The Problem with Comparing Yourself to Other P2P Investors

Most Lending Club investors have seen this little compare link on their Account Summary screen. You can see it right underneath your Net Annualized Return (NAR) when you login. Of course, you have most likely clicked on it and seen how you “compare.”

Comparing ourselves with others is a pretty common albeit unnecessary human behavior. Take a look at the two graphics below from the Lending Club “Compare Your Investment” screen. There is no doubt where you would like to be. These are the investor percentiles for two of my Lending Club accounts.

Lending Club P2P Investor percentiles
Lending Club p2p investor percentiles 2

The one on the left is for my wife’s Lending Club PRIME account. This account is sixteen months old with several defaults and an average loan age of around eleven months. The one on the right is for my new Roth IRA that I just opened in April. It has an average loan age of less than three months with no defaults.

The One Key Missing Element

These investor percentiles compare your account with everyone else’s account at Lending Club. But it misses one key element: the age of your loans. When an account is new at Lending Club it is literally impossible to have a default (assuming you are not investing via the trading platform). This is because it takes 120 days of non-payment before a borrower is considered in default. So, you will always be in a higher percentile than most other investors with the same number of loans because you will have a perfect default record.

I have nothing against the compare feature in theory. I just would like it to be a bit more sophisticated that is all. If they could include the age of the loans in your account in the comparison tool then it could provide useful information. Come to think of  this feature should also include your average interest rate so it can take into account the grade of loans you invest in. Then it would provide more meaningful information. If you invest in A and B grade loans do you really want to compare yourself with people who only invest in E, F and G loans? Probably not. But if you can see that your performance is under par for investors just like you that would be quite useful.

What I would also like to see is some suggestions as to why your NAR is doing worse than other investors. Now, I know with all the SEC regulations that Lending Club is not allowed to be dispensing investment advice. So that is probably not going to happen any time soon. But at least I hope at some point they add some additional information to the compare feature.

  • Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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