Is P2P Lending the next frontier for covesting platforms?

An interesting tweet from @giyom is at the origin of this post:

Will reintermediation happen in #P2PLending? i.e. investing in good performing lenders instead of borrowers.less than a minute ago via Tweetie


If we look at what is happening in the investment management sector, perhaps we can extrapolate a possible evolution in P2P Lending.

The development of electronic trading and discount electronic brokers such as E*Trade, have granted a better access to the stock markets. People are now able to trade most products and markets, without having to use a broker, financial advisor, or other intermediary. But trading successfully requires good financial knowledge and time, which most people may not have.

Companies such as Kaching or Covestor, allow investors to follow the investment of “managers” (other investors for Covestor or qualified investment managers for Kaching). A reputation score (performance, followers) helps investors select their managers. A “management fee” is paid to the lead investor for its services. This fee should be less than for a regular mutual fund because most costs outside of management do not apply.

This reintermediation strategy could be applied to P2P lending. For some strategies, finding the right borrower, minimizing write down risks and maximizing return requires as much time and knowledge as investing in stock markets. Following the strategy of a successful lender for a fee could be an interesting offer.

Addendum: as mentioned by Tuomas Talola in the Comments: the basis of such a website exists at http://www.ericscc.com/ where you can review the performance and portfolio of each Prosper Lender. I would be interested to know how Prosper share that information and the rational behind it.

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  • If the real performance of the manager can be tracked, then this might be viable idea. This is already available at some sites, like data for Prosper loans: http://www.ericscc.com/

    I’m not a big fan of paid investment services, because statistically these managers are not able to achieve better than average returns. But I’m not totally against these services, they could provide valuable information and encourage new lenders.

    Do you feel that lending amounts are large enough that crowding effect to some borrowers does not occur?

  • If the real performance of the manager can be tracked, then this might be viable idea. This is already available at some sites, like data for Prosper loans: http://www.ericscc.com/

    I’m not a big fan of paid investment services, because statistically these managers are not able to achieve better than average returns. But I’m not totally against these services, they could provide valuable information and encourage new lenders.

    Do you feel that lending amounts are large enough that crowding effect to some borrowers does not occur?

  • I didn’t know the http://www.ericscc.com/ website, in a sense it has the premises of what I am describing in my post. (it does not seem to have been updated recently, is it still actively maintained?). Do you know how Prosper let this information available?

    I agree with you the question of whether or not you can beat the market is a whole other subject, but at the basis, time is something valuable and paying for it could be a valid rational.

    Crowding effect… yes that may become an issue as the “most performing managers” may draw too big of a crowd to coinvest with them; perhaps they would need to set a maximum number of followers per manager; replicating the structure of a closed-end fund?

  • I didn’t know the http://www.ericscc.com/ website, in a sense it has the premises of what I am describing in my post. (it does not seem to have been updated recently, is it still actively maintained?). Do you know how Prosper let this information available?

    I agree with you the question of whether or not you can beat the market is a whole other subject, but at the basis, time is something valuable and paying for it could be a valid rational.

    Crowding effect… yes that may become an issue as the “most performing managers” may draw too big of a crowd to coinvest with them; perhaps they would need to set a maximum number of followers per manager; replicating the structure of a closed-end fund?

  • Eric’s CC is not maintained by Prosper. I don’t know the details, but it collects automatically information from Prosper lending stats. The loan information seems to be current, just the blog has not been updated.

    I’m quite sure there will emerge some kind of investment clubs liable to a charge as soon as p2p lending gets enough volume. My opinion is that lending sites should encourage and perhaps provide forum for lenders to share ideas and experiences for free. Paid investment advisors are other matter, there are good ones but there are also snakeoil salesmen. Lending sites should take a neutral view towards all who offer their investment advices for a fee.

  • Eric’s CC is not maintained by Prosper. I don’t know the details, but it collects automatically information from Prosper lending stats. The loan information seems to be current, just the blog has not been updated.

    I’m quite sure there will emerge some kind of investment clubs liable to a charge as soon as p2p lending gets enough volume. My opinion is that lending sites should encourage and perhaps provide forum for lenders to share ideas and experiences for free. Paid investment advisors are other matter, there are good ones but there are also snakeoil salesmen. Lending sites should take a neutral view towards all who offer their investment advices for a fee.

  • Eric’s CC is not maintained by Prosper. I don’t know the details, but it collects automatically information from Prosper lending stats. The loan information seems to be current, just the blog has not been updated.

    I’m quite sure there will emerge some kind of investment clubs liable to a charge as soon as p2p lending gets enough volume. My opinion is that lending sites should encourage and perhaps provide forum for lenders to share ideas and experiences for free. Paid investment advisors are other matter, there are good ones but there are also snakeoil salesmen. Lending sites should take a neutral view towards all who offer their investment advices for a fee.

  • Inevitably, the question is how fast will this emerge and who will be the first e-trade of peer lending

  • Inevitably, the question is how fast will this emerge and who will be the first e-trade of peer lending

  • Guy

    There are other “third-party” stats site like this, e.g.

    http://www.booberwatch.com
    http://www.wiseclerk.com/smava
    http://www.wiseclerk.com/auxmoney-kredite
    http://www.myc4watch.com

    and many others

    The basic question is this:

    If you are interested in p2p lending that gives you MORE control where your money goes (than a bank) why then would you let go of the control, by following someone’s else decisions??

  • Guy

    There are other “third-party” stats site like this, e.g.

    http://www.booberwatch.com
    http://www.wiseclerk.com/smava
    http://www.wiseclerk.com/auxmoney-kredite
    http://www.myc4watch.com

    and many others

    The basic question is this:

    If you are interested in p2p lending that gives you MORE control where your money goes (than a bank) why then would you let go of the control, by following someone’s else decisions??

  • I’m quite sure there will emerge some kind of investment clubs liable to a charge as soon as p2p lending gets enough volume. My opinion is that lending sites should encourage and perhaps provide forum for lenders to share ideas and experiences for free. Paid investment advisors are other matter, there are good ones but there are also snakeoil salesmen. Lending sites should take a neutral view towards all who offer their investment advices for a fee.
    +1

  • I’m quite sure there will emerge some kind of investment clubs liable to a charge as soon as p2p lending gets enough volume. My opinion is that lending sites should encourage and perhaps provide forum for lenders to share ideas and experiences for free. Paid investment advisors are other matter, there are good ones but there are also snakeoil salesmen. Lending sites should take a neutral view towards all who offer their investment advices for a fee.
    +1

  • @RobG: as who would be the dominant player in P2P lending or as who would create an additional layer proposing access across p2p lending providers?

    @Guy: thanks for these great links! I believe it is a question of size, early adopters in P2P lending will most likely follow your logic and take total control of their investments. With the growth of P2P lending and it becoming more of an asset class for investors, we can expect intermediation to reapply at some level. What is key is that P2P lending core nature will remain a person to person relationship, you can still choose to use intermediaries or not (which is not the case with your bank)

  • @RobG: as who would be the dominant player in P2P lending or as who would create an additional layer proposing access across p2p lending providers?

    @Guy: thanks for these great links! I believe it is a question of size, early adopters in P2P lending will most likely follow your logic and take total control of their investments. With the growth of P2P lending and it becoming more of an asset class for investors, we can expect intermediation to reapply at some level. What is key is that P2P lending core nature will remain a person to person relationship, you can still choose to use intermediaries or not (which is not the case with your bank)

  • I’m quite sure this is happening already, but it’s happening for free. I run a LendingClub.com investment club (via email) of around a dozen people. I’m hesitant to say the readers (mostly fellow finance bloggers) invest in every note that gets a mention, but I’d venture to say the majority of us invest in the same notes. Reputation, or making 15% NAR with no defaults after one year, certainly helped draw in new readers.