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Peer-to-peer lending transforms U.S. banking system

Xinhua, April 15, 2015 Adjust font size:

U.S. online marketplace lender Lending Club and the country's No.3 bank by assets, Citigroup, launched a partnership on Tuesday to facilitate up to 150 million U.S. dollars in loans, a significant step for the world's biggest peer-to-peer (P2P) lender to transform the banking system.

The San Francisco-based company, which went public in December 2014, has provided an online platform to connect borrowers and investors directly, with lower borrowing rates and better returns than traditional banks.

Such platforms led by Lending Club and Prosper have surged in the U.S. in recent years. According to accounting firm PriceWaterhouseCoopers, the total volume of loans made through P2P lenders has climbed an average of 84 percent quarterly since 2007. Lending Club said in the annual report that it originated loans of 4.4 billion U.S. dollars last year, which takes up about 0.1 percent of the U.S. total consumer debt market, currently at 3.3 trillion U.S. dollars.

The popularity of online lenders is mainly attributed to the advantages they have compared to traditional banking system.

"We are able to lower considerably the cost of operations of banking, because we have no branch network and we use technology to automate a number of processes that are manual at banks and that enables us to lower the cost of credit for consumers and make more financing available for small business owners," said Renaud Laplanche, founder and chief executive of Lending Club.

In a research report earlier this month, Goldman Sachs said seven percent of the U.S. bank industry's annual profit could be at risk from non-bank disintermediation like P2P lenders over the next five years.

The emerging players have forced the conventional banks to change themselves to keep up with the competition. Several regional lenders including Union Bank of California and BancAlliance, a national consortium of 200 community banks, have signed partnerships with Lending Club, offering personal loans to their customers via the Lending Club platform. Citigroup is the first large-scale bank that announced partnership with a P2P lender. "I think it is very important for us to continue to partner with banks," Laplanche said. "We believe we are going to transform the banking system. The banks can participate the transformation and benefit from the transformation." Endite