Where Google Inc.’s money goes, good things tend to follow, including the rapt attention of industry watchers. Google is placing its money on peer-to-peer lending, potentially putting the space on the radar of a wider number of people.
The Internet giant is making an investment into San Francisco-based Lending Club to the tune of $125-million in a deal that values the fast-growing start-up at over $1.5 billion, triple what it was valued at just last year. Google executive David Lawee will join the company’s board as an observer.
Lending Club, a peer-to-peer lender, connects borrowers and lenders through its online platform, cutting out banks from the lending cycle, which facilitates lower-cost loans between the parties. Since its 2007 launch, Lending Club has facilitated more than $1.7 billion in loans. The company also boosts 23 consecutive quarters of positive returns.
While Google has been somewhat mum on the news (requests for an interview were declined), in a press release, Lawee said that Google is excited to be a part of a changing financial landscape.
“Lending Club is using the Internet to reshape the financial system and profoundly transform the way people think of credit and investment.”
But does this mean that Google is testing the P2P waters? It’s unlikely, according to Jim Bruene, founder of Online Financial Innovations, a boutique research firm focused on the future of financial and banking technology,
“I can’t imagine that P2P lending is part of any future product roadmap at Google,” he told BanklessTimes in an email.
While Bruene hasn’t seen any details on Google’s investment, he says that he assumes that it is not a strategic move, but was made as a typical late-stage venture capitalist investment to earn a decent return before Lending Club goes public in the next year or two.
“Google as an investor always adds some intrigue to the situation,” says Bruene. “In the New York Times article, there was some hints dropped that Google and Lending Club might do some interesting things together, but I don’t think anyone expects that to extend into a broad-based ‘Google bank’.”
The news seems positive for the P2P industry as a whole, and Bruene believes that Lending Club’s new financial assessment will get a lot of attention.
“The valuation of $1.6 billion certainly brings credibility to the U.S. P2P lending model.”
John Callaghan, CEO and co-founder of iCrowd, agrees.
“Google’s investment in Lending Club shines a light on the power of internet-based financial innovation and the trends developing in peer-to-peer lending and investment crowdfunding,” he says via email. “An investment from a trusted, innovative leader like Google will validate the space for many individuals.”
According to Callaghan, Lending Club is at the intersection of two important trends, disintermediation of old institutions and individuals’ financial empowerment.
“Disintermediation has been occurring in whatever areas the internet touches,” he explains, citing retailing, recruiting, tax and legal services as other examples. “Banks have been undergoing this process in loan origination (“let banks compete for your business”) for the last fifteen years. What is new about Lending Club is that it directly links borrowers with lenders, not with financial institutions.”
As for financial empowerment, Callaghan explains that since the advent of online discount brokers, individuals have been making their own decisions in matters that had been traditionally reserved for institutions. These trends are part of a bigger picture of disrupted financial relationships.
“Lending Club continues that trend, allowing individuals to choose how to lend, with higher yields for them and lower rates for borrowers,” he says. “By bypassing banks, both borrowers and lenders capitalize on internet economics and lower “middle man” spreads.”
Updated May 9 to add quotes from John Callaghan