Marketplace lending was supposed to be the bank industry's next great disrupter. But on Monday the burgeoning sector faced another in a string of humbling setbacks as LendingClub CEO Renaud Laplanche resigned after revelations of impropriety by top managers at the company. In an announcement alongside its first-quarter earnings Monday, the nation's largest peer-to-peer lender said that an internal investigation revealed sales to a single investor of 22 million in near-prime loans that failed to meet that investor's terms. Hans Morris, LendingClub's executive chairman, tried to reassure investors in a statement. "A key principle of the company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees," Morris said.
Until February this year, it all sounded terrific: A new Individual Savings Account (Isa), which instead of offering cash savers as little as 0.5% a year, would instead offer returns of up to 6%, tax-free. The reason was a change of the rules which meant investing without a middleman was possible within a tax-free Isa. But just weeks before launch day in April, Lord Turner, the former boss of the Financial Services Authority, let off an intellectual grenade designed to inflict serious damage on the whole idea of what is known as Peer-to-Peer (P2P) lending. Speaking on Radio 4, he predicted that over the next five to ten years there would be huge losses for P2P lending platforms, which would make the banks look like "lending geniuses". He implied that, far from increasing their savings, hundreds of thousands of investors could end up losing their money instead.
Financial technology (or "fintech") has become an extremely trendy industry for startups because of its high growth potential and opportunity for nearly endless disruptive innovation. In fact, these scrappy companies have the potential to take away $4.7 worth of revenue from traditional financial services, according to Goldman Sachs. Fintech companies are represented in account management, lending and financing, payment processing, and financial assets and capital markets, but what makes them so attractive for small and large businesses is their focus on the customer's needs. Financial information and processing is readily available, which allows for a business to handle important matters quickly, providing consumers with a means to conduct instant, frictionless, digital transactions at an unprecedented speed. Venture capitalists are taking notice of the fintech explosion; $23 billion of venture and growth equity has been deployed to these over the last five years, according to a report by McKinsey.
I wrote a blog the other day for The Next Web. I thought it was OK, and it has gained a lot of traction socially. Apparently, people like it and here I'm going to expand on the basic theme to give a detailed analysis of how fintech wings are spreading. There's been a lot of talk about fintech lately. We talk about the billions of dollars being invested in fintech; the wave of unicorns and startups in this space; the challenge they bring to banks and incumbents; the way in which they're reaching new spaces and places – but what is fintech?
A tough few months for online lenders got even more difficult Monday with the resignation of one of the industry's leading figures, a development that adds to already considerable uncertainty for the business. Lending Club, the San Francisco firm that's become the largest of a new class of so-called marketplace lenders, announced Monday that founder and Chief Executive Renaud Laplanche would resign over problems with the sale of loans this year to an investor. The news sent shares of the firm tumbling 35% for the day to 4.62, leaving them down 70% from their December 2014 initial offering price of 15. It added to an already lengthy list of concerns about an industry that have led firms to lay off workers and cut once heady growth expectations. Lending Club and rival Prosper, both in San Francisco, originated 12 billion in loans last year, up from less than 3 billion in 2013.