As U.S. regulators warn of the growing risk of lending by technology companies, a new research paper suggested that the online platform LendingClub (LC) - Get LendingClub Corp Report is no worse at making new loans than the biggest banks.
The study, published Tuesday on the website of the Federal Reserve Bank of Philadelphia, showed that LendingClub's bad-loan ratio is similar to that of big banks, and with a similar level of efficiency.
"As of 2016, LendingClub's unsecured consumer lending exhibited inherent credit risk and lending efficiency that resembled the risk and efficiency of the largest traditional lenders," the researchers wrote. They included Joseph Hughes, an economics professor at Rutgers University, along with Julapa Jagtiani of the Philadelphia Fed and Choon-Geol Moon of Hanyang University.
San Francisco-based LendingClub's stock price has fallen 11% in the past year, more than twice the decline at the two largest U.S. banks, JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. (JPM) Report and Bank of America (BAC) - Get Bank of America Corp Report .
Randal Quarles, the Federal Reserve's vice chairman for supervision, warned in a speech last week that the financial industry faces disruption from the growing push by technology companies into lending, asset management, payments and insurance - broadly grouped under the label of "fintech."
And last month, Apple (AAPL) - Get Apple Inc. (AAPL) Report , the iPhone maker, announced plans to offer a new credit card, though that effort is backed by the giant Wall Street firm Goldman Sachs Group (GS) - Get Goldman Sachs Group, Inc. (GS) Report , which is licensed as a bank.
"Technological innovation offers the promise of a substantially more efficient financial system, but new systems, processes, and types of businesses will bring with them novel fragilities," Quarles said.
According to LendingClub's most recent annual report, though, technology works to the lender's advantage.
"We combine advanced credit decisioning techniques with a rich proprietary data set to assess risk, detect fraud, determine a credit rating and quickly assign an appropriate interest rate," according to the annual report.
In the new study, the researchers found that LendingClub appears to have developed technology since 2013 that allows it to surpass similar-size lenders in loan-underwriting quality, putting it on a footing with the largest banks, which can afford to spend more on computers and software.
"Such advanced technology might be less accessible for smaller traditional lenders," the authors wrote.
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