THE BLOG

P2P Lending Is Dead

02/20/2015 10:21 am ET | Updated Apr 22, 2015

First, disco bit the dust. Then, punk rock keeled over. Now, peer-to-peer lending has been annihilated. Who murdered P2P? Wall Street. BlackRock. Wealthy bankers. The guys I was shoulder-to-shoulder with last week in Las Vegas. At ABS Vegas 2015, billed as the largest capital markets conference in the world, the P2P/Online Lending 101 session attracted a Standing Room Only crowd.

However, this crowd was not made up of peers. These were killers.

Often called P2PL, this contemporary lending mechanism entails lending money directly between investors and borrowers, without using a traditional financial institution. Like eBay, Airbnb, Uber and other peer-to-peer services, P2PL represents an efficient take on a longtime business.

In the U.S., the leaders in P2PL have been Prosper and Lending Club. These are platforms where customers, looking for lower-interest loans than they can secure through a bank or by using their credit cards, are paired up with investors who want a solid, steady return.

At Lending Club, the larger of the two leading firms with about $4 billion in loans in 2014, a borrower with good credit history and stable income can get a loan for as little as $1,000 and as much as $35,000. Both borrower and lender pay Lending Club a fee, and the interest that the borrower pays goes to the lender.

The online architecture of P2PL platforms reduces the cost of lending dramatically from what bricks-and-mortar banks have to spend, enhancing the returns on these loans.

P2PL is a 21st-Century phenomenon. It started in 2005 in the United Kingdom, with a company called Zopa, and the next year in the US with Prosper and Lending Club. Just six years later, those two US firms had reportedly serviced 180,000 loans, for a total value of $2 billion.

Not surprisingly, those big numbers drew the attention of Wall Street. While P2PL initially attracted ordinary citizens to invest in modestly sized consumer loans to people like them, over the last few years those peer investors often have been elbowed out and replaced by Wall Street's finest.

Last summer, Blue Elephant Capital Management said it would invest more than $300 million in loans through peer-to-peer platforms. BlackRock Inc., the world's largest asset manager, has amassed $330 million of Prosper loans, which amounted to about one-sixth of the loans Prosper had made between late 2013 and early 2015, according to Bloomberg Business. These are just two among many Wall Street-style firms looking to get a piece of P2PL's above-market returns.

I was there in that expo hall at ABS last week. As I looked around, this was not a crowd of small-time peer investors. These were Wall Street bankers, lured by the attractive P2PL returns.

Why was I there? I wanted to befriend the executioners. As the P2PL sector gets overly crowded, I want these assassins to help homeowners avoid foreclosure. My firm, American Homeowner Preservation, crowdfunds the purchase of non-performing mortgages from big banks. These pools of loans are acquired at big discounts. This empowers AHP to deliver sustainable solutions to struggling families and keep them in their homes.

To date, AHP has been supported primarily by peer investors. We need larger investors to help more families stay in their homes. We need institutional capital.

We need killers.