In a refreshing change, I am visiting my parent’s house in Michigan this week. The above photo was taken from their living room window, and perfectly captures the rural character of their life here, remarkable in its contrast from where I spend the rest of my year. Many people do not know this, but LendingMemo is located in the densest neighborhood west of Chicago and north of San Francisco. Our Seattle office is a shared co-working space, a beehive of activity. Long tables of the self-employed sit and type on chic laptops, occasionally standing to whiteboard their newest ideas or refill their coffee mugs.
Such a dramatic change of scenery fits hand-in-glove with the nature of the holiday. Thanksgiving, the one day out of the year dedicated to taking a step back and feeling gratitude. For this reason, it is my favorite holiday. While others seem to have sold their souls to trite commercialism, Thanksgiving remains a fickle thing to exploit. People just aren’t that interested in turkey shaped confetti. So there is nothing left to do but take our collective foot off the national gas pedal, sit at tables with those who make our lives worth living, and be glad. Inexorably, Thanksgiving is about being glad.
Seven Reasons Why Peer to Peer Lending is a Gift
In this spirit of gratitude I would like to present seven things I am thankful for in regard to this new asset class.
#1. Access to Consumer Credit as an Investment
Banks have been doing this kind of investing for decades, issuing credit cards to people by the millions. They did this because the returns on issuing lines of credit were so consistent. Even during times when the economy had slowed, issuing credit to the masses was profitable, and this same consistent rewarding investment is finally available to the average American through opening a peer to peer lending account (Read: The Fertile Fields of Consumer Credit).
Before many of us began lending, we were trapped in the anxious swings of the DOW. Now, many of us pay little or no attention to how the market has gone up or down within the day. “The DOW Jones gained/lost 70 points today,” says the TV announcer in the company break room. “How was your week?” we now ask, turning to our co-worker.
#2. Self-Direction
When my parents were growing up in the sixties and seventies, the nation was really into trusting systems. If you put your time in, the established institutions would reward you with a secure old age. Oh, how times have changed. Pensions have gone extinct, unions are weakening, and matching contributions from employers are smaller by the year. Even the retirement vessels themselves, those iron-clad broad-based mutual funds, seem less trustworthy than anytime in memory.
In contrast, peer to peer lending offers a solid return for those able to learn its ropes. While perhaps more complicated than simply sending a deposit to your nearest big box 401K, it offers a substantial reward for those who possess the ability and courage to take retirement into their own hands.
#3. Web-based Finance
The reason for this industry’s success has a lot to do with the medium upon which it’s built: technology. Logging onto a platform is a lot like getting in your car. A wide road of possibility, of safety and risk, lies before you. You can choose these loans to fund, or those loans to sell. The exchange-style nature of Lending Club and Prosper’s sites mean all of us investors are enabled to have more fine-tuned control over our accounts than ever before. I will never go back to a focus on mutual funds, where my only option was to clumsily buy or sell the entire thing.
Alongside this empowerment through technology is the yet-unknown future of where this is all headed. While some believe the glory days of lending are behind us, I think we have yet to see what companies like Lending Club are truly capable of. In a tech-transformation of investing as we know it, the blessings of our current year seem only a hint of good things yet to come.
#4. Lending Club & Prosper Marketplace
Throughout it all, we remain indebted to the hard work of these two companies. Each time we meet, I continue to search the facial expressions of these management teams for that subtle mania that comes with profiteering, but continue to come up short. These executives continue to exude joy over their work, yes – from the earnings they could make, and yes – from the limelight, but moreso from how their company is providing thousands upon thousands of people with fresh deserved access to credit at a lower rate. What a quality foundation to have within an industry that is often populated by soulless payday lenders.
#5. Great Returns
The solid consistency and social good would be enough to earn my investment, even if the returns were 3-4%. Yet, peer to peer lending offers a substantial return on investment for those willing to learn the ropes: a consistent 6-12% return is possible. In a time where savings accounts give almost nothing and the market cannot be nearly as trusted, this degree of consistent return is an incredible blessing.
#6. An Excited National Climate
The early years of peer to peer lending were marked with skepticism. Yet these days the spirit of the discussion has changed. Almost every national financial periodical worth its salt has positive things to say about it; even CBS recently revised its critical review. To boot, some of the largest financial voices in the country have joined the boards of these companies. All in all, it is an exciting time to be a peer to peer lending company.
#7. NickelSteamroller & Lend Academy
Within this ever-evolving landscape, it can be really difficult to find footing and have a conversation. This is why I continue to be thankful for Michael Philips and Peter Renton, the people behind NickelSteamroller and Lend Academy. Without Michael, the average retail investor would be at a serious loss to analyze the past performance data, or about which investing approaches to take in the future. He is basically the driving force behind 90% of the filtering nationwide. And Peter’s ability to have his finger on the pulse of the industry, to know what is coming before nearly anybody else, continues to give all of us a frame of safety upon which we can entrust our entire investment. Without the hard work of these two individuals, we would be at a tremendous loss.
Happy Thanksgiving Everybody
Despite the great returns, despite the triumph over the banking industry and our new empowerment through technology, I want to end this by remembering why we are peer to peer lending to begin with, and that is for the way it enables our relationships. All the ROI in the world means nothing if we do not possess others to share its bounty with.
Personally, I will be spending the holiday in the company of my retired parents and their friends. You can find us sitting around a fireplace, drinking a six-pack of Michigan beer. It will have been purchased by me on the drive over, courtesy of last week’s p2p returns.
[image credit: Clyde Robinson “Stop Hating the UAW”
Morisius Cosmonaut “Sunrise on the 580“CC-BY 2.0
Turkey Confetti courtesy of ChicoParty.com]
Thanks Simon, I appreciate the mention. Happy Thanksgiving to you and your family.