P2P Lending and Online CD Auctions

I realize I’ve written about P2P lending in the past but when I saw in NetBanker that Lending Club was getting back into the market, after suspending operations this spring, I became intrigued.  I realize this is a new service and you can’t directly compare it to a seasoned business.  However, from the filing while they were booking new loans it appears that a substantial number were financed with the company’s own funds.  They were also keeping the loan rates lower than the market could have been, most likely to attract customers looking for a loan.  This was probably somewhat of a discouragement to attracting potential “lenders” as the returns would have been reduced.  In other words they were effecting natural market conditions.  Another interesting note was that fully half of the loans that were booked were to reduce credit card debt.  Which I feel shows where the current growth in their market truly lies.  I’m still not fully convinced that the market can handle too many of these “services” right now.  Currently the general population are hearing through the media about the stresses on the economy, whether real or not,  and consumer psychology is what drives the market.  With consumers conserving and saving funds and dealing with fuel inflation there really isn’t a lot of excess consumer funds or deman to place into a somewhat risky investment vehicle as these loans tend to be.  In other words I think the market is still last resort for people looking for a loan and their is more demand for these funds than supply.  I think these businesses are going to struggle until the consumer psychology starts to turn and the demand to invest picks up. 

So much for the asset side of the balance sheet.  Recently on the liability side MoneyAisle has come online.  In a nutshell it is LendingTree for CDs.  Customers login put in how much they are looking to place and the term of the CD then the 72 banks currently in the program bid on the money.  Except for the marketing and free press aspect I’m having a difficult time figuring out what the banks really gain from this.  Granted the dollars are small and they don’t have to bid but small banks have enough competition in their own markets and now they are competing on a national scale to attract “expensive” funds.  This is nothing more than national rate shopping.  These customers are most likely not going to add additional products from the bank that books the CD and when it matures they are going to leave.   Unless the bank is de novo, just opened their doors, or is having a difficult time attracting funds I’m struggling as to why a bank would put a lot of these CDs on the books.  For MoneyAisle to be successful they are going to need a lot of banks because each one will probably plan to only put a small amount of these expensive funds on their books.

I like the fact that people are testing the markets for new delivery channels and this is all pretty interesting.  If you don’t try something you will never know if it really works or not.  So, I do applaud all of these people for giving us the consumer more options.  The real test will be how it helps their businesses.