Between 2013 and 2015 the stock of peer-to-peer loans grew ninefold in the Americas, to $29bn
money right,” says a giant billboard in garish, Instagram-friendly colours in San Francisco’s downtown. It is part of a campaign by SoFi, a fintech firm, to position itself as a one-stop shop for alternative finance. Founded in 2011 to cut the cost of student loans by enabling alumni to sponsor undergraduates, last year SoFi spent over $200m courting shoppers, homebuyers and young parents. It now collects funding from a wide variety of investors, including big institutions.
The vision behind peer-to-peer lending—allowing one ordinary person with spare cash to help another with a decent plan for spending it—was always a romantic one. Today only a few die-hards like RateSetter, a decade-old British lender, still hew to it; the rest, like SoFi, have diversified. New rules in Britain are the first salvo in a regulatory effort that will bring greater scrutiny. The betsUpgrade your inbox and get our Daily Dispatch and Editor's Picks.
The retail investors who provided funding could hope for annual returns of 4% or more. The firms would avoid credit risk while making money from transaction fees, and any late fees. Between 2013 and 2015 the stock ofBut further growth proved elusive. One reason was the high cost of acquiring customers. Platforms do not know how creditworthy someone who clicks on a Facebook or Google ad is, says Scott Sanborn of LendingClub. “[But] I have to pay for that click regardless.
Banks can draw on cheap and plentiful deposits, whereas platforms had to compete for savings held by retail investors. That required a lot of hand-holding, says Neil Rimer of Index Ventures, a venture-capital firm. So from the mid-2010slenders turned to family offices, and pension and sovereign-wealth funds. They started to securitise loans, bundling hundreds of tiny amounts and selling them together. In 2017 institutional investors snapped up $13bn worth of securitisedloans.
To cut acquisition costs, many platforms now cross-sell several types of loans. Zopa, which obtained a banking licence last December, offers car finance and wedding loans. LendingClub backs small businesses and refinances credit-card debt. Some also “white-label” their products, originating loans for traditional banks while remaining invisible to the public.has earned these firms a new moniker: marketplace lenders .
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