Lending Club fiasco: This is the company helping P2P platforms grow up with integrity
The resignation of US giant Lending Club’s chief executive last Monday sent a icy wave of unease through the P2P lending industry.
Writing in Morning Wire last week, AltFi’s Rupert Taylor commented: “the failures at Lending Club justified robust action because they related to a discipline that is central to what distinguishes P2P from conventional finance – namely, disclosure. This underlines how critical transparency is to the model but does not reveal a structural problem”.
Read more: Does P2P need more than just transparency?
In the US, “P2P lending” has evolved quickly into “marketplace lending” or even “online lending” – there’s little in the way of direct matching, many platforms take a lot of institutional money, and originate loans in order to securitise later down the line. Here in the UK, we saw our first industry securitisation last month, when Funding Circle securitised loans across its marketplace. But as more layers are created, and more people question if and how platforms are continuing to align their interests alongside those of their investors, there is an ever greater need for transparency and certainty.
One firm working to bring that about is the Global Debt Registry (GDR). The independent firm sits between platform and investor, creating a digital record, analysis and validation of consumer and SME lending at the point of origination, sale and securitisation. “We can help all players improve confidence and bring marketplace lending to the same place as every other mature market. We are assuring certainty in the underlying asset,” says Mark Parsells, GDR’s chief executive.
The 10 year-old firm moved into the P2P space just under a year ago, after being approached by people within the industry. Working with most major platforms in the US, and with aspirations to expand into the UK, it already provides loan validation, going out to third parties to verify the borrower and their credit representation. And it is now working to provide detailed verification on the actual dispensing of a loan to a borrower, and then that borrower’s repayments.
GDR says it can also help platforms trying to widen their capital base to attract more mature capital – because would-be institutional investors are given greater certainty in the assets they are purchasing.
Read more: These are the nine key trends in P2P
Parsells, who has talked to all leading platforms including Lending Club, says he’s confident that all major players want to embrace the concept of tracking their loan books and offering open access to investors. “It’s not just to provide certainty to investors, warehouse lenders, ratings agencies – it’s also a self-regulatory protection for leading lenders. With 250 platforms now operating in the States alone, it’s likely that something intentional or unintentional will go wrong. It’s a defence for a platform, therefore, to be able to say, ‘unlike those guys, we certify 100 per cent of our loans. You can see they’re real loans from real borrowers with real credit representations’.”