This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

#DigitalSkeptic: Peer-to-Peer Lending Is Now Wall Street

NEW YORK ( TheStreet) -- Jonathan Barlow is dead certain life is going to get deadly for Wall Street's cozy credit card industry.

"The traditional banker is going to get cut out of the equation," he told me on the phone. Barlow, the CEO of New York-based Eaglewood Capital Management, has a good reason to sound confident. He just announced a watershed $53 million deal that securitizes credit card-like loans to prime investors such as family offices, funds of funds, mutual funds, foundations and commercial banks.

But instead of using traditional Wall Street-handled fixed payment assets, such as pools of credit card payments or used car loans, Eaglewood is leveraging north of $100 million in low-cost, peer-to-peer loans made on Web-lending platforms such as Prosper and -- in the case of this specific deal -- San Francisco-based Lending Club.

As Barlow sees it, peer-to-peer lending is the ideal way to bust up an out-of-date credit card business.

"The credit card industry is an oligopoly where banks like Citi (C), Chase (JPM) and Bank of America (BAC) control roughly 70% of the market," he said. These banks have never had to compete on service or underwriting. But now with true institutional, first-tier investors accessing peer-to-peer loans, that's changing.

"I believe that peer lending will disrupt the credit card market over the next decade," he said.

And based on what I'm told by other players in the emerging digital lending space who I've come to trust, Barlow has the game to make good on his credit card industry trash talk.

"Jon Barlow is a shrewd businessman," said Sam Graziano, co-founder of Fundation, a New York-based Web small-business lending platform, who is familiar with Barlow's offering. "He recognized very early that the P2P market was going to need to evolve into an institutional-quality market if it was going to thrive."

Cutting a peer-to-peer deal
The more I talked with Barlow on how his seven-person Eaglewood Capital did this $53 million deal, the more it became clear that mammoth ramifications loom as equally big investors take to peer-to-peer lending.

"We assembled our portfolio in a way that is similar to how many investors would use peer-to-peer lending like Lending Club," he said. "But we took a very sophisticated approach to our loan selection process that opens the asset class to larger investors."

Over the past year, he and his partner, Steve Lee, created an algorithm that works hand in hand with existing peer lending platforms to automatically identify loans meeting the criteria for institutional lenders. Those loans are funded by a single large pool of investments controlled by Eaglewood that so far runs north of $100 million. This pools earns return just like normal peer-to-peer loans, as lendees, who have 700-plus FICO scores and average borrower income of more than $90,000, pay off their loans in fixed payments over 36 months.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $131.32 0.80%
FB $82.09 0.69%
GOOG $554.79 -1.80%
TSLA $232.92 6.60%
YHOO $44.37 -0.34%

Markets

DOW 18,056.89 -23.25 -0.13%
S&P 500 2,112.20 -5.49 -0.26%
NASDAQ 5,062.7090 -29.3760 -0.58%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs