US peer-to-peer platform LendingClub has launched a “first-of-its-kind” electronic marketplace for institutional investors, but the news has been met with indifference by UK-based platforms which offer similar services.
LendingClub’s new digital platform – called LCX – offers investors same-day settlement of fully-funded whole loans, allowing for faster deployment of capital. It has been pitched as “a significant milestone in the evolution of unsecured consumer loans as an asset class” which will improve liquidity for unsecured personal loans and lead to the creation of a dynamic secondary market.
“This is a huge step forward in the evolution of unsecured consumer loans as an asset class,” said Valerie Kay, chief capital officer of LendingClub.
“LCX joins other LendingClub innovations such as CLUB Certificates and the Select Plus Platform to offer new industry leading products that meet the needs of our growing and diverse investor base.”
However, UK-based P2P platforms have dismissed the marketplace launch as “old news” as similar innovations have already been introduced in the UK.
“I don’t see what the big deal is really,” said Stuart Law, chief executive of Assetz Capital. “We’ve been doing this since day one. It might be an innovation in the US, but it’s old news in the UK.
“We already serve institutions like banks and investment funds who invest via our marketplace as well as retail investors – all pari passu in fractional interests in the same loans.
“This is something that UK regulations support and I understand it is somewhat difficult to impossible to achieve under US regulations.”
David Bradley-Ward, chief executive of Ablrate, and founder of the blockchain-based ASMX platform, told Peer2Peer Finance News that a US-based aggregator had pitched to Ablrate “in the early days”, but he considered the regulatory risk in the US to be too high.
“Their rules are complex to the extreme,” he said. “I would imagine that because the rules around retail investors in the states are so prohibitive it would make sense to launch to institutional and qualified investors.”
Since 2008, the Securities and Exchange Commission (SEC) has required all P2P companies to register their products as securities – a move which led global brands such as Zopa to exit the US market. The two largest P2P platforms in the US – LendingClub and Prosper – both formed partnerships with brokerage firm FolioFn to create a secondary market for their investor notes, which offered enhanced liquidity for investors. However, the creation of the LCX represents the first time that a US platform has been able to manage liquidity itself.
“One thing I can agree with is a marketplace absolutely improves liquidity,” said Law. “But we wouldn’t consider expanding into the US because their regulations are very anti-investor. We’re a balanced business and we exist to serve business borrowers as well as retail investors and institutions.”
“I wonder how [the LCX platform] would work practically,” added Bradley-Ward. “Many institutions are looking for whole loans, or have mandates that require certain caveats in each loan if they are being asked to invest in primary loans, and if those mandates conflict you are back into the issue of whole loans etc.
“There is no reason the idea would not work if you could get a decent take up, but there are existing companies such as Funding Circle that are, essentially, already serving lots of the direct investment funds that may be the target of a platform like this.”
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