Ex-Pimco CEO invests in Californian P2P lending venture

Financial services veteran Mohamed El-Erian has left investment management to become the lead investor in a $12million funding round for Californian peer-to-peer lending company Payoff.

The company is aimed at Americans that need to pay off credit card debt and does so by providing lump sums that are then paid back via monthly repayments, at lower rates than credit card companies. Funds are provided by accredited investors, rather than retail lenders.

Payoff says that it will take an approach that is less aggressive, more sympathetic and based in behavioural science in order to offer a more attractive service than existing debt consolidation companies.

In an article for Bloomberg, El-Erian compared the initiative to the taxi-booking app Uber, saying: “Like Uber, this is a leverageable model that also delivers a strong sense of democratization to both sides of the transaction. It empowers protractedly overindebted borrowers to better understand and control their credit relationships.”

He added: “By reducing old-style overheads and other outmoded costs, as well as using access to broader sources of loanable funds, P2P models can pass savings on to borrowers through lower interest rates while also providing an attractive return to creditors.

And by using a broader set of data, this new group of financial intermediaries can improve on traditional credit models and better customize the provision of products to borrowers — a process that can be further enhanced with incentives to improve the paydown of debt balances and overcome debt traps.”



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