by Hans Eisenbeis
In the social lending space, Prosper and Lending Club both induced yawns — and then small fits of terror — with rollouts that allow financial institutions to get into the act, offering their own loan products on their social networks, and allowing deeper secondary sales of notes. In other words, securitizing debt if not exactly dividing it into tranches. Prosper had some wind at their backs for the conference, because they were released from the SEC’s quiet period just in time for CEO and founder Chris Larsen to take the stage and try to explain why securitizing private P2P debt is precisely what the securitizing problem needs. As far as regular consumers are concerned, these new ambitions strike me as tone-deaf. To most Joes, packaging and reselling debt is the first step on a long slippery slope of avarice and ruin. Several other companies were also working in the factoring space — allowing companies to buy and sell their accounts receivable, which seems to me a similarly desperate business strategy to “create liquidity” where there probably shouldn’t be liquidity.
I was much more interested in the innovations of two other companies that were new to me: Pertuity (awful name) and People Capital (a little less awful). Pertuity offers social lending but it aggregates borrowers and lenders and acts more like a mutual fund, thereby spreading (and limiting) the risk across the entire community of borrowers. People Capital focuses on P2P loans to college kids, and to that end they’ve developed a new credit score for scholars who don’t have enough credit history to have accurate FICO scores. A good idea solving a real problem — always a winner in my book.