Risk and reward are the cornerstones of any asset class.
Clarke Roberts, senior vice president of electronic trading services at LendingClub, told Karen Webster that entire loan auctions – where institutional clients buy and sell LendingClub’s bundled personal loans – need an overhaul. technological digital.
The process itself has traditionally been filled with friction. Institutional investors, committing millions of dollars of capital, examine the markets, determine whether buying loans from online platforms would be attractive investment opportunities, and create spreadsheets.
They would send these spreadsheets to LendingClub, which would pass them on to customers, facilitating the transaction.
Excel spreadsheets have been the tools of the trade, and at their most efficient, the process could take weeks or even months.
But as Roberts said, with a nod to LendingClub’s announcement this week that it has added client-to-client sales to its LCX automated loan auction platform, which has been operational since 2019:
“Now customers can interact and directly see their buying and selling interests for a variety of loans, and can close a deal with automatic settlement.” Automation takes manual labor out of the equation and reduces settlement time from weeks to days.
Positive ripple effects
This has the positive ripple effect of increasing the liquidity of this market-leading asset and secondary markets.
Streamlined Loan Auctions improve price discovery and increase the actual volume of loans issued on the platform, with more options available to end consumers taking out these loans to navigate the paycheck economy to paycheck.
“It will ultimately lead to better products and greater financial inclusion,” he said.
Indeed, PYMNTS research with LendingClub shows that the majority of Americans, even those who earn the most, live paycheck to paycheck and, in some cases, struggle to make ends meet. They are turning to other forms of credit, including personal loans, to consolidate and manage these obligations through a single point of contact.
See also: 33% of paycheck-to-paycheck consumers are less likely to use credit
By automating loan auctions and making them more direct, he said, this asset class will become more attractive to investors who may not yet have entered the space and create more dynamic competition. for these loans because there is a better understanding of risk and return.
There are also benefits that accrue to LendingClub, Roberts said. Automation means more loans can be issued on the platform without having to add additional staff to the business itself – and throughput is also improving.
“What this technology allows us to do is have fewer hard stops,” Roberts said. These forced stops were previously a feature of manual friction in the market, where changes in member demand and risk profiles can create imbalances. As he explained, a hypothetical temporary increase in demand can now be handled by digital tools that allow sellers to offload these loans and find a market clearing price without making a phone call.
The Customer-to-Customer Sales Announcement is the latest iteration of the Marketplace. It adds to recent offerings from LendingClub to augment its LCX capabilities over the past three years through the use of application programming interface (API) technology, far beyond its initial focus on secondary markets.
Read more: LendingClub’s LCX platform for getting client-to-client transactions
The next evolution
Roberts predicted LendingClub’s competitors would likely follow suit by expanding and automating their lending market capabilities.
“This is the next evolution for transmitters,” he said, “reducing their reliance on certain channels – not to replace them, but to help diversify their funding and distribution.”
He said LendingClub would look to continue adding new investors to the pipeline for new loans or loans already traded in the secondary markets. And, he said, end-consumer demand for these loans will increase as they look to manage their debt in different ways amid runaway inflation.
The global consumer credit space, he said, remains dynamic and institutional markets play a vital role in the lending industry.
As he pointed out to Webster about the client-to-client function:
“We believe this will encourage more investors – and different types of investors – to become more attracted to the market, with competition for loans and better prices.”