Roundup of Social Lending News – August 27, 2011

Every Saturday I bring you the latest news from the world of peer to peer lending. These are the best of the news articles and blog posts from around the web that I shared on Twitter this past week.

It was a busy week on the p2p lending news front with plenty of updates and news from the blogosphere. One personal finance blogger who is new to our news roundup, Beating Broke, had not one, but two posts about Lending Club this past week. Both posts made the list below. And let’s not forget Prosper. They released the video from their recent p2p lending webinar. This should be required viewing for every p2p lending investor. Enjoy your weekend.

Prosper – Webinar Recording Available: “Social Lending’s Role in Volatile Times”

P2P Lending News – How to Invest $60,000 in Peer-to-Peer Lending Notes in 30 Days

Beating Broke – Calculating a Real Rate of Return on My Lending Club Portfolio

Consumerism Commentary – High-Yield Investing In a Low-Yield Environment

Bloomberg Businessweek – B-School Startups: A New Lending Option in NOLA

Nickel Steamroller – Total ROI – A Look At Diminishing Returns

Beating Broke – Lending Club: How I Select My Investments

Sweating the Big Stuff – I Moved to California to Join Lending Club

Lending Tuber – A look at Prosper’s 2008 Loans

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Aug. 30, 2011 1:21 am

Here another I think may be worth noting from the ABA Bankers Journal

The article leads with this:

“The emergence of P2P (person-to-person) lenders like Prosper, Lending Club, and Zopa was once thought of as a disruptive force in the financial services industry. However, although Lending Club’s loan volume has been steadily increasing month-over-month for the past year, the $20 million in loan volume it did in June 2011 is a drop in the ocean of overall consumer lending.

Not only is this not much of a threat to banks’ traditional lending business, there’s really no reason why banking couldn’t create an online lending marketplace of its own. In addition to the organic traffic that lenders could drive to such a site, they could refer to it those loans they decide to pass on themselves. They’d give the option of funding them to those investors and savers looking for higher rates of return than they’d obtain with CDs, by lending money in the marketplace. Banks could easily underprice Lending Club’s processing fee (which ranges from 2.25% to 4.5% of the loan amount), and avoid charging the 1% service charge for each payment received that Lending Club hits investors with.”

Now, granted this is the Bankers Journal, so large grains of salt are involved, but I’d be REALLY interested in opinions and thoughts about the ability of traditional banks to jump into this game. It may just be “a drop in the bucket,” but this game is just getting started. The author seems to think it’d be minimal hassle/cost for a bank to initiate and maintain an online P2P presence.

just spitballing here…On one hand, I imagine it would be difficult for most banks to do their own P2P for a cost/benefit payoff they would find acceptable, unless it was one of the behemoths (and they’re kinda distracted right now). What bank(s) could afford to such an operation going? What about all the different state laws? Would it be feasible/prudent to focus on borrowers in only a few states? one region? Presumably the banks will be selling securities, so there may be thorny fee/double-dipping/fiduciary issues. Lots of regulatory thicket, and the uncertainty will only add to the cost.

On the other hand, I could see traditional banks taking advantage of a P2P weakness, which is the lack of brick and mortar (local) presence that would make lenders and borrowers feel more comfortable and secure in the transactions. The bank scours for creditworthy borrowers with employees well-versed (or quickly trained) in verifying borrower information, it takes a percentage stake in the loan that meet its (rigid?) criteria and makes the remainder available to individual lenders, who can speak a bank investment officer about how the process works, what loans quality/yield they want, etc. The bank can get more customers, expand it’s name and presence, it brings in money, and the bank can take perhaps incrementally more risk than they otherwise might (this could be seen as unnecessary risk, or the slight loosening of extra rigid standards). But the payoff, if done right, could be worth it. If a bank wanted to put the stranglehold on some local or regional competition, this could be the killer app.

The story also goes on to talk about P2P payments, which is interesting in it’s own right.