and an industrial complex in Raleigh.
All the big names will be at this conference including the new Lending Club CEO Jamie Dimon, who has been recruited after the unexpected retirement of long time CEO Renaud Laplanche. Laplanche had been at the helm since the founding of Lending Club back in 2006 but he felt that with 12,000 employees now and loan volume over $20 billion a month, now was the time for him to move on. Lending Club needs a leader with experience running a complex financial enterprise and the board felt that Dimon was a good fit.
The direct lending community did not greet the appointment of Dimon enthusiastically given that he has such a traditional banking background. But with the huge suite of services offered by Lending Club these days it was thought that to maintain their impressive growth record they needed someone with Dimon’s experience. His stint as Treasury Secretary now over he has said he is excited to be back in the private sector at the world leader in direct lending.
Since Prosper rejected the hostile takeover bid from Wells Fargo last year they have gone from strength to strength. Their stock price is at an all time high and some analysts are predicting they could be the number one direct lender within two years. Their new home mortgage division is now one of the top 10 issuers of mortgages in the country, achieved in just a four-year time span. We all expected that home mortgages would be popular with direct lenders but no one foresaw the millions of investors who would flock to this kind of investment.
Personally, I only have a small portion of my portfolio in home mortgages. Sure the 5% returns are very consistent and with defaults nearly non-existent I can see the appeal but I have always sought double-digit returns. That is why in the real estate portion of my direct lending portfolio I stick mainly with commercial properties.
In my hotel room I go over my speech for the DLA conference that starts tomorrow. I have been honored to be the first speaker in the morning session and with over 1,000 people attending and all 46 DLA member companies represented I want to make sure I have my speech down. The annual DLA conference is the largest event of the year and there is expected to be close to 100,000 people following along online this year.
Ever since the passage of the Direct Lending Enablement Act (DLEA) by Congress in 2017 the floodgates have really opened. With SEC registration on longer a requirement we have gone from just five major players back then to the 46 established companies today and another 100 or so trying to get going. For a while there was a kind of direct lending gold rush as all kinds of financial institutions tried to take advantage of the new legislation and setup their own direct lending divisions. But the investing public was not as quick to put their direct lending dollars to work at Bank of America or Chase as they have been at industry pioneers Lending Club and Prosper.
The talk of this year’s show is rising industry star iDirect. They have been the fastest company ever to make it to $1 billion in total loans (they took just 15 months) much of it due to their innovative new loan guarantee program. No investor has ever lost a dime at iDirect because they set aside a pool of money to repay investors in the event of a default. Even though this has been commonplace in the UK for a decade iDirect is the first U.S. direct lender to offer such a program. It will be interesting to see how this program fares as the loans start to mature.
Confident that my speech is ready I put down my iHolo2. Right away, though, it reminds me that two of the car loans I had made through iDirect Auto Financing have been repaid and my balance has grown to over $1,000. It also informs me of the 2,862 car loans available for investors right now 16 meet my investment criteria. It asks me if I would like to choose or have it invest across all loans. I say my security code and tell it to invest in all loans that meet my criteria.
The next morning I meet Prosper CEO Jim Catlin in the foyer and we chat about what his company is up to these days. As usual he is very excited about where Prosper is at and the fact they are now the fastest growing direct lender in the country. While Prosper’s rivalry with Lending Club continues to this day, Lending Club still maintains the number one position as far as total loan volume goes but Prosper is hot on their heels. Catlin believes Prosper will take over as number one by the end of 2022 when their loan volume is expected to cross $50 billion a month.
The time has come for my speech. My topic, Direct Lending in 2030, is about the tipping point that I believe will happen by that year. I maintain that even though it is not even 20% of the total consumer lending industry now, by 2030 the majority of consumer lending in this country will be done by the direct lenders. Of course, I am preaching to the choir at this conference but the idea is greeted with tremendous excitement. Time will tell if I am right.