Weekend Reads for Global Investors: Lending Club and Other P2P Woes in Fintech Land

What is P2P? If you asked yourself that question as you read the headline, congratulations.

Congrats are in order for two reasons. The first is financial: Lending Club, the largest US P2P company, disclosed recently that it ran into some compliance issues. The company lost over half of its value in less than two weeks. If you don’t know about P2P, apparently you were not caught up in that.

The second (and more serious) reason is that you are about to find out what P2P is all about. The acronym stands for peer-to-peer lending. It is one of the major fintech trends that I touched on recently. Its basic premise is that P2P platforms will connect borrowers and lenders directly. Banks around the world make a living by taking in deposits and then loaning the money out at a higher rate of interest. The promise of P2P is that it takes out the middleman, to the benefit, theoretically, of both borrower and lender. P2P’s growth in recent years also came about because it served a market segment that traditional banking institutions had avoided for various reasons, with small size being the most prevalent.

But there are issue. In China in recent months, there have been some high-profile cases of owners of P2P platforms running off with their investors’ money.  Now the government is actively cracking down. Understandably, news that one of the oldest and arguably strongest brands in the industry ran into compliance issues so serious that management resigned is likely to slow P2P’s growth over the near term.

Longer term, this speaks to a larger issue: How do we expect the fintech industry to grow? Will it replace the traditional financial services sector as we know it or reshape it by providing better technical solutions?

This headline from The Globe and Mail is representative of much of the thinking in the traditional financial industry. P2P provides a live case study, however, in which banks, with their established risk-management processes, loan-pricing skills and client relationships, do seem to have some advantages that create barriers to entry for new participants.

There’s also support for the more friendly and collaborative path. This article in TechCrunch is particularly interesting because it comes from the tech side, a faction often perceived as being out to get the banks. In many cases, fintech complements existing institutions rather than competing against them.

There is still the issue of differences across major world markets. Falguni Desai offered some interesting perspectives on the various challenges that the fintech industry faces in Asia, which adds to the complexity of figuring out what the future holds.

These are complicated issues. We’ll continue to try to bring more clarity to the picture as the industry evolves.

In other news, the 69th CFA Institute Annual Conference was held last week in Montréal. As one of the world’s premiere forums for finance professionals, it yielded a wealth of interesting insights.

In the meantime, happy reading and enjoy the weekend.

Fintech

• “Lending Club and What It Means for Fintech” (Forbes)
• “How Will Big Banks Defend against Fintech?” (The Globe and Mail)
• “Fintech Doesn’t Just Disrupt Banks, It Makes Them Platforms” (TechCrunch)
• “How Crowdfunding Can Help Save Silicon Valley From Its Harebrained Investors” (Huffington Post)
• “Why Fintech Is Different in Asia” (Forbes)

Investing

• Safe and steady wins the race: “Risk vs Return — The Dirty Secret” (The Aleph Blog)
• “Do as I Say, Or Do as I Do?” (Meb Faber Research)
• Demographics has a huge impact on markets. It is also very predictable. It’s surprising how underappreciated it is. “Global Ageing Stats Will Blow Your Mind” (The Reformed Broker)

The Soft Side of Business

• “The 1 Quick Question That Will Instantly Make You More Productive.” Trust me. I tried it myself and it works. (Inc.)
• You can can be too smart for your own good but never too emotionally intelligent. “3 Ways to Be More Emotionally Intelligent at Work” (Time)
• “4 Fundamental Things Good Leaders Always Do — And Never Do.” This is not one of those run-of-the-mill leadership sermons. It has real insights. (Forbes)

Highlights from the 69th CFA Institute Annual Conference

• Here’s a crazy idea from Rupal J. Bhansali: If you want to perform better than everyone else, start by doing something different from them. “Think Different, But Be Right” (69th CFA Institute Annual Conference)
• “It’s very easy for many of us to feel out of control,” says Jeremy Hunter. “We live too much on gas pedal, too much on brake.” His solution? Mindfulness. (69th CFA Institute Annual Conference)
• Irish-born musician Bob Geldof filled delegates in on “The Promise of Africa” in his keynote address. (69th CFA Institute Annual Conference)
• “Paul Smith, CFA: ‘Let’s Make the World a Better Place for Investors Everywhere’” (69th CFA Institute Annual Conference)
• Keith P. Ambachtsheer, long an outspoken advocate for pension reform, shared his latest prescription for change. “A New Model for Pension Management” (69th CFA Institute Annual Conference)

And Now for Some Reading Truly for the Weekend

• If you take away one thing from reading this: “Don’t text and drive.” “Why We Don’t Crash Our Cars While Daydreaming and Driving” (Gizmodo)
• For the literary-minded among you: “The Five Stages of Writing a Novel” (Huffington Post)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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