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Fintech companies emerge triumphant, with little sympathy for LendingClub

By Anita Balakrishnah for CNBC

Some financial technology start-ups have emerged as bright spots in the industry, scoring big bucks and saving themselves from the carnage in the fintech space. Part of the strategy? They’ve aggressively distanced themselves from fallen star LendingClub and the markets affected by it. 

“Individual retail investors have in large part told us they are looking for a safer place to invest,” said Brett Crosby, founder of PeerStreet, a marketplace for investing in real estate-backed loans. “All of a sudden, the phone is ringing off the hook.”

In the month of May alone, PeerStreet added more than $11 million of new capital, the company said, and has funded $75 million in real estate loan investments since its launch in October. Based on anecdotal evidence from new customers, Crosby estimates it’s benefited from safe haven seekers looking to escape troubles at more popular financial technology companies.

 

Lending Club executives celebrate with company executives during the company’s IPO at the New York Stock Exchange, Dec. 11, 2014.

Brendan McDermid | Reuters
Lending Club executives celebrate with company executives during the company’s IPO at the New York Stock Exchange, Dec. 11, 2014.

“We effectively compete with Prosper and LendingClub on yield,” Crosby said. “But if something goes wrong, you can foreclose on the real estate.”

In May, LendingClub shares plummeted after an internal review discovered staff knowingly sold $22 million in loans in March and April that did not meet the buyer’s requirements. Since then, the CEO has resigned, and the company has been subject to regulatory scrutiny.

Negative sentiment seemed to bleed quickly into other U.S. firms in the industry. Vouch reportedly folded amid the hostile funding environment, while companies such as Avant, On Deck Capital and Prosper Marketplace reportedly battled business woes.

But Jeremy Allaire, founder and CEO of Circle, denies getting any pushback when raising funding. The company, which specializes in cross-border peer-to-peer payments, announced Thursday a $60 million strategic financing round.

Allaire was quick to dismiss the “LendingClub effect,” saying, “there are mediocre start-ups in every space.”

Circle, which looks similar to PayPal‘s Venmo but works with blockchain technology, will focus its expansion on China and Europe. LendingClub, too, has gotten the benefit of the doubt thanks to the more enthusiastic Chinese market: Chinese billionaire Chen Tianqiao recently upped his stake, seeing LendingClub’s downfall as a buying opportunity.

LendingClub did not respond to CNBC’s request for comment on this story.

China has been at the forefront of mobile payments, Allaire said, as the site of the early proliferation of services like Alibaba‘s Alipay. Indeed, Circle’s latest round of financing comes from Chinese power players such as Baidu and IDG Capital Partners.

While Allaire said he’s gotten full support from his American investors, he sees the Chinese market as an inspiration.

“[Venture capital investors] in the West are reluctant to invest in regulated industries,” Allaire said. “It is a much broader burden. There’s personal financial scrutiny, FBI background checks. You have to share proprietary information with the government. But if you want to compete in this market, you have to do that.”

first appeared at CNBC

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