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:
- Expanding the supply of financing across regional banks, investment banks, and insurers.
- Creating programmatic, standardized, quarterly repeat issuance ABS programs that spread fixed costs across a broader participation base.
- Improving the liquidity, transparency, and execution of bonds in the ABS market.
- Reducing risk management and monitoring costs associated with financing (e.g., double pledging risks, title risks, contract verification, etc.) via third party solutions.
- On June 27th, CEO Ram Ahluwalia, will have a fireside chat with students and Glenn Hubbard, Dean of Columbia Business School, former chair of Council of Economic Advisors and co-Chair of the Committee on Capital Markets Regulation.
- PeerIQ will speak at SCI’s 2nd Annual Marketplace Lending Securitisation Seminar on June 28 in New York.
- PeerIQ will speak on a panel at AltLend 2016 on July 13-14 in New York. PeerIQ guests will receive a 35% discount off of the standard rate. Email email@example.com any inquiries.
- PeerIQ will be in Miami for the ABS East Conference September 16-18.
- The Opportunity in Difficult Times (LendAcademy, 6/6/16) Lend Academy’s Peter Renton believes an MPL rebound will require 3rd party solutions, transparency, and disclosure.
- Latest Threat to Online Lenders: ‘Stacking’ of Multiple Loans (Reuters, 6/10/16) Loopholes in automated underwriting systems result in multiple lenders making loans to the same borrowers.
- LendingClub Held Talks on Funding Deals With Och-Ziff, Soros, Third Point (WSJ, 6/9/16) Lending Club reportedly in discussion to sell loans for warrants with large investors.
- Lending Club, Securitisations and Proper Loan due Diligence (FT, 6/9/16) Of the 23 deals issued after the ABS-15G requirement came into force in June 2015, just 6 reports had a third party inspection.
- On Deck and Intuit Run Joint Fund to Back Loans (CNBC, 6/7/16) OnDeck and Intuit are joining forces to co-own and launch a fund to buy small business loans.
- Prosper Maps Hedge Fund Strategy (Trepp, 6/08/16) Prosper to start hedge fund, Prosper Capital Consumer Credit, to purchase and securitize its own consumer loans.
- Ousted CEO Laplanche Studies LendingClub Takeover–Sources (Reuters, 6/7/16) Ex-CEO Renaud Laplanche has been in talks with private equity firms and banks about financing a potential buyout of the online lender.
- Online Lending Set to See a ‘Culling of the Herd’ (CNBC, 6/10/16) MPL to see consolidation as smaller lenders are weeded out by the larger lenders.
Online Lender’s Secret to Success: Past Failure (WSJ, 6/10/16) Founder of MyRichUncle, which closed in the crisis, applies lessons learned to new mortgage site.
- The Opportunity in Difficult Times (LendAcademy, 6/6/16)
- How I Used Maths to Beat the Bookies (Economist, 6/8/16) A mathematician shares his secrets on how he made a 200% return from betting on soccer.