Fitch, the ratings agency, provides an opinion on the upcoming Lending Club IPO and the impact that it will have on the P2P market. Fitch believes the P2P industry overall will benefit from a successful Lending Club IPO, although broader business execution risks remain.
Lending Club, Prosper Marketplace, Funding Circle, Zopa and % RateSetter are among a large number of firms that have emerged across the globe that are competing in the P2P space, yet, Lending Club is the first P2P lender to pursue an IPO in the U.S. If achieved, a $500 million equity raise would roughly triple the $168 million in preferred equity thus far raised by the startup firm since its founding in 2007. In an August 2014 special report, Fitch outlined several major challenges for the P2P space, including loan credit performance, the regulatory landscape and eventually, maintaining demand in a rising interest rate environment, to name several. We also believe that any P2P firm's concentrations in loan purpose, such as credit card consolidation, would tend to limit the P2P firm's ability to achieve higher ratings, given the credit- and interest rate-sensitive nature of this product use. Lending Club's S-1 filing provides a peak at loan credit performance by displaying two of the company's net cumulative chargeoff rate curves for three- and five-year loans, by vintage year, going back to 2008. Based on these curves, we see mixed, but overall improving performance in net chargeoffs since inception, which Fitch attributes to improvements in underwriting and a benign credit environment. Fitch believes that over time, P2P investors will gain a better understanding of the variability of these curves through market cycles, as well as other risk reward measures.