What has LendingClub exposed and what should other P2P companies do now?
It's been hard to avoid the news over the past couple of weeks regarding LendingClub's difficulties.
To briefly recap, its founder resigned following revelations regarding a violation of the company's lending and business practices. The share price, hitherto high, tanked in the wake of the news. Following a further blow – with the US Department of Justice launching a probe into the firm’s business practices, the share price shows little sign of quick recovery.
LendingClub isn't the only peer to peer (P2P) or marketplace lender out there, but it is a figurehead. Well known, long-established (it began in 2006) and sizeable (it has lent close to $20 billion).
Nor are its problems the first bump in the road for P2P – commentators, financiers and most prominently, former regulators, have voiced concerns, while the reality of who utilises the marketplace has also been investigated.
So if LendingClub isn’t the first issue to confront the industry, why do its problems matter so much – and why has it received so much attention for them?
It's back to that combination of size and awareness. If one of the biggest names in P2P is in trouble, the effect is magnified, meaning more people question more seriously the viability of the sector as a whole.
Fair? Probably not. Difficult? Absolutely. One of the hardest things to accept about corporate reputation is the collateral damage you sometimes receive from the problems of others. It's a fair bet many P2P lendersare cursing this reality right now.
But what does this actually mean for other P2P businesses? LendingClub's problems should pass, or at least fade from public discourse. But that doesn't mean they won't have created a lasting impression.
The P2P category is growing up, being taken seriously, and attracting attention. UK firms have generally been more prudent in working closely with regulators as the industry evolves, but when it comes to financial services, it remains an unforgiving world in terms of governance, accountability, public glare and regulation.
So if you're a similarly established lender, it's probably time to check your story is straight, your company controls are robust and they’re clearly and regularly displayed somewhere your investors, customers and regulators can see them.
If you're new(ish) in this field, then grow up quickly – in your approach, your governance and your ability to enforce the impression of these issues through communications.
And if you're thinking about entering P2P, either from scratch or as an offshoot of your existing business, then understand that the landscape is now changing. The industry is growing up fast and is facing its first concerted reputational set of issues.
Make sure your communications are growing up too.