Indeed, whole new layers of facelessness are being added. For while Lending Club is based in San Francisco, Wall Street didn’t take long to notice that the company had found a pool of creditworthy borrowers willing to pay double-digit interest rates—even as the Fed was willing to provide those banks money at close to zero interest.
As a result, Lending Club’s investors are increasingly hedge funds, or high-net-worth brokerage clients, or other pools of money highly redolent of the Wall Street of old. Some of them are even levered: Silicon Valley Bank has a whole business lending money to people who just turn around and reinvest those funds in Lending Club. The borrowers are still individuals. But they’re being lent money by the very Wall Street institutions that the peer-to-peer system was designed to circumvent.
And just look at the investors in Lending Club—not the people making the loans but the owners of Lending Club itself. The board features such crisis-era grandees as John Mack (the bailed-out former CEO of Morgan Stanley) and Larry Summers (who needs no introduction). A rival company, CommonBond, of Brooklyn, just raised $100 million in new capital—including a substantial check from Vikram Pandit, the bailed-out former CEO of Citigroup. And Prosper’s latest $25 million round included money from BlackRock, the world’s biggest money manager.
The good news is that individual investors can still get in on the Lending Club game—and even get slightly better returns to boot. If you’re a brokerage client or a hedge fund investing in Lending Club loans, you have to pay a few extra layers of fees. (Wall Street will always take its cut.) Individuals, on the other hand, can still pick their own loans (or just press a button and have the Lending Club robot to pick the loans for them) and get the highest possible returns.
But there’s work involved in going down that route: When you make lots of little loans in the $25 to $100 range, you get lots of little interest payments as well. And although the interest rates are still impressively high, the loans are extremely illiquid. They’re at least three years long, with some now stretching out to five years—which means that it’s going to take a very long time to unwind your investment.
As Lending Club grows, both organically and via acquisition, its product line is certain to get longer: It will move into auto loans and maybe small business loans too. But if you’re hoping that the company will get less picky about whom it lends to, don’t hold your breath. If you can’t get a loan from a bank, you’re certainly not going to be able to get one from your peers.