What I Learned In 2 Years in P2PLending

This week marks the 2 year anniversary for this blog and my idea of presenting how a Commercial Credit professional would look at and analyze peer loans as an investment. It's been an amazing ride so far and more than 2000 of you follow me by subscribing and I couldn't thank you enough.  I have learned some valuable lessons in these last 2 years and I thought I would share some of them to mark the occasion.

Massive Cooperation and Collaboration

I have worked across numerous areas of finance including investments, trading, commercial finance and equipment leasing. Like in all fields, there are great people, terrible people and in between people.

Without question, the peer lending/marketplace industry has the most cooperative and collaborative people I have seen anywhere in finance.  Honestly, this was something that was a potential concern to me in the beginning since these are FinTech businesses where there is a marriage between finance and technology, making them different than 'conventional' finance businesses. This concern was unfounded as many platforms and decentralized lending programs do throw their platforms up on the web to see if they stick, they clearly know and understand that no platform is an island.  I get approached by a couple new platforms each month to check them out and see if I want to report on them here for you, and as you have seen sometimes I do and sometimes I don't. Always, I try to see how I can help them move their business along and often they look to help me as well.

Big Data Dominates and It Doesn't

Within the lending platforms themselves, they are all about big data and collecting as much data on their borrowers as is realistically possible and then sharing it with potential lenders like us.

As many of you have noticed by now, while I am a fan of the platforms gathering this data and sharing it with us, I am not the biggest believer in the 'big data is ruling the world' idea especially in the area of Credit in our industry. I have 2 posts on the subject here and here and I am mostly mistrustful of big data in our field due to the lack of time most loans have been outstanding, how few loans have termed out versus the number originated, the lack of loans through full boom and bust economic cycles and the recent skew towards new originations where as much as 2/3 of the total Lending Club and Prosper volume has been originated in the 2 years I have been covering them.

So while it dominates the platforms' use and lots of filtering, especially by the statistical and analytics specialists in our space (of which there are many and I am NOT one of them), there is lots of room for experienced and common sense credit analysis to achieve better than average returns.

I thought so 2 years ago when I started and I'm happy to see that it's still true.

Decentralized Lending is really social/community lending

The decentralized nature of lending platforms means I can lend to someone in California from my desk in Atlanta on Prosper, or I can lend to a small business in Australia or Lithuania in Bitcoin on BitLendingClub.  The truth is their location doesn't really matter although this really does harken back to social and community lending. Community lending used to literally mean in the community. Farmer A needed a new tractor and Farmers B, C, and D would finance it for him and get paid from that year's crop.  The modern version is most closely found in Bitcoin lending where Bitcoin miners, Bitcoin based businesses and those that trade in Bitcoin including providers of Bitcoin to new users all can borrow in Bitcoin from the BTC community. It doesn't look or sound as simple as the farmer example, but that's exactly what's happening.

In the USD world, its a little different but not that different. As lenders, we get to help our fellow Americans get lower rates, stick it to their bank and/or credit card company (a factor that should not be underrated), and improve their credit profile and credit scores for future borrowings like for a next house. In some small way, we contribute to that future success. Then if you really want to get social with your lending and feel like you are making a difference, then Kiva is a great microlending site to small businesses usually in developing countries. I'm a big fan of it and its simply the best site and service of its kind in the world today.

Great Buzz and Excitement

Yes Lending Club and On Deck Capital have gone public, and this has created great buzz and excitement in our industry, especially among those of us that are hoping that peer/marketplace lending will go mainstream. Dig a little deeper though and there's all kinds of other great stuff going on. The UK has the most p2p lending friendly regulation of the West and it has very successful platforms including the first one, Zopa, who turned 10 this year.  New US regulation allows for small scale equity crowdfunding here now, as described in this Forbes article.  This is a huge advancement.

Every week I talk to at least one CEO or COO of a peer lending platform and the levels of growth going in from within and the excitement they (and we) are feeling about the future prospects of the industry is real and immense. It's a fantastic thing to be a part of.

The Wonders of Bitcoin

The USD and GBP (British Pound) peer lending world is fast growing and is established and stable. If you were not around in the beginning and want to see what Prosper and LC were like in 2007 and 2008, then welcome to the world of Bitcoin lending. Young, fast growing, feature adding, and sometimes mistake making platforms are forming and growing all over the Bitcoin ecosystem. Despite not being as tech savvy as most Bitcoin enthusiasts, I have really come to love it and learn alot about it. For those in the USD lending world, it is without question the easy way to diversify your lending efforts across borders and currencies. It's a fantastic space to be in right now and I can't wait to see what happens next.

When I started this blog 2 years ago, I had no idea what would happen or even if anyone would read it. What has happened already has far exceeded what I ever could have expected. The day that peer/marketplace lending becomes mainstream will be a big day for all of us here including you.

Thanks for your comments, calls, emails, and contributions to my blog. What would you like to see me cover in the future?

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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