Big-money investors, who fueled the sector’s rapid growth, have increased anxiety in recent weeks as marketplace lending has reached a halt. An uptick in delinquent loans has contributed to a decline in the returns enjoyed by loan purchasers, as well as to the diminishing confidence in the U.S. economic outlook.
In an article published by American Banker, Harlan Peltz, co-executive chairman of iBorrow, comments on the widespread unease in the financial markets, stating, “Most people who are in this environment would agree that capital is harder to find.”
The monthly yield on loans originated by two leading consumer loan platforms, Lending Club and Prosper Marketplace, fell to its lowest level in more than four years in December 2015. Part of that decline is attributable to increased competition in the online lending industry.
As investors grow more skeptical of marketplace lending, loan platforms are reversing course and raising the interest rates they charge to borrowers, in an effort to remain competitive with other investment opportunities.
While the marketplace lending business blossomed during an era of historically low loan delinquency rates, the trend is now facing a new test.