Are hedge funds hijacking P2P industry?
The huge rise in popularity that the peer-to-peer lending industry has been enjoying in recent years has captured the attention not just of the financial press and people looking to escape the traditional banking model – it has also garnered the interest of professional investors and financial institutions, representatives of a system that many P2P participants were looking to move away from. Pros who can use their experience with algorithms and powerful computers to gain an edge on the competition, take the best loans and leave the rest for individual amateurs are rapidly entering the marketplace, and it’s starting to cause resentment.
But is it as simple as that? Renaud Laplanche, the CEO of US-based platform Lending Club, which transacted $2 billion in loans last year, says no. His take on is the matter is that no loan is worth more than another when you take into account risk and yield ratings, and that there is plenty of room in the P2P market to comfortably accommodate both large and small players.
As to question-marks over whether the sheer number of platforms operating could soon force some to move into the subprime loan market, a major cause of the recent global financial meltdown, he isn’t worried about that either. There are so many people out there wanting to see good returns on their investments, and so many businesses struggling to get loans from the banks, that there is huge potential to grow without needing to join a race to the bottom. And big banking institutions getting involved isn’t a threat, says Laplanche. Their cost overheads are so big compared to online-only platforms that there really isn’t any way they can compete at the moment.
Whether that’s enough to allay concerns, we’ll have to see. But it certainly looks as though peer-to-peer is definitely going to become a lot more professionalised in the coming years, and there’s going to be a great deal more money swashing about.
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