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 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 info@www.peeriq.comwith any inquiries.
  • PeerIQ will be in Miami for the ABS East Conference September 16-18.

Industry Update:

  • 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.
  • 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.

PeerIQ Mentions: 

Lighter Fare: