Peer-to-peer lending is one of the newest forms of alternative finance. As an investor, one stands to make money on a loan’s interest, while borrowers have the advantage on not going through the long process of applying via a bank.
The arena has changed, however, since its birth in the early 2000s. In 2009, lots of major institutional and corporate investors entered the P2P market and virtually changed the face of the sector overnight. To note but one example, Google, Inc. put $125 million into the P2P giant Lending Club.
Even so, there are still huge profits to be made by average-sized investors in the P2P marketplace. Before investing, it’s always good to know who the big players are and what the state of the market is. Here’s a quick rundown of the current top of the crop in the P2P lending space:
LC has been around for nearly a decade now and was one of the earliest entrants into the sector. Since 2007, the company has been virtually alone in leading the industry. They made history too, by becoming the very first online lending entity to achieve listing status on the New York Stock Exchange. To date, LC has issued nearly $10 billion in loans. Lending Club investors typically earn between 6 and 9 percent on their investments.
Darling of the financial media, Prosper entered the P2P market as a major player one year before their chief competitor, Lending Club. Since 2006, Prosper has issued more than $3 billion in loans, making them significantly smaller than LC, but still a worthy competitor. Both companies are still in the infancy of their existence. Prosper continues to grow steadily in terms of loan value issued and offers about the same rate of return for investors as LC does, between 6 and 9 percent.
Founded just three years ago by a group of people who wanted to challenge the standard business model for P2P companies, Upstart uses factors other than a borrower’s credit score to evaluate loan applications. They are nowhere near as large as Prosper or Lending Club, but are getting universally positive reviews from the financial press. You need to be accredited in order to become an investor in Upstart. That generally means you must have a net worth greater than $1 million to take part in the profit-making potential of Upstart. The company has issued about $100 million in loans so far and if you do qualify as an investor, you stand to earn between 5.6 and 9.2 percent on your money, depending on the amount of risk you are willing to accept.
This week’s financial news included numerous stories about the P2P lending market getting set for a shakeout. Wall Street is expecting the biggest players to stick around, but expect many of the smaller fish to either get squeezed out of the market or sell out to the dominant companies like the three listed above.
PayPal is even getting into the picture with a new app that allows people to facilitate the repayment of personal loans. It’s called PayPal.me, and it is intended to reduce the “awkwardness” inherent in many personal and family loans.