Market Overview

Fintech Companies Picking Up Investors Fleeing LendingClub

Fintech Companies Picking Up Investors Fleeing LendingClub

After LendingClub Corp (NYSE: LC) discovered $22 million in loans were sold that didn’t meet buyer requirements during an internal review, the CEO and founder (who was complicit) was forced to resign, and the company has been the subject of heightened scrutiny.

Market Response

Many market spectators questioned the future of fintech following these revelations, particularly peer-to-peer (P2P) loans — also known as social finance.

Related Link: Goldman Sachs Lowers LendingClub's Loan Origination Growth Estimates By 9%

This has been a hot sector in tech and in finance, and LendingClub was its publicly traded poster child. There was some question whether investors would be scared off considering the lack of regulation and concerns over lax internal controls.

LendingClub Stays In The News

These anxieties were only exacerbated when LendingClub began reporting decreases in public funding of its loans and increases in the amount of loans on its platform that the company was in turn having to buy up with its own cash to facilitate their issuance (loans are not issued until they find funding for the full amount applied for).

However, an interesting dynamic seems to be developing. Far from being the death knoll for social finance, it seems all LendingClub’s scandals have done is push more business to its competitors.

Desperately Seeking Safety

CNBC spoke to Brett Crosby, creator of PeerStreet, a real estate based social lending company. Crosby said retail investors, rather than being scared off from the fintech space, are simply looking for something safer. After the LendingClub news broke, Crosby said, “All of a sudden, the phone is ringing off the hook.”

It's worth noting that there are differences in the risk profile from one social lending company to another. Crowdfunded real estate loans, for example, can always foreclose on the real estate if the borrower defaults. Even companies with similar models to LendingClub, like SoFi, offer lower yields but boast more creditworthy borrowers.

Particularly following Friday’s Brexit vote and the stock market volatility that ensued, investors may be looking for alternative investments, and it's possible many will find what they’re looking for on the Internet rather than on Wall Street.


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