Former PIMCO CEO Mohamed El-Erian is the lead investor in a $12 million funding round for P2P lender Payoff, becoming the latest big name from the traditional financial-services world to jump on the P2P bandwagon, Finextra reported on Wednesday (Oct. 22).
While Los Angeles-based Payoff calls itself a a peer-to-peer marketplace, the company lends money with funding from accredited investors — typically with a net worth of at least $1 million — instead of matching up borrowers with retail lenders.
Payoff also says it uses psychometric testing in its lending decisions, along with other behavioral science techniques to motivate repayment. Its Chief Science Officer is Galen Buckwalter, one of the scientists who built the dating site eHarmony’s matching engine.
In a column for Bloomberg View on Wednesday, El-Erian disclosed the Payoff investment and wrote, “By reducing old-style overheads and other outmoded costs, as well as using access to broader sources of loanable funds, P2P models can pass savings on to borrowers through lower interest rates while also providing an attractive return to creditors. And by using a broader set of data, this new group of financial intermediaries can improve on traditional credit models and better customize the provision of products to borrowers.”
Along with El-Erian, other traditional financial types moving into P2P lending include Stephan Vermut, founder of Merlin Securities, who is now CEO of Prosper, and Morgan Stanley CEO John Mack and former Treasury Secretary Larry Summers, who now sit on Lending Club’s board.