Does anybody fear LC going out of business? I have been investing since 2011 and really like LC for many reasons. However, I fear there is a decent chance they will not be around in 4-5 years. Every year there is a new competitor. The Renaud Leplanche announcement is just the latest announcement. Note that Leplanche will not be using Peer-to-Peer. He likely knows more about marketplace lending than anybody on the planet and he decided not to go Peer-to-Peer. There is probably a reason for it. My opinion - it probably is not efficient. Then there is Marcus - same thing.
Today's situation of lower returns is just a blip caused by low underwriting standards (by LC and everybody else) and competition. Throw in a couple more significant variables like a tanked economy, over-regulation, and/or another breach of trust and some companies will not make it.
Maybe I would feel better if I had more faith in the unproven/questionable bankruptcy vehicle. I heard the institutional investors have some sort of upgraded "bankruptcy vehicle". If the guys that really know what is going on demand an "upgrade" what is wrong with what we have?
Does anybody else have these fears? Somebody validate my irrational fears or make them go away. What do you think? Does anybody cut back their investment allocation based on these fears?
Back in 2007-2008, interest rates were high, credit was tightening, and the stock market was tanking. LC and Prosper gave small investors a chance to profit from the loan market without investing in a traditional bank. Now, it is almost the exact opposite; interest rates are relatively low and there is lots of competition in the loan market. Large investors looked down at us guinea pigs, determined there is money to be made here, and have thrown huge sums of cash at Lending Club and Prosper. I'm not worried about LC going out of business. I'm worried they are going to shut down the marketplace, securitize the loans, downgrade expectations, and tell small investors to take a hike. Even if Renaud Laplanche spun up another marketplace, I don't think I would trust my money with him again. LC still has integrity issues from the Laplanche days they need to work out, but they are so flush with institutional money, they just don't care.
Retail may be lower margin, but I haven't seen anything to prove that. I think companies are targeting institutional money because it allows much faster growth to achieve scale. But just like in other areas of finance, I'd assume that institutions will use their size to get lower fees than retail.
If/when retail does shut down, thoughts on how that transition will take place?
It'll probably be just as simple as us being able to view our loans but no longer fund new ones.