How P2P Lending Works


It’s clearly the end of summer doldrums here in Chicago, though the tourists are still about town before the school begins, and the weather has been perfect hot summer days and warm nights. FinTech news seems a bit less frenzied. It may even appear that you haven’t missed the boat yet on the money and applications of the future. The most anticipated—and critical to understand—technologies are still either young or largely experimental.

Against this background, Bloomberg published an important article on Lending Club, the marketplace lender that ran into trouble for making dodgy loans. “How Lending Club’s biggest fanboy uncovered shady loans” is written as a cautionary tale showing that the company and perhaps the alternative loan industry, one of the more mature FinTech sectors, is in more trouble than it appears.

From my point of view, the article provides a detailed description of how person-to-person lending markets work. I got a sense of what’s right about the model as well as where it’s risks really lie. As you’ll see from the rest of this week’s links, FinTech investment in blockchain firms continue to increase even as the sector as a whole contracts slightly.

FinTech investment totaled $2.5 billion in Q2 in North America

Despite the KPMG/CB FinTech Pulse report showing a second quarter drop in FinTech investment compared to the same quarter last year, FinTech experts remain optimistic regarding opportunities in blockchain, “insurtech” and other areas, according to Crowdfund Insider, adding that insurance technology is “‘ripe for disruption’ as consumers are frustrated with existing services and technology is poised to solve many of traditional insurance challenges.” In July, financing volume declined a bit from $2.3 billion to $1.4 billion, but M&A volume made a significant jump since last year to $14.0 billion from $9.3 billion. Here’s the full breakdown from Financial Technology Partners.

The new U.S. FinTech index

In case you missed it, KBW investment and Nasdaq created the U.S. FinTech index back in July, which tracks 49 FinTech firms. I find the index notable for its breakdown of the FinTech ecosystem, as explained by the Daily FinTech:
• Established companies selling technology for banking services.
• Companies that are more digital rather than brick and mortar.
• Companies with revenues that are fee-based rather than capital-based.
The companies on the index account for about one-fifth of the investable U.S. financial sector, approximately $785 billion of the total market cap.

The opportunity to disrupt the credit card rails may finally be opening up

Yes, the U.S. transition from magnetic strip cards to EMV chip cards has been a drag, but there is hope with mobile wallets, according to Daily FinTech. The site has a brief breakdown of how the switch will affect merchants, consumers, and criminals.

Plastic payment cards are here to stay

Hold on, mobile payment enthusiasts! It appears that consumers aren’t adopting mobile payment systems as soon as anticipated, writes Arnie Cho for Banknxt. Some firms, including Canadian mobile carrier payment service Suretap, are cancelling their mobile payment service collaboration between banks.