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Allyson Berger: In the fall of
2008, borrowing money from a

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bank became almost impossible.
Markets crashed and credit

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froze. Hardworking people all
around the country who depended

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on the accessibility of credit
were left wondering if there was

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an alternative. Hi there, I'm
Allyson Berger, and in this

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episode, I'm going to tell you
about the rise and fall of peer

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to peer lending.

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When banks stopped lending
during the Great Recession,

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people looked to their peers for
help, whether that was friends

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or family, but asking for a loan
from your peers can be awkward,

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uncomfortable and oftentimes
ineffective. I mean, would your

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network of friends feel
comfortable giving you a loan

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just so you could consolidate
your existing debts at a lower

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interest rate? It sounds weird.
Well, two San Francisco based

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startups believed they had the
answer for that. What if your

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peers were simply strangers who
wanted to help other strangers

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accomplish goals just like that?
And voila, peer to peer lending

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was born.

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Sean Murray: The first two well
known peer to peer lenders in

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the United States were Prosper
Marketplace and Lending Club and

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Prosper was founded first, but
Lending Club became much larger.

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I first encountered the concept
at the very end of 2008. I was

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working in finance where a lot
of my colleagues and I saw

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firsthand how much credit had
dried up. The whole idea that

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you can lend money to other
individuals through a website,

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and that that website would take
care of all the work for you was

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really enticing. There could
also be a pretty nice return. I

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didn't get into it at that time.
But I know a few people that

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did.

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Allyson Berger: After Lending
Club and Prosper worked out the

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kinks with the Securities and
Exchange Commission, both

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companies took off. The Harvard
Business Review called peer to

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peer lending one of the top
breakthrough ideas for 2009. And

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by 2010, blogs and forums began
to sprout up on the web to

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spread the gospel of earning a
nice return by lending to your

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peers.

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Sean Murray: As far as
mainstream acceptance goes, peer

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to peer lending grew slowly at
first. I first wrote about it in

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2010. But it wasn't until 2013,
things really shifted gears. It

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went from blogs and forums to
the industry actually having a

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conference in New York City. The
called it LendIt.

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Allyson Berger: The first LendIt
took place here at Convene in

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midtown Manhattan. LendIt's
founders told deBanked that the

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place was packed, they had more
than 400 people registered and a

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line that literally ran out the
door. Although the place was

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only designed to hold 200
people, they managed to squeeze

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in 375.

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Sean Murray: So I heard about
this show and I was like, oh,

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wow, I probably should have been
there. You know what, let me

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open up an account on one of
these platforms and try it out

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for myself. So January 2014, I
opened up an investor account at

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Lending Club and put in $500. I
just wanted to learn everything

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about it. I wasn't thinking
about investing yet because I'm

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a really conservative investor.
And I feel like a lot more trust

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was needed for me to really get
comfortable, something that

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signaled that this is all for
real.

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Allyson Berger: On December 10
2014, Lending Club went public

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on the New York Stock Exchange
and was valued at $8.5 billion.

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By the end of the first day of
trading, Lending Club stock was

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up over 50%, as people saw the
company as the wave of the

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future.

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Sean Murray: 2014 was a big year
in financial technology,

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FinTech, peer to peer lending. I
went to the 2014 LendIt

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Conference. I read the Lending
Club IPO documents and I was

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like, "Yeah, I get this, I'm
totally in." Let me break it

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down for you: you really don't
need to put in that much money

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to make a go of investing on the
platform because you could

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contribute as little as $25 per
loan. So with that initial $500

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I put in, I spread it out across
20 loans at $25 each. And as

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those loans paid back, with the
money I got from it, I put that

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money back into new loans. And
honestly over time, I invested

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into a lot more loans and put a
lot more money onto the

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platform.

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Off Camera: How much did you
ultimately invest?

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Sean Murray: Honestly? A hundred
grand.

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And I put in some money with
Prosper too, but not that much.

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And my returns seemed okay, it
wasn't as much as what everyone

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else was talking about, wasn't
getting double digit returns,

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but I was okay with them. But
Lending Club, Lending Club was

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on fire. They put out $16
billion by the end of 2015. I

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mean, everyone was getting into
peer to peer lending, everyone.

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And then 2016 happened and it
was like a bomb went off. The

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CEO of Lending Club resigned in
a big scandal.

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News Report: A shake up in the
financial industry as Lending

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Club's stock drops 26% on news,
the company's CEO Renaud

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Laplanche is stepping down.

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Sean Murray: So I suppose it
could have been worse, because I

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didn't lose my investment. But I
definitely lost that trust that

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had been built up. And that was
the beginning of the end for me

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and I think for a lot of people
in general with peer to peer

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lending. The trust was shaken.

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And then of course you had all
the big banks that were sitting

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on the sidelines, like "Hey, why
are you letting all these

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average Joes hog up all the
good return?!" And Wall Street

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just jumped in from all sides.

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Allyson Berger: A few months
later, Goldman Sachs unveiled a

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rival lending product, small
personal loans for individuals.

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Their aim was to disrupt the
peer to peer lending market,

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they called their loan company
Marcus.

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Sean Murray: 2016 was basically
a wake up call for everybody.

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You had Wall Street institutions
competing against average Joes

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to invest in the same loan. And
then you had Wall Street on the

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other side, telling your
customer not to take the loan

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that you were going to invest
in. And it's like, whoa, wait a

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minute, this is like a high
stakes Wall Street game here.

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We're like a long way from peer
to peer lending. This isn't

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peers helping peers anymore. And
then there was talk about

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whether or not the platforms
were even calculating the

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percentage returns correctly and
it's like, okay, let's just take

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a step back, I don't think the
returns match the risk anymore.

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Allyson Berger: By the end of
2017, less than 10% of the money

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Lending Club was lending out to
borrowers was coming from

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individual peer investors
managing their own accounts.

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Banks had become the largest
investors on the platform. By

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the end of 2018, peers made up
less than 6%.

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Sean Murray: I saw the writing
on the wall. I literally wrote

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an article in July 2016 that
said, "peer to peer

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lending is deader than dead."
There have been other platforms

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out there... peer to peer for
business loans, peer to peer for

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real estate, peer to peer for
this, for that, but I think in

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the United States, the emotional
aspect of peers helping peers

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and the purity of what peer to
peer lending was supposed to be,

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I think that was long gone. In
February 2020, Lending Club, for

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example, announced they were
buying a bank. Peer to peer

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lending was supposed to replace
bank lending. It was supposed to

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disrupt it. And now here we are
going from peer to peer lending

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back to bank lending. It's
really kind of ironic. Peer to

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peer lending really had a good
15 year run, but at its peak, it

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was only really popular for
about three to four years.

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Allyson Berger: On October 7 of
this year, Lending Club

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announced it was ending the
retail investor aspects of its

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lending platform for good to
focus on their plans of becoming

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a bank. That will close the door
once and for all, for all peer

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to peer lending with Lending
Club and for many the era of

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peer to peer lending. So that's
all for now. Until next time,

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I'm Allyson Berger.