Online lending in America has had a rough month.
Three separate stories about three of the largest online lenders in the world had the same cause: investor demand for their loans has suddenly dried up.
Now these lenders face an urgent communications challenge – convincing investors that their business models are strong enough to withstand an economic slowdown.
On the 2nd May small business lender OnDeck announced a grim set of results that showed a higher-than-expected net loss and a significant slowdown in growth. When OnDeck makes a loan it does so straight off its balance sheet.
Some loans remain on the balance sheet until maturity, others are sold off to front load the incoming revenue. This helps OnDeck to continue to invest in hiring and marketing to pursue what are no doubt aggressive growth targets. The problem is that all of a sudden no one wants to buy the loans.
Just one day later it was the turn of Prosper – the second largest marketplace lender in America. Prosper announced a decline in loan volume and the cutting of more than one quarter of its workforce. In a show of solidarity CEO Aaron Vermut also announced he would not be taking a salary this year. Prosper is primarily lending to consumers and it takes no balance sheet risk. Again the slowdown is said to have been caused by a lack of demand from investors.
Both stories hit the share price of Lending Club, the largest marketplace lender in America, which was approaching the end of its pre-results quiet period. That quiet period ended with quite a noise on 9th May when Lending Club announced both a mildly disappointing set of results, but also the departure of its charismatic Founder, CEO and Chairman Renauld Laplanche. The Lending Club story is more complex, but still looks to have been driven by the need to generate investor demand for buying loans.
This article first appeared on the alternative finance news site AltFi