RIP The Retail Investor in Marketplace Lending?September 30, 2016 | By: Sean Murray
Now that credible sources are finally conceding that the pure marketplace lending model is dead, Prosper announced in an email on Thursday that they are shutting down their secondary market for retail investors.
“We are writing to let you know that as of October 27, 2016, Prosper will no longer offer the Folio Investing Note Trader platform, the secondary market for Prosper Notes. Prosper has found over time that very few investors are using the secondary market and, as such, has made the decision to no longer offer this service. We apologize for any inconvenience that this causes. Prosper remains committed to its retail investor clients and to providing them a great experience.”
An official statement sent by Prosper CEO Aaron Vermut to LendAcademy’s Peter Renton said that the move in no way changes their commitment to the retail investor. But some vocal retail investors did not appear convinced, according to a forum thread on the subject. The few reddit comments posted about this announcement also showed concern.
In July, I joked that marketplace lending would become Goldman Sachs lending, a marketplace for Wall Street by Wall Street. Coincidentally, representatives from Goldman Sachs actually spoke during two presentations at the Marketplace Lending and Investing conference that took place earlier this week in NYC. During one, Goldman Sachs Bank USA CEO Stephen Scherr, laid out the company’s plan to compete against marketplace lenders by relying on their own balance sheet, something they see as an advantage.
In the meantime, Prosper’s elimination of its secondary market means that retail note buyers will need to hold the notes to maturity, making them totally illiquid. While investors may not have been using the market very much historically, permanently dismantling the escape hatch isn’t likely to inspire confidence.
Coincidentally, Lending Club sent out their own email hours after Prosper’s, assuring retail investors that they were committed to providing them with a great investment experience. “We’re proud that we have the largest retail investor base of any company in the marketplace lending industry and are committed to expanding our offering so more retail investors can access Lending Club products,” wrote Patrick Dunne, Lending Club’s Chief Capital Officer. “We have ambitious long term goals. We aspire to allow every type of investor – individual retail and institutional investors – to participate in what we believe is a compelling product that can offer solid risk-adjusted returns.”
it remains to be seen what exactly will happen next for these companies and the industry.Last modified: September 30, 2016
Sean Murray is the founder of deBanked, a 10-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.