How Google's Investment Into P2P Lending Will Impact The Financial Markets

May.12.13 | About: Alphabet Inc. (GOOG)

Since 2006, P2P & online lending have enjoyed explosive growth. Lending Club and Prosper, America's two largest P2P lenders have now surpassed $2B in loan origination, and P2P has captured the attention of industry legends, the financial media, the investing public and even today's technology giants.

Lending Club's board is comprised of such recognized leaders as former Visa Inc. President Hans Morris; the former U.S. Secretary of the Treasury Lawrence H. Summers; Morgan Stanley Chairman Emeritus John Mack and Kleiner Perkins Caufield & Byers general partner Mary Meeker. Prominent venture capitalist firms invested in the sector include: Draper Fisher Jurvetson, Accel Partners, Sequoia Capital, Union Square Ventures, Foundation Capital, Thomvest and Kleiner Perkins Caufield & Buyers.

But the industry reached a new pinnacle last Thursday when Google (NASDAQ:GOOG) announced it has led a $125 million deal to buy a stake in Lending Club from existing investors. This transaction values Lending Club at $1.55 billion - nearly tripling the valuation of its last fund-raising round less than a year ago.

Upon the announcement hitting the wires, @lendingclub enjoyed well over 5,000 mentions on Twitter (compared with 5-10 on a typical day), and at its peak averaged 5-7 tweets per minute.

"Google's investment into Lending Club is further evidence of the current sea change that has begun in financial services. It signals a decisive moment for the validity of P2P lending, the disruption of traditional banking as well as the convergence of finance and information technology. I look forward to hearing Lending Club's CEO, Renaud Laplanche, discuss the implications of the Google investment at next month's LendIt conference, the world's first conference dedicated exclusively to the P2P & online lending industry," stated Peter Renton, Founder of Lend Academy & author of The Lending Club Story, the definitive guide to the world's leading peer-to-peer lender.

Although momentous for the consumer credit sector, many have been wondering how P2P's triumphs relate to securities-based crowdfunding. The fact is, because P2P lending is the precursor to securities-based crowdfunding, its achievements are not only dramatically impacting the emerging crowdfunding industry, they are helping shape it. Securities-based crowdfunding or "Peer-to-Business (P2B)" is simply the next iteration of P2P. However, instead of peers providing personal loans to its peers, securities-based crowdfunding will allow peers to invest in the businesses of its fellow peers in exchange for equity or debt. By demonstrating that people are more efficient at financing each other through the use of social media than with conventional banking intermediaries, P2P has effectively validated the "crowdfinance" model for the entire industry, even compelling the financial establishment to enter the fray.

In just seven years, P2P lending has not only awakened Wall Street and secured funding from many of the same venture capitalists that had the foresight to fund some of the most disruptive industries in history, it has attracted the attention and capital from the world's most prominent Internet company. While we can all speculate on what interest a search engine would have in social finance, one cannot help but view Google's assimilation of P2P as a defining moment for the global financial markets. As the next evolution of "fintech" (the union between finance and technology) descends rapidly upon us, traditional banking methods and financing structures are about to become as obsolete as the phone booth.

Much like P2P's prominence began escalating after the SEC effected the rules for P2P lending in 2008, upon the implementation of title III of the JOBS Act, expect securities-crowdfunding to quickly garner similar enthusiasm from the Street, the venture community, and yes, even tech behemoths. As P2P continues to mark major milestones, it is paving the way for the mainstream adoption of securities-based crowdfunding. As such, P2P's achievements should be carefully observed as well as celebrated by the entire crowdfunding movement. Securities-based crowdfunding is tomorrow's P2P.

For an inside look at the incredible growth of P2P & online lending, feel free to join us for a free webinar on May 30th at 1pm EST where industry thought leader, Peter Renton, will also interpret Google's recent investments into both Lending Club as well as On Deck Capital.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.