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TheStreet Open House

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As Barlow sees it, peer-to-peer lending is the ideal way to bust up an out-of-date credit card business.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

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