Peer to Peer Lending News Roundup – August 3, 2013

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

Think tank: Peer-to-peer lender’s bank talks spark controversy from The Telegraph (UK) – Funding Circle is in talks with the large Spanish bank Santander to allow them to invest on their platform. I think this is a natural evolution for Funding Circle.

Credit Variables Explained – Borrower Geography from Orchard – A look at the differences in loan volume and default rates between the states.

Consumers misunderstand peer-to-peer lending, shows survey from Financial Reporter – In this survey by UK peer to peer lender Assetz Capital only 20% of consumers had actually heard of peer to peer lending.

The Digital Skeptic: Lending Club Data Raises a Default Question from The Street – A not so flattering piece about Lending Club returns.

 Lending Club Co-founder Established Shanghai-based P2P Funding Service Dianrong from TechNode – Soul Htite was a co-founder at Lending Club and is now trying to create the new Lending Club of China.

Peer-to-Peer Lending Likely to Continue its March Into the Mainstream from Huffington Post UK – I like the beginning sentence here: Peer-to-peer lending is one of the most exciting developments of recent modern finance.

The 6% Bank Yield from Nasdaq – No, you cannot earn 6% at any bank in this country … but we all know a place where you can do even better than that.

Beat the banks: Peer-to-peer loans encouraging borrowers to ditch rubbish rates from the Mirror (UK) – A broad view of the p2p lending marketplace in the UK.

P2P Lending Volumes in July 2013 from Wiseclerk – Great table showing the growth of the major p2p platforms in the U.S. and Europe.

Former Wells Fargo CEO Dick Kovacevich backs peer-to-peer lender Daric from San Francisco Business Times – A look at Daric, the new kid on the p2p lending block.

Why P2P Lending Is Amazing: The Fertile Fields of Consumer Credit from LendingMemo – This article encapsulates why I got so excited about p2p lending when I discovered it back in 2009.

Revenge of the nerds from The Economist – Banking is being disrupted for the better by a new, younger generation of entrepreneurs.

July Update from President, Aaron Vermut from Prosper – News from inside Prosper including this interesting tidbit that Prosper is moving away from Experian to the FICO credit scoring system.

From the Lend Academy Forum

The Lend Academy forum is where investors go to discuss p2p lending. Below are some topics that were being discussed this week.

Four clicks required to invest? – Speed is of the essence these days for investors – is there a way to speed up the process at Lending Club?

Should I sell this 30+ day late note? – Comments from lenders about pricing of notes that get more seriously late.

The thread for unashamed griping – If you have some complaints join the conversation here. Still a very popular thread with 125+ comments.

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Dan B
Dan B
Aug. 3, 2013 3:03 pm

While I can understand the “feel good” appeal of an article like the “Why P2P Lending Is Amazing: The Fertile Fields of Consumer Credit from LendingMemo “, the piece is littered with an impressive number of questionable & downright inaccurate comparisons. We see this pretty much from the get go where the discussion centers on how banks have historically made 10% returns off of credit cards & that now we through p2p have the same opportunity to get these types of high returns by, as the author puts “investing to this same population of people”. While that may on the surface sound reasonable, it isn’t. The fact is that banks made their historic 10% through credit card lending (i.e. unsecured revolving credit)…………..In p2p, we do not lend money in this fashion. We lend money via unsecured NON-revolving credit, aka non secured personal loans. Banks used to be pretty active in non-secured non revolving personal loans. They aren’t anymore. Try getting an unsecured personal from a major bank unless you have sterling credit. Why did they choose to by and large exit the unsecured non revolving personal loans? One of the reasons is that they can make a helluva lot more money & charge much higher rates if they do it through credit cards. But the author of the article in question doesn’t even pay lip service to any of the above. Instead he makes the inference that since banks have made a lot of money through unsecured lending to consumers……………..we can also do the same through unsecured lending to consumers. The unspoken suggestion of course is that when push comes to shove consumers treat non-revolving & revolving credit in the same manner. Anyone that has ever been heavily in debt & has had to juggle payments by prioritizing knows that is just nonsense. For those that haven’t been in that position, some use of commonsense will yield the same conclusion. A struggling consumer will normally choose to pay revolving credit over non-revolving. Why? It is quite simple. By paying on revolving credit, you get to continue having credit. That is of paramount importance to anyone struggling with making paying their bolls.

What do the banks make their returns on? Revolving credit. What are we investing in? Non revolving credit. Are we & banks really investing in the same thing? Unfortunately NO.

Not satisfied with the dubious comparisons as outlined above, the author then makes outlandish statements like “becoming the credit card company” & an ROI over 10% a year”…………….when it is crystal clear that the investments we in p2p are engaging in are not like any credit card model & quite clear that the average p2p investor has never earned over 10% a year. Hell, not even LC or Prosper claim that! But the author states it as if it is some matter of fact.

So is that it, do the inaccuracies stop there? Unfortunately not. The author compares p2p lending with stock market investing, not in terms of returns mind you, but rather in a wide over reaching argument culminating in the feel good “isn’t it fascinating how consistent individual lenders are in comparison to companies?”. In other words, lending to individuals are more predictable & by extension perhaps even safer. Well yeah it would be fascinating if investing in the stock market meant we were lending money to individual companies & they were paying us back in 36 months with interest. But in reality when we invest in the stock market we are buying a piece of the company. The correct comparison would have been to compare lending money to individuals to lending money to companies by buying corporate bonds. But I guess that comparison might have been less “fascinating”.

I believe in the long term viability of p2p investing. But imo articles that sugarcoat, exaggerate & inaccurately portray this investment do nothing to increase investor confidence & are a disservice to us all……………& especially to new & potential retail investors.

John
John
Aug. 3, 2013 10:14 pm
Reply to  Dan B

I agree Dan. The stuff coming out of Lending Memo is rubbish – I don’t think that guy Simon knows what he’s talking about whatsoever.

His articles do not belong in Peter’s roundup, that’s for sure.

Dan B
Dan B
Aug. 4, 2013 1:28 pm
Reply to  John

John……………I honestly haven’t had the desire (or the stomach) to read through enough of his material, so it would not be fair for me to make an overall assessment.

As for what is included in the weekly roundup……………….Some time last year myself & a few others suggested & Peter agreed that the wording on the weekly roundup introduction be changed from “the best” news & blog posts to what he thought was the “most interesting” news & blog posts. So I have no problems whatsoever with the piece being included here, as I found it not only “interesting” on a certain level, but also “entertaining”…………….& imo an almost perfect intellectual complement to the interesting & entertaining reality show Redneck Island which I channel surfed onto yesterday afternoon. 🙂

Disclaimer: Of course there’s nothing wrong with being a redneck. Some of my best friends are redneck (girls). I also understand that the show in question may not be providing an accurate representation of all rednecks, & that it may not be accurately portraying the full intellectual range of rednecks.

Simon Cunningham
Aug. 4, 2013 11:56 pm
Reply to  Dan B

Hi Dan,
You bring up a number of fair points. Yet both CCs and p2p are indeed unsecured consumer debt, as referenced by Marc Prosser’s post and Aaron Vermut’s quote. In this way, I feel the general point I was making, that p2p allows us historic entry into the stable and lucrative unsecured credit market, is accurate. That said, your point about p2p not involving revolving debt is a fair critique (as is the 10% returns generalization), and one I feel I could edit into the article to make clearer.
Best,
Simon

New Jersey Guy
New Jersey Guy
Aug. 5, 2013 5:55 am

Actually, I thought it was an interesting article. Dan, I think you may have read into this a little too far. Granted, your points are valid (especially the remark about the banks issuing personal loans), but I don’t think these were the points Simon was trying to make.

I read it as “Hey, Look! You can almost be like a bank and make a consistent 10% ROI with nearly an equal amount of risk!”

Obviously, we are not banks. Obviously, we do not issue credit cards. However, the 10% ROI is a fair (and to some a slightly conservative) comparison between the two methods of loaning money. In proportion, regardless the size of your account, it’s tiny compared to the amount of money a single bank may have. Yet, you have the same ability to make the same returns that banks consider to be very lucrative by simply pooling your money with the rest of us.
That’s how I read the article.

New Jersey Guy
New Jersey Guy
Aug. 5, 2013 8:17 am
Reply to  Peter Renton

Peter….I can certainly appreciate DanB’s stances on many issues. As a matter of fact, there are several individuals on this forum who have very strong financial backgrouds or degrees. Unfortunately, I’m not one of them.

Thanks to these individuals, I’ve been able to increase my own knowledge about several aspects of investing. However, I personally feel they make up the minority, and not the majority.

I’ve found out that most here are “Regular Joe’s or Sarah’s” all here with different objectives and reasons for investing in P2P. I think most here know my investing style is out in left field. Perhaps DanB may disagree with it and think I’m crazy. But judging by the emails I get, some don’t.

The point I’m trying to make is that I’m sure there are many visitors to your site who do nothing but ghost. They come here to read, but they don’t post. Many may lack the confidence to express an opinion or feel they may get embarresed by asking a simplistic question. Let’s face it. Alot of what’s written contains a bunch of statistics, charts and strings of 7-syllable words So, the articles you endorse, regardless how elementary or off-the wall, are appealing to somebody. And in respects, I hope that other readers like myself can get a little something from the articles and feel comfortable being part of the forum.

Dan B
Dan B
Aug. 5, 2013 7:50 pm
Reply to  New Jersey Guy

New Jersey Guy……….I agree with your general sentiment & I have no issue whatsoever with what Peter includes or doesn’t include in his roundup. I was criticizing the article, but whether it be included or not is none of my business. Also, although I can see how a broad interpretation could shed a kinder light on Simon’s article & how a broad interpretation could almost excuse some of the inaccuracies & dubious comparisons……………………it begs the question of why the inaccuracies & dubious comparisons were in the article in the first place. Let’s be clear, we’re not talking typos here! Did the author not know that the information he was presenting was, let’s just say questionable, or did he just not care as long as it fit the narrative he was aiming for?

So sure if one can excuse this error & that error & excuse that outrageous statement or comparison, then yeah, I can see merit in that article…………….& virtually any other article in existence.

These types of things may not directly matter to you or to me. Like you, I do my own thing & I follow no ones lead. But they should matter to someone. Who do you think should be the one setting some minimum standard? I know it shouldn’t be me.
You may be making over 10% & I may be as well. But do you think that the average individual in that beginners article’s target audience will? Come on, they’d be lucky to get 7 or 8%. I know it, LC & Prosper know it too & the facts clearly show that the average don’t even come close to 10% EVER. So who should be the one reigning in unreasonable expectations? I know it shouldn’t be me, but here I am. Or should I just rubber stamp it & give my full endorsement?

New Jersey Guy
New Jersey Guy
Aug. 6, 2013 11:37 am
Reply to  Dan B

“But do you think that the average individual in that beginners article’s target audience will? Come on, they’d be lucky to get 7 or 8%”

Dan….that’s a good point, and I fell into that category back last fall when I joined Lending Club. I personally felt that high-grade “A” and “B” loans were the best way to go. Now, after 9-months, I feel I’m still in the “Beginners Circle” despite the fact I’ve learned a ton since starting. I don’t think it fair that I compare my skills to those individuals who have been doing this for the past few years.

However, it didn’t take me but a few weeks to find out that returns over 10% were not only achievable, but not difficult to obtain.

There is no “Minimum Standard” like you stated. Obviously, I cannot speak for every newbie who joined the investors side of Lending Club the past week. There are many, even some seasonsed individuals on this forum, who are very, very content making 6% to 9%. That’s the threshold of their risk tolerance and as a speculative investor, I can respect their objectives even though they don’t match mine.

The 10% mentioned in this article is no way intended to be a “Minimum Standard”, because everybody’s standard is going to be different. Now, if Simon would have said 16%, that would certainly open a can of worms worth debating. On the other side of the coin, if he said 6%, people would be on here arguing he’s nuts, being way too conservative.

The 10% Simon talked about (in my opinion) is a safe return that could be achieved by the majority of investors once they learned a few basic ropes of P2P lending.
That’s how I took it!

Dan B
Dan B
Aug. 5, 2013 6:09 pm
Reply to  Peter Renton

Peter……………Let me begin by saying that I have no problem if you disagree with what I said. But please do not do me the discourtesy by suggesting that my comments amount to nothing more than an “improvement” on Simon’s article. I’ve pointed out (in detail) that it is inaccurate & that I don’t agree with the content, the comparisons, the inferences etc……………. so please don’t try to spin it in order to create some other narrative.

Peter, considering that I made virtually no reference to you personally I find your pseudo personal “attack” on me rather curious, especially in view of personal conversations we’ve had on this matter . You say you’re attacking the matter, but where did I make a mistake? Where are the factual errors in my rebuttal? To that your response is that you find it “interesting” that default rates on credit cards & p2p lending are similar. Well, I find it very interesting that you have such a low threshold of proof here. I find lots of things interesting too, but that doesn’t mean they’re the same or that they should be compared as if they are.

You accuse me of having a zealous disregard. Yes, I do have a zealous disregard for people who have a zealous disregard for the facts, a zealous disregard & attitude towards the importance of presenting material accurately, of making accurate comparisons etc etc.

What is the purpose of this site again? Isn’t it “teaching the world about peer to peer lending”? I understand that you didn’t write the article Peter, but since you have now “fully endorsed it”, I’m left to ponder what your “teaching” standards are. Left to ponder why you would fully endorse an article that makes inaccurate comparisons ( ex. lending to people & investing in the stock market, ), inaccurate claims (that the AVERAGE investor is going to get ROI over 10%, which not even LC & Prosper claim & which we both know is bs) There are more, but I’d just be rehashing my above initial comments.

You as the de facto voice of retail p2p “fully endorse” that article. Man, you know what, forget all this. I mean what do I get for arguing? If I instead promise to unwaveringly follow the positive feel good narrative & disregard inconvenient things such as facts & accuracy……………….can I just please be your lawyer? I’m guessing there might be a lot more money in that. 🙂

Dan B
Dan B
Aug. 5, 2013 10:23 pm
Reply to  Peter Renton

If the article does not, as you say, state that the average p2p investor can expect 10%………….then what does this exact quote mean? “Here is where peer to peer lending shines: we are able to earn a 10% ROI through investing to this same population of people, the stable and lucrative avenue of unsecured consumer credit.” Who is we? Just the brilliant among us? Or does “we” mean the group as a whole?

Ah, but I see what the main disagreement is now. When I say “fully endorse”, I mean fully endorse without reservation. When you say “fully endorse” it’s like when an athlete or showbiz personality is saying it……………. or it can mean I fully endorse, but I would have said this differently & changed that over there & used a different number over here & get this rid of this passage here & put these words over there. But yeah, I fully endorse it…………….Just out of curiosity, how many full endorsements do you hand out per hour? 🙂

Well hell, I agree with & can fully endorse (by any definition) the theme or statement that “consumer credit is a lucrative asset class that until recently was unavailable to average investors” too. Of course that is essentially the “general theme” of virtually all introductory p2p articles & all positive p2p articles in existence, but never mind that. So that’s great. Without reading any future articles, examining any facts & pondering any arguments presented within those articles, I can comfortably state that I too can “fully endorse” them as long as they meet the threshold of agreement with that general theme. Wow, talk about a slippery slope.:)

For the record, I have always thought that you’ve done an very good “overall” job & have stated that here on more than a few occasions. I hope that my occasional criticisms encourage you to improve on that.

PS…………….Just so we’re clear. Very good, by my definition!