Yesterday, Wall Street journal and other financial publications had articles titled:
- "Lending Club CEO Fired over Faulty Loans"
- "As Lending Club Stumbles, Its Entire Industry Faces Skepticism"
- "Is It Time To Go Bargain Hunting In Lending Club's Stock?"
I can relate to these questions in a more personally way. In this post, I will share my initial assessment and outlook.
First of all, Lending Club is a great company and it was a success story built on a brilliant idea traced back to 2007. The company pioneered the Peer to Peer lending market place, which connects investors and borrows online to conduct financial exchange. Allowing borrowers to access lending capital provided by individual investors, sort of the "Uber" of online banking business model.
The company processed abut $7.5 billion of loans last year. Its IPO gave hope to many starving fintech startups in a similar journey.
Amazon, eBay and Alibaba made famous of online eCommerce; and Lending Club made famous of online lending market place.
The concept of Peer to Peer means individuals lend and borrow from each other via the online platform of Lending Club. However, over the years, Lending Club and other market place lenders work very closely with institutions for their capital to fund the loans.
While it is important to secure capital to lend to borrowers, it is also important to attract enough qualified borrowers to borrow and deploy these capitals. Therefore, it is very important to have control over availability of capital and influx of borrowers. There can be times that there are too much funding, not enough borrowers; and vice versa.
I do believe the concept of Peer to Peer direct lending, since it is the most direct way of capital exchange.
The reliance of institutional capital is a variation and a deviate from the purest form of P2P lending. It raises doubts and skepticism of how much value-added of the platform itself if institutional players are not participating? And how much is the institutional players are helping in the process? Therefore, what is the net economic value of the P2P platforms? Is the P2P business model still valid?
What if there are more competition coming into the online lending place?
There can be a lengthy list of questions and the answers would not be simple.
In short, we believe this matter is related to how lending club deals with institutional investors, and we believe the underlying credit underwriting for loans is still intact.
In our next post, we are going to look at the stock itself. Stay tuned!