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Takeaways From LendingClub’s First Ever Investor Day

We review LendingClub's Investor Day and share the most interesting developments discussed there

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Last week LendingClub held their very first Investor Day in New York. I was lucky enough to be invited along with about 150 others to the Morgan Stanley offices in Times Square. We heard from most of the LendingClub executive team as they laid out their vision for LendingClub and the opportunity they see in front of them.

The Three Most Interesting Announcements

While much was said over the more than three hours of presentations here is what I considered to be the three most interesting announcements from the day.

  1. A New “Exchange Traded Partnership” is Coming

This is a really big deal in my opinion and I was surprised it was not mentioned until the fourth presentation of the day when Patrick Dunne, their Chief Capital Officer, took the stage. LendingClub will be launching an Exchange Traded Partnership (ETP) that will be traded like a stock (similar to an ETF) on a public exchange but will be backed by LendingClub loans. It will be available to all investors and will be liquid. This could be a game changer as it will provide all investors with a simple and accessible way to get exposure to LendingClub loans. No timetable was given for its implementation and if it launches in 2018 it will likely be late in the year.

  1. LendingClub Has Been Testing Direct Payoff Loans

One of the criticisms investors have had over the years is that when someone takes out a debt consolidation loan it is not clear whether they really pay off their credit cards or use the money for other purposes. LendingClub has been running a test for some time that pays off a borrower’s credit card balance directly to give some certainty over loan proceeds. LendingClub claims that this will help them increase origination volume by 5% as they will be able to approve more borrowers knowing that their credit card debt will be paid off.

  1. A New “Snap and Save” Approach to their Auto Finance Product

LendingClub announced a very handy new feature for those borrowers taking out an auto loan. A prospective borrower can simply take a photo of their registration and LendingClub will pre-populate fields eliminating almost all of the data entry. While this feature is not that groundbreaking it was interesting to me because it demonstrated that LendingClub is focused on developing the auto loan segment.

The Opportunity on the Borrower and Investor Side

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P2P Lending Posts Positive Returns Compared to Many Asset Classes

The one-year returns for most of the major asset classes have been negative, but not p2p lending.

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Interest rates, the stock market and the effects of China on our economy have been all over the headlines as of late. August in particular was a bad month for the stock market, but what about other asset classes? Just last week we happened upon a tweet by Cullen Roche stating:

This is kind of amazing. Every single major asset class has negative 1 year returns.

It was accompanied by the below image, which shows tickers for all of the major asset classes including stocks, bonds, REITs, commodities and US TIPS. The returns of each of these for the year ending September 11th was negative.

Comparing-P2PLending-AssetClasses

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Marketplace Lending Returns and Stock Market Gyrations

The benefit of consistency with marketplace lending shines through at a time of volatility for the public markets

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DJIAAugust25

Dow Jones Industrial Average – Last 5 days

In the past five days the Dow Jones Industrial Average has slipped 10.36% and the past two days we have seen wild swings both up and down. The news of volatility in the stock market has been the leading story in most major news outlets. Many stocks took a large hit yesterday and recovered slightly throughout the day. Many investors panicked and sold their positions. Investors using TD Ameritrade experienced slowness due to historic volumes. Even Lending Club’s stock hit a 52 week low of 10.28 at market open yesterday, dropping around 11%. It now sits around $12.

Time will tell whether this was just a small correction and this bull market will continue or if this is the start of a sustained slump. It is impossible to know where the market will go from here. The important thing to remember is that these market fluctuations are common when you are investing in stocks. Investing in marketplace lending has and will likely continue to produce far less volatile returns.

The consistency of returns has long been reported as a benefit of investing in marketplace lending, but it isn’t until events like these that we actually come to appreciate the consistent returns. Since Peter Renton began reporting his returns in 2011, he has seen overall returns ranging from 8.12% to 12.44%. This performance should continue, despite whatever might be happening across the stock market, barring another recession or a spike in unemployment. This makes investing with companies like Lending Club or Prosper, a great diversifier. Investing in unsecured debt is an asset class that is uncorrelated to stocks.

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When Are State Securities Regulators Going to Get a Clue About P2P Lending?

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State-Securities-Regulators-Clueless-About-P2P-Lending

Today, Lending Club is available to investors in 26 states on their retail platform (they do allow investors in 17 more states to participate on their trading platform). Prosper is available in 30 states (plus Washington D.C.). This leaves a large section of the country out of luck when it comes to investing in p2p lending. What is going on?

The reason for this is that both Lending Club and Prosper have to register with each state separately. And securities regulators in some states are very conservative when it comes to consideration of p2p lending. This was summarized well by a quote from Chris Naylor, Indiana Securities Commissioner, when talking about p2p lending in last week’s article in the Wall Street Journal:

I understand there is a credit crunch and these platforms are providing an alternative. But there are limitations on the financial data that is available, and a chance of default, so we need to protect investors.

This line of thinking is common among many state securities regulators. Now, Naylor did not elaborate exactly what he meant by “limitations on the financial data”. My calls to Naylor’s office have not been returned so one can only guess as to what he means here.

In an interview on CNBC’s Squawk Box last Friday, Lending Club’s CEO Renaud Laplanche was asked about the above quote from Naylor. I completely agree with his response. Lending Club is very transparent, providing detailed information on every borrower and the entire loan history is available to download for analysis by investors. But I would have also added that well-diversified investors are not losing money.

What Are Securities Regulators Protecting Investors From?

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Why a Down Stock Market is Good for P2P Lending

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With the stock market down almost 20% from its April high one has to wonder how this will impact peer to peer lending. While the down market is certainly not good news for anyone with money in equities, I am guessing the management at Lending Club and Prosper are quite happy with the latest stock market gyrations.

Since the 2009 lows the stock market has steadily rallied and those who stayed the course have seen their portfolios grow significantly. But the crash of 2008-09 is still fresh in investors’ minds and many people who have come back into the market in recent months are likely questioning their decision to do that now.

Where to Invest?

For people taking money out of the stock market where do you go? Yesterday everyone was flocking to gold as well as bonds, but these are also volatile investments. Sure you could keep it in a CD or money market account and earn next to nothing in interest but at least you will not lose any principal. I imagine that is what the majority of people are doing who are sick of experiencing the volatility of the stock market. [Read more…]

Is a Bull Market for Stocks Bad for P2P Lending?

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NYC - Bowling Green: Charging Bull

Today the Dow Jones Industrial Average was up another 200 points, continuing its almost constant move upwards over the last six months. It is up about 18.5% in the last six months alone, a pretty nice return. But this pales in comparison with the two year return. The Dow is up a staggering 87% since its low of 6,547 reached on March 9, 2009. You certainly will never get a return like that with peer to peer lending. Which brings me to the question, is a bull market for stocks bad for p2p lending?

Before we answer that question let’s take a look at some more numbers. In March 2009, Lending Club did roughly $3 million in new loan volume (Prosper was in their quiet period then). Last month (in the shortest month of the year) Lending Club did $14.6 million in new loans, about 500% more. So it doesn’t look like the bull market in stocks has had any impact on the popularity of p2p lending. [Read more…]

ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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