Practical analysis for investment professionals
19 May 2016

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

Posted In: Weekend Reads

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.



The Soft Side of Business

Highlights from the 69th CFA Institute Annual Conference

And Now for Some Reading Truly for the Weekend

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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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About the Author(s)
Larry Cao, CFA

Larry Cao, CFA, senior director of industry research, CFA Institute, conducts original research with a focus on the investment industry trends and investment expertise. His current research interests include multi-asset strategies and FinTech (including AI, big data, and blockchain). He has led the development of such popular publications as FinTech 2017: China, Asia and Beyond, FinTech 2018: The Asia Pacific Edition, Multi-Asset Strategies: The Future of Investment Management and AI Pioneers in Investment management. He is also a frequent speaker at industry conferences on these topics. During his time in Boston pursuing graduate studies at Harvard and as a visiting scholar at MIT, he also co-authored a research paper with Nobel laureate Franco Modigliani that was published in the Journal of Economic Literature by American Economic Association. Larry has more than 20 years of experience in the investment industry. Prior to joining CFA Institute, Larry worked at HSBC as senior manager for the Asia Pacific region. He started his career at the People’s Bank of China as a USD fixed-income portfolio manager. He also worked for US asset managers Munder Capital Management, managing US and international equity portfolios, and Morningstar/Ibbotson Associates, managing multi-asset investment programs for a global financial institution clientele. Larry has been interviewed by a wide range of business media, such as Bloomberg, CNN, the Financial Times, South China Morning Post and the Wall Street Journal.

2 thoughts on “Weekend Reads for Global Investors: Lending Club and Other P2P Woes in Fintech Land”

  1. David Merkel says:

    Please spell my blog name right. Thanks for featuring me.

    1. Paul McCaffrey says:

      Terribly sorry for the mistake. Thanks for pointing it out. It’s now fixed.

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