Essien’s Ecobank charm offensive

Essien’s Ecobank charm offensive

Albert Essien has brought much-needed calm to the bank

Too quick to PIK?

Too quick to PIK?

The deals set to haunt European high yield

Thursday, April 12, 2012

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Crowdfunding: John Mack backs non-bank with board role

Former Morgan Stanley chairman John Mack is to be appointed to the board of Lending Club, a US crowdlending platform that has advanced more than $500 million in loans via its website since its inception


Crowdlending from non-banks has gained momentum globally as banks have increased interest rates or pulled back from lending to consumers and small businesses. Borrowers submit their requirements and are matched with pools of investors who are willing to accept the credit terms.

Now the sector has taken another leap forward with the announcement that one of the biggest names in US banking – John Mack, the former CEO and chairman of Morgan Stanley – is to take a role at one of the leading crowdlending platforms.

With lending supplied by a crowd rather than a bank, interest rates are lower than those offered at large retail banks or by credit cards. For lenders the platforms are viewed as investment opportunities, yielding them many times more than what bank deposit accounts offer. Lending Club offers loans in seven credit grades, with net annualized returns of between 5.84% and 12.44%.

The non-bank sector of crowdlending is yet to be considered a threat to the big consumer lending businesses of the largest global banks. The banks will, however, be under pressure as the rival sector’s popularity increases. More consumers are expected to turn to platforms such as Lending Club for loans.

Mack said of his appointment: “Lending Club has created an innovative platform that provides investors with low-cost access to high-quality consumer credit assets, and at the same time makes credit more affordable to consumers. This is a winning combination and I am truly excited to serve on the company's board.”

Joe Toms is the CIO of Prosper.com, another crowdlending platform, established in 2006, that has funded almost $325 million in personal loans. Toms says that consumers are rethinking their use of credit cards and looking for lower-cost alternatives for financing.

Prosper’s loan growth was 178% year on year in loans originated from 2010 to 2011. Toms adds that lenders are also being attracted to using platforms like his, and it is not just retail investors that are looking to lend.

“Institutional accounts like family offices, hedge funds and funds of funds are starting to see this an opportunity to make higher yields but with good transparency around credit risk,” he says.

A thumbs-up from John Mack certainly seems to support the positive future for non-traditional lenders.

See the May issue of Euromoney for a larger story on crowdlending and crowdfunding globally and its impact on traditional financiers.