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As expected, it was a rough second quarter for the nascent digital lending industry.
Second-quarter origination volume was down sharply at several digital lenders. But a couple players showed stability, and some posted larger declines than others, illuminating various business models at work. The figures also underscore the fact that a skittish investor base has been the primary source of distress for the industry, not an ethics scandal that rocked leader LendingClub Corp. in May, resulting in the CEO's resignation.
Institutional investors pulled back from the sector to start the year as concerns mounted over credit quality. Many digital lenders had posted triple-digit loan growth while touting new "big data" underwriting models not yet tested by a recession.
It was Prosper Marketplace Inc., not LendingClub, to post the largest quarter-over-quarter decline in loan volume at 54.5%. At LendingClub, originations declined by 28.9%.
Prosper essentially accepted the massive decline by sacrificing volume in favor of greater per-loan profitability, said Todd Baker, principal for Broadmoor Consulting.
"I think it's just a management choice reflecting Prosper has a little more wiggle room. Since they are not an equity reporter ... they don't have to worry about stock price," Baker said.
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