Alternative Finances

Investors Turn Their Noses Up At Online Lending

Online lending was all the rage even a few months ago, but funding going toward online lending platforms is on the decline.

According to a new report from PitchBook Data, Inc., equity investments going toward online lending companies fell 44 percent in the first half of 2016 to $2.1 billion. That compares to $3.8 billion in the year-earlier period. What’s more, the report found investments in online lending during the second quarter were the lowest since last year’s second quarter. Investors were put off partly because of Lending Club, which is roiling from the departure of its chief executive officer.

As has been widely reported, the online lender has been buffeted by reports that improper lending practices were in place, with document falsification as well. In the wake of those revelations, the CEO of the firm, Renaud Laplanche, resigned earlier this year. In June, Lending Club appointed interim CEO Scott Sanborn to the permanent head. Sanborn’s main work has been rebuilding investor confidence after the series of explosive revelations about Lending Club’s business. The picture at Lending Club has been less than pretty since Laplanche’s exit. Shares were down 61 percent this year as of the end of June, and investor interest in the platform has plummeted. “The primary concerns center around investor appetite, transparency, fraud and diversity of capital,” the report says.

Outside of Lending Club’s internal woes, online lending companies have been suffering from declining loan volume and customers who are finding money in different places. In an effort to increase loan volume and lure customers, some of the online lending platforms have been getting more lax with their underwriting, but that is just leading to more delinquencies and loan defaults. According to PitchBook, online lending startup companies were able to raise $12.6 billion since 2011, encompassing 463 deals. The peak of the investment cycle was in 2015, when 132 companies raised a total of $5.2 billion.

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