“The first thing we’ll do is kill all the bankers.” Google, P2P lending, and the next World War Web
Remember that whole GFC thing? – As if all those Zegna suited squillionaires in the finance sector didn’t have enough to worry about. Google’s recent decision (along with existing investor Foundation Capital) to invest $125 million into peer-to-peer lending outfit LendingClub is further evidence that the ambitions of scivvy wearing dotcom anarchists won’t end with simply re-engineering sectors like retail, music and media. Instead, everything is up for grabs.
Google, for instance, is a company which has long behaved as if the laws of the marketplace are somebody else’s problem. At best an obstacle to be overcome. This is after all a company that chose to IPO via a Dutch auction.
And now the finance sector, one of the world’s wealthiest, most conservative and impenetrable industries must consider disintermediation on a potentially grand scale.They find themselves standing in between Mountain View and its next bucket of blood, and the answer is always the same. Just ask Looksmart, or Microsoft, or Nokia.
Bankers who Which-50 has spoken to have long sweated on the idea that a Google or a Facebook, or an Amazon or an Apple might come crashing onto their turf – armed to the teeth with their Berserker business models, utterly unsentimental, and willing to disrupt unto oblivion the cozy certainties of sandstone encrusted centuries.
P2P lending has just such an adolescent, wild eyed, crazy fervor to it.
After all, a bank is a just network with a vault full of money and mother lode of trust beneath it. But these days Apple has more money, Facebook and Google have bigger networks, and frankly who would you trust more with your life savings – Amazon or Lehman Brothers.
Fear following the GFC proved on a drag on the early P2P lending market, but so did the attitude of the SEC in the US. The regulator, however, has since warmed to the idea, as Techcrunch noted, and its green light has seen growth accelerate in recent years.
And of course fear is a two way street that hurts incumbents just as much as upstarts, as any Bear Stearns bond holder can attest.
Techcrunch offered another important insight. “Having Google (not Google Ventures) as an investor is a huge deal. It’s not that often that Google makes a corporate and strategic investment in a company. In fact it’s pretty rare.”
It may be rare but it’s easy to understand the appeal.
Peer to peer lending is growing at an impressive clip. As finance news-sheet Seeking Alpha noted this week , Lending Club and another peer to peer lender called Prosper between them have already broken through the $2 billion loan origination barrier. More importantly they have attracted a retinue of gold-card carrying members of the Monied Fraternity into their midst.
Seeking Alpha named “former Visa Inc. President Hans Morris; the former U.S. Secretary of the Treasury Lawrence H. Summers; Morgan Stanley Chairman Emeritus John Mack and Kleiner Perkins Caufield & Byers general partner Mary Meeker” as band wagon spear carriers.
And the list of VCs voting with their loot is just as telling. Once again, Seeking Alpha identified “Draper Fisher Jurvetson, Accel Partners, Sequoia Capital, Union Square Ventures, Foundation Capital, Thomvest and Kleiner Perkins Caufield & Buyers,” as investors in the space.
So how does peer to peer lending work?
Blog site Singularity Hub provides a simple explanation of peer to peer lending.
According to writer Jason Dorrier, ” Borrowers apply for a loan through Lending Club (for instance) . They may want to renovate their house, take a dream vacation, or most often, pay off higher interest credit card debt. Lending Club sifts these applicants for credit-worthiness, accepting only 10% of all applications,” he wrote.
“Individual lenders can now pick and choose which loans they fund. The idea is to build a diverse portfolio by taking bits and pieces of lots of different loans, thereby setting up a regular stream of income from interest payments and minimizing the risk any significant portion won’t be paid off.”
For those of you under 30 who prefer pictures to words – since its easier than chewing – this infographic from Moneysupermarket.com makes a decent cheat sheet.
Seeking Alpha’s Dara Albright concluded, ” As P2P continues to mark major milestones, it is paving the way for the mainstream adoption of securities-based crowdfunding. As such, P2P’s achievements should be carefully observed as well as celebrated by the entire crowd funding movement. Securities-based crowd funding is tomorrow’s P2P.”