With crypto lending becoming more popular in alternative lending, traditional online lenders could struggle for market share
The cryptocurrency market has been one of the most disruptive technological innovations of the last two decades. Nearly every industry now has a crypto version of itself, with the financial services sector featuring the most.
Therefore, it is no surprise that despite its evolution over the last few decades, the credit market could be about to take another leap into the future of lending. Alternative lending platforms like LendingClub Corp. (LC, Financial) and Upstart Holdings Inc. (UPST, Financial) have been marketed as some of the most cutting-edge innovations.
However, with the crypto disruption gaining traction in several segments of the financial sector, alternative lending solutions could witness a significant decline in traffic as investors and borrowers shift toward what is currently trendy.
LendingClub’s customer pool is composed of people that adapt to new industry trends easily. Therefore, for the same reasons, the company could lose traffic if something more innovative comes about.
One of the most promising peer-to-peer crypto lending platforms is Nexo, which allows investors to use their crypto assets as collateral to borrow. Although some investors have doubts about borrowing and holding their assets in crypto, some could be wooed by the possibility of using stablecoins, which basically are tokens tethered to specified fiat currencies like the U.S. dollar.
Alternative lending platforms like Upstart pay IRA investors an annual interest of about 7%, while peer-to-peer crypto investors can earn higher returns. In some assets, the return is as high as 20%. One of Nexo’s latest additions to the list of assets is Terra (LUNA), a blockchain protocol that uses fiat stablecoins. This means that borrowers can use LUNA tokens as collateral to borrow from fellow crypto lenders.
The listing also allows investors to buy LUNA on the platform earning an interest rate of 8% payable daily to their Nexo wallets whilst also qualifying to borrow at about 0% APR against their LUNA holdings.
Furthermore, the ease of investing and borrowing could also be a significant attraction to modern-age investors.
Could alternative lenders regain market share?
While LendingClub started as a pure peer-to-peer lending platform, it has evolved over the years, gravitating toward traditional banking. The company bought Radius Bank earlier this year, becoming LendingClub Bank, thus completely bringing a new range of services to its customers.
In doing so, it also opened itself up to additional competition from other online banks.
The stock rallied more than 300% following the announcement through Nov. 1, before pulling back by more than 43% to a net year-to-date gain of about 186%.
Analysts expect its earnings per share to decline by 583% this year before spiking by more than 1,100% next year. As a result, shares trade at an attractive forward price-earnings ratio of 17.78, making the stock a compelling option for value investors.
In summary, alternative lenders appear to be shifting away from peer-to-peer lending in favor of traditional banking. This leaves a large pool of investors and borrowers for emerging crypto lending platforms to capitalize on.
Therefore, LendingClub’s new lease on life, the purchase of Radius Bank, could turn out to be a great foresight given the way the modern consumer is shifting toward more revolutionary lending platforms.
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Written by Nicholas Kitonyi, Founder of CAGR Value.
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