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Weekly Industry Update: June 12, 2016

By Vy Phan

June 12, 2016

We see classic supply-demand levers at play in marketplace lending industry. To improve the attractiveness of loans to investors, Lending Club reported last week that they will raise rates by a weighted average of 55 bps across grades, the largest rate increase in its history. Lending Club’s recent rate increase is their fourth since December 2015 (25 bps). Other average rate increases were January (32 bps) and April (23 bps). Prosper has also raised rates and they expect returns on forward production to exceed 7%+. Prosper has also provided detailed performance statistics which suggest a reversal of yield compression trends. Reduced competition for borrowers should also lead to improved performance. The rate increase and a renewed focus on data integrity is welcome news for investors. Raising rates however, is a blunt, imprecise lever. Impacts on customer acquisition costs are unknown at the outset (due to the reduction on Net Converted Response rate), and the impact on subsequent loan performance cannot be observed for months (due to potential adverse selection). High financing costs create a wedge between would-be whole loan buyers and platforms. In contrast, a lowering of financing costs immediately and precisely benefits whole loan investors, platforms, and borrowers alike. We believe platforms can influence the reduction of these costs through several levers, some of which include: Conferences: Industry Update: PeerIQ Mentions:  Lighter Fare: