Happy New Year everyone. Here is my annual predictions post where I review my previous years predictions and make some new ones for the new year.
Review of my 2014 Predictions
- Lending Club will issue $5.3 billion in new loans
With Lending Club no longer providing timely updates on their loan book we will not know exactly how much they issued in 2014 for quite some time. But I am confident that my $5.3 billion number was overly aggressive. We do know that in the first nine months of 2014 Lending Club issued $2.96 billion in new loans. So, even if they have a breakout fourth quarter I expect they will be under $4.5 billion in total originations for 2014. - Prosper will issue $1.1 billion in new loans
The opposite happened on my Prosper prediction. Prosper’s growth was far more than I, or anyone else for that matter, expected. They ended the year with $1.6 billion in new loans issued up from just $357 million the previous year. - Google launches a joint venture with Lending Club around Google Wallet
I was completely wrong on this one. While the official word is that Google and Lending Club are “working together” to develop something no timetable has been set and we may see nothing here for quiet some time. - Mobile becomes widespread for both online consumer and business lending
While I think mobile use is increasing, particularly on the borrower side, to say it has become widespread today is probably an overstatement. Ron Suber, the president of Prosper, talked often last year about the importance of a mobile strategy for lending platforms but we still haven’t reached a turning point here yet. - Prosper will be profitable by Q3 2014
I am happy to report that I was right on this one. Prosper turned profitable in the third quarter last year.
I also predicted that Lending Club would have a successful IPO in 2014 although I expected it was going to happen in the first half of the year. But given the public intentions of Lending Club it was a bit of a stretch to call the Lending Club IPO an actual prediction.
My 2015 P2P Lending Predictions
Now on to this year. Let me look into my crystal ball and give five predictions for the coming year.
- Lending Club will issue $10 billion in new loans and Prosper $4.1 billion
I believe the growth will continue unabated at both Lending Club and Prosper but the gap between them will continue to shrink. - Prosper will remain a private company
Many people are thinking that Prosper will follow Lending Club’s lead here and do their own IPO in 2015. I don’t think that will happen this year. I expect Prosper will remain a private company and will also reject several acquisition offers. They will keep the same core executive team in place for all of 2015 and beyond. - There will be two new marketplace lenders completing an IPO
So, I have said it will not be Prosper but I do expect two companies to go to the public markets in an IPO in 2015. One, has already confirmed that is their intention: SoFi will go public in the first half of this year. But I think there will be a second IPO and it will be a company that we don’t expect. - A new platform will launch targeting non-accredited investors
One of the complaints I regularly hear about from readers is the lack of options for non-accredited investors. There are still only two lending platforms available for the investing public: Lending Club and Prosper. I think that changes this year. A new platform will launch targeting small retail investors before the end of the year. - A midsize bank starts their own marketplace lending platform
There has been a lot of talk about the role of banks in the marketplace lending industry. While some banks, such as Union Bank and Santander, are inking formal partnerships with existing platforms I expect we will see a new bank enter the fray with their own platform. This will not be just an online lead generation website but a true marketplace lending platform with both outside investors and borrowers.
For my bonus prediction this year I am going to talk about acquisitions. I think Lending Club will use their large cash war chest to make at least two new acquisitions. I think they will expand their product offerings by acquiring a traditional lender and one online lender. I have no inside information here, this is just a hunch.
Over to you. I would love to hear whether you think my predictions are on target or way off base. And feel free to make your own suggestions in the comments section below.
Nice call on Prosper’s profitable quarter, Peter. And what a year they had.
Great predictions as well. A $10B year at Lending Club would be huge. And I’m intrigued by your prediction of a retail investing lender. I’m not sure how that could work considering the legal fees, etc, but I’m very willing to be wrong.
Would you guess that a factor in Prosper’s desire to stay private is related to their emphasis on being more institutionally driven? I know Lending Club’s IPO was, to some degree, to raise awareness within their more-broad investor base.
Thanks Simon. I am not sure what is behind Prosper’s desire to stay private. I know they like to differentiate themselves with Lending Club and that may be part of it but that conversation is not going away. I will certainly be asking Aaron Vermut when I get him on the podcast later this month.
Interested more in your thoughts about LC possibly wanting to acquire a traditional lender. Would this provide them with their own bank charter so that they could eliminate the need for WebBank? Is there a regulatory issue that makes it advantageous for them to use a third party issuer of the loans? Would they be able to maintain this if they owned the issuer of the loans?
I don’t see Lending Club acquiring a bank in the near term. When I say traditional lender I mean a company that operates offline. There are plenty of non-bank lenders and I am sure LC is tracking several of them.
Your other questions are interesting and I don’t know the answer to them. I know they need to partner with a bank to issue these loans but if they purchased a bank I imagine that they would have to jump through many more regulatory hoops.
In regards to your fifth prediction, I am wondering what kind of arms-length regulation would be involved (same question if Lending Club decides to buy a bank, which IMO is unlikely). Barclay’s Africa already owns 49% of Rainfin in South Africa, so definitely could happen on that front, and then there’s RBS (https://www.ft.com/intl/cms/s/0/660447b0-5625-11e4-93b3-00144feab7de.html#axzz3O35Hi4wD), but a U.S. bank? Any thoughts on who it might be?
I know for a fact that in the last six months the big banks have gone from pretty much ignoring this industry to wondering what the heck they should do here. Some of them will acquire platforms, some will start their own platforms and some will ignore the problem for now. Some enterprising bank executives are probably plotting their moves right now but I don’t know who.
BTW, I have heard that the RBS rumor is untrue.
What size do you consider midsized bank? And by acquiring a traditional lender, you mean a bank?
I honestly think LC will eventually create a Utah Industrial charter. It just doesn’t seem to make sense not to once they get rolling.
I consider a mid-size bank to have around $5 – $20 billion in assets. And as I said above I don’t think their acquisitions in 2015 will be a bank.
But long term, I agree with you. Having to rely on a third party for such a critical component of their business is a substantial business risk. I imagine the only reason they don’t create a Utah industrial chart today (or just buy Webbank) is because of the regulatory challenges.
I don’t get the impression that Webbank would be for sale. And I don’t think their Industrial Charter would have too many regulatory challenges. Not only is it a business risk, but a business cost.
And I am not so sure a bank in the 5-20 range would be starting a market place. I could be wrong, but I think the asset threshold would be much higher.
Do you see further segmentation in the space? StreetShares is doing a very effective job targeting veteran owned businesses for their P2P offering and have several partnerships & endorsements accelerating their marketing effrorts, do you see others finding segments to focus on as the space becomes more crowded?
Yes. I hear from entrepreneurs every week who are creating companies in niches in the space. Now, there will eventually be consolidation but right now I think we will see increased segmentation in the next 12 months.
The mobile strategy is very surprising. For Prosper and Lending Club it’s virtually not existing. Ok, they have a mobile version for the Website but that’s it. Lenders and borrowers would probably love to have an Android / iOS App for quick access.
The $10 billion bet on Lending Club for 2015 is probably a good guess. That would consider in average 25% growth quarter over quarter. Their best quarter over quarter growth in 2014 was between Q1 and Q2 with roughly 22% but with the growing popularity and a lot of wind in the sails from the IPO it should work out.
Some of it will depend on the overall economic situation and how other investment alternatives will hold up. Bumpy start for the stock markets around the world into 2015 after signs of another Euro crisis. If the uncertainty continues, investors will look into other directions.
To attract quality borrowers I would guess that Lending Club will invest more into marketing measures to make P2P lending known to a broader audience. That will obviously attract additional investors as well.
More interestingly: There are some articles out there mentioning that the Lending Club stock is overvalued. The stock market price will be driven significantly by the growth and by the fact if Lending Club turns profitable again. With all the cost of the revenue growth they, ended up with a loss lately. Opinions?
The LC stock price is being driven by growth projections right now – making money is not a near term priority I think. I expect another significant loss in Q4 and probably losses well into 2015 and possibly even 2016. The focus is growth and as long as they can keep showing this 100%+ year on year growth the stock price will remain strong in my opinion.
LC stock by traditional “value” investing philosophy is expensive, but then again warren buffet et al missed out on tech stock
Credit card refi is a trillion dollar+ industry and LC has a long way to take more market share from incumbents
Otherwise P2P is getting Segmented with different platforms with niche market expertise.
Can prosper LC merger happen?
I don’t see an LC/Prosper merger happening for a long time, if ever. Right now based on LC valuation metrics Prosper is worth at least $2 billion. This puts it out of the price range for LC I think.
Peter – Thank you for sharing your perspective. Just curious, what are your thoughts on P2P/Direct Investing with Bitcoin this year?
HG, I really haven’t been following the Bitcoin market very much and I am not an investor. If you want to learn more we had a two-past series last month on Bitcoin that you can read here:
https://www.lendacademy.com/introduction-marketplace-lending-bitcoin-part-1/
Regarding #5 above, wouldn’t it be most logical for a consortium of credit unions to provide that service? It’s the core of what credit unions do – people helping people.
Lina, That would be logical but the credit unions I have spoken with are further behind than the banks. So, I don’t think it is likely. But I do know of at least one startup that is trying to work with the credit unions to bring them into the marketplace lending era.
Peter,
Thank you for your reply. What startup is that?
Well the startup I was referring to above has struggled to get off the ground. But I know LendKey is making some big moves in the space now.
Peter, First I’ve learned alot from your articles. I’ve been approached by a tech company that is developing applications for p2p lending, I’d be interested in seeing what you think is a great proposal (from any vendor) to a bank for why they should look at p2p lending