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A P2P marketplace for online lending
Founded in 2013, Circle Back Lending was launched as an online personal loans marketplace connecting potential borrowers with lenders who could lend them any amount ranging from $1000 payday loans to $35,000 Personal Loans for longer-term reasons (ranging from 36 to 60 months). The APR (Annual Percentage Rate) offered on these loans ranged from 6.63 to 35.82 % (credit cards have an APR between 17-24 %). Circle Back promised a quick inquiry process and a private and secure system that would send cash directly to your account after contact with and approval by a verified and registered lender.
The company saw some success initially and entered into a partnership with Jefferies Group LLC that was to help with the sale and securitization of $500 million in principal amount of consumer loans. The stated goal of this partnership with an established financial services firm was to provide loans to a much wider segment of the US population, which needed a responsible alternative to traditional bank loans and credit cards.
3 years down the line, the company was exposed in an article by Bloomberg that it had stopped giving out loans. This was mainly a result of borrowers failing to pay their loans.
For starters, in 2014, the company had generated a minuscule $4m in total loans (a year into its founding), but that didn’t stop Jefferies Group LLC from agreeing to securitize up to $500m of its loans. This is nothing new in the fin-tech world as shown by the $5 billion dollar deal that was inked in 2017 by industry leader Prosper (founded in 2005). Prosper Inc., which had been one of the pioneers of the P2P Online lending industry, was one of the earliest to turn to Wall Street to securitize its loans by repackaging them as bonds through the likes of Citigroup and others.
Then there has been a problem with the sudden firing of CEO s and top staff that was a regular occurrence at both Prosper, and Lending Club (another pioneer in the P2P lending business). The unexpected departure of Lending Club’s founding CEO put the entire industry in a tailspin as funding dried up.
Despite this, there seem to be much bigger and more fundamental problems that the entire P2P lending industry is ignoring.
1. With the advent of online banking, and the P2P companies relying on their own credit rating (like FICO), the line between banks and P2P lending has become blurred, and they are constantly diverging from the reason that this industry was founded (providing loans to those seen outside the scope of banks).
2. A far bigger problem that exists is the staggering rate at which P2P companies fail at returning capital to investors. A closer look into the P2P lending industry in China reveals some crucial data. The P2P industry fulfilled a growing need in the country, where bank loans were much harder to get by. But by the end of 2015, there were 1,031 total troubled platforms out of 3,448 platforms still in operation, with most of the problems being people that absconded with the cash. Despite much-needed regulation of the industry starting in 2018, the total number of platforms that went bust as of February 2019 were over 5000, with 177 million RMB ($25 million) in unpaid loans.
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