The peer-to-peer credit platform developed by LendingClub will be fully closed at the end of the year
There is great news Lending Club today for their tens of thousands of retail investors. They have announced that they will close their Notes platform at the end of the year and that private investors will no longer be able to invest in loans from LendingClub.
This is a disappointing development for the industry as LendingClub was a pioneer in peer-to-peer lending, and for me personally as I have had multiple LendingClub accounts for more than a decade.
All investors should have received an email this morning with their plans. Here is an excerpt from this email:
On our way to becoming a comprehensive fintech marketplace bank, we took a close look at our current and future suite of products and started developing new products to help our members keep more of what they deserve and more for what they do to keep. Unfortunately, under a future banking framework, it is not economically feasible for LendingClub to continue offering Notes. So we had to make the difficult decision discontinue the Notes platform with effect from December 31, 2020.
While LendingClub was 100% retail-focused in 2007, over the years it has evolved into a much more institutional-focused approach. This was understandable as it is difficult to provide huge volumes of credit only to retail investors.
It is true that LendingClub has taken back individual investors in recent years. We saw that Loan trading platform has been closed We saw earlier this year Investors in some states are locked out to invest increased minimum investment amounts and for retail investors there has been little, if any, innovation for many years.
Now we are nearing the end of an era. The peer-to-peer lending model has not proven to be the wonderful innovation it promised. These days, there are virtually no platforms that take a pure retail investor approach. The UK’s Ratesetter platform was probably the largest, at least in the West, and it was sold to a traditional bank earlier this year for a fraction of its previous value.
The Lend Academy Investor Forum was very active today with this news. So if you’re interested in unfiltered comments from individual investors, stop by this thread. One of the forum members, Brad C, agreed to post this formal comment for inclusion here:
The closing of the trading platform is a bit bittersweet for me. I started investing in debt securities in 2009, so I remember the initial craze and enthusiasm for peer-to-peer lending. In recent years, it has been evident that LendingClub was placing less emphasis on the retail platform as part of the business model. I’m not completely surprised that they are ending it, but I expected that they would try to integrate it with the new banking platform as they were one of the original peer-to-peer lending companies. I feel a sense of loss regarding the original concept of peer-to-peer lending which is dead at LendingClub. I got the idea that normal people help each other out with credit while excluding the big banks / financial institutions that people are taking advantage of. It seems we have closed the loop from the original peer-to-peer lending model back to the big banks / institutional investors who control lending.
While the fintech industry has moved away from peer-to-peer (P2P) lending since 2016, the Lending Club’s decision to close its retail P2P platform marks the end of an era. P2P lending was my entry into the fintech space in 2010. During its rise, it had a promise to turn lending into a more transparent and democratic process. Hopefully future entrepreneurs will find a way to break through where P2P has failed.
I’ve achieved an average return of probably around 7% at LendingClub (see details on my return here) since I started investing in 2009. While I liked the peer-to-peer aspect of the business, I was drawn to the uncorrelated returns of this asset class. It’s been an integral part of my investment portfolio for over a decade. I have to look for other alternatives now.
A representative out Thrive reached out to me today reminding me that they are still open to investing and remain 100% committed to retail investors. By the end of the year they will be the only game in town so I will certainly increase my investments there.
What I would love to see is what LendingClub has to offer on the street
While this is the end of peer-to-peer lending at LendingClub, I don’t think it’s the end of consumer credit-backed investment opportunities. This part of the email caught my attention:
People who help people is at the core of our business and we are developing new products that keep Notes’ peer-to-peer spirit under the future banking framework.
Once the Radius Bank acquisition is complete and regulators give their blessings, I expect we’ll see some new products from LendingClub. Here is what I want to see:
- CD-like product backed by consumer credit – this would have a long lock-up period (at least one year) and would pay higher interest rates than regular CDs. I would love to see an FDIC insured option and an uninsured option to earn more interest (not sure regulators would bless this, but I think it would be popular).
- Floating interest account with lower limit – I would like to see a fund product that pays 3-4%, but with a lower limit of 2%. This would not be FDIC insured but would allow investors to get a portion of the returns on consumer credit.
- High Yield Savings Account – a liquid option that pays the highest interest rates in the country. I could envision a savings account depositing 3% or more with the LendingClub bank again using very inexpensive capital to invest in their own loan portfolio.
- Investor Marketplace – Scott Sanborn first got this idea in his LendIt keynote in 2017 and I’ve always found it compelling. I would like to invest in a number of alternative assets through LendingClub, such as consumer loans, small business loans, fix and flip home loans, and auto loans.
Of course, once they become a regulated bank, I understand that some of these products can be very difficult to implement. But I hope and expect that right now they are working on creating something completely different that would be attractive to investors.
Today’s news is not well received by its investors and they have to work hard to win it back. A groundbreaking new investment opportunity would be the best way to do this.