Last week’s successful IPO of LendingClub hasn’t only led to a multi-billion valuation for that company, but sparked a fire in the entire peer-to-peer (P2P) lending industry. After selling shares at $15, LendingClub stock has risen to $26, sending its overall market capitalization to $9.36 billion.
On the heels of that success, rival lending platform OnDeck is raising around $200 million in their IPO which was finalized last night and shares are set to trade publicly later today with an expected total value of $1.3 billion. According to terms of the deal, OnDeck will be selling 10 million shares at $20, above the initial range of $16-$18 which was marketed by the lender’s underwriters to prospective investors. Like LendingClub, the increase of the share price above the expected range reveals strong demand from investors for exposure to the P2P lending industry.
A lender to small businesses, SEC filings have shown that OnDeck has processed 4.4 million loans on its platform since 2007 for a value above $1.7 billion. What differs OnDeck from other P2P lenders is that loans originate from the firm’s own capital which is invested in deals processed on the platform. For borrowers, the platform is similar to that of any other P2P lending marketplace.
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Although not technically a P2P lender, more important for the lending industry is the continuing trend of borrowers sidestepping banks and originating loans on non-bank platforms. As a point of reference, following the 2008-09 global financial crisis and apparent systematic risk involved in the swaps market, regulatory changes have caused the creation of swap execution facilities (SEFs). SEFs are basically centralized trading platforms for swaps operated by leading financial institutions such as ICAP, CME Group and Bloomberg. Rather than deal directly with clients, banks make a market on an SEF and compete with each other to provide the best rates to traders using the platform. A direct result is improved pricing to traders but decreased profits to banks in their swaps business.
A similar model can be expected to take place in P2P lending as the industry increases its market share. Already, financial firms such as hedge funds have begun to provide liquidity for P2P loans, as investing terms are favorable compared to traditional fixed income products like bonds. Therefore, it will not be surprising to see a bank become an investor in such a platform, as they look for alternative methods to increase their loan book.
Lendable raises £2.5 million in seed funding round
Also raising funds in the P2P lending sector is UK based Lendable (not to be confused with the US based firm with a similar name). According to a report from TechCrunch, Lendable has recently raised £2.5 million in a seed round of European angel investors. Among the investors are three partners from Passion Capital.
At the foundation of Lendable’s platform is its rating system which uses proprietary algorithms to score potential borrowers in order to provide them with the best rates. According to the firm, the company looks beyond just credit scores to evaluate potential borrowers who may be rejected by traditional banks.