The unexpected resignation of Lending Club CEO Renaud Laplanche is drawing headlines today.
Laplanche is out because of a sketchy $22 million sale of loans to a single investor that weren't the loans the investor asked for. The company says the impact of this deal is negligible, which makes sense because Lending Club is still worth around $2 billion, though its stock is trading about 26 percent below its open.
But the trouble with online lending is bigger than Lending Club. The problem is that investors aren't so sure if they buy into the hype anymore.
Big financial institutions buy bundles of the loans that lenders like Lending Club create, and Lending Club uses the capital raised from those deals to make loans to consumers. Because online lenders don't take deposits like a regular bank, they need to sell their debt or raise more funding in order to keep operating.
Last month, Bloomberg reported Citibank would stop buying loans from peer-to-peer lender Prosper, a startup that has raised more than $350 million in funding. And here's the Wall Street Journal today:
Other platforms, such as Prosper Marketplace Inc., Avant Inc., or On Deck Capital Inc. have reported either slowing investor demand for loans or a drop in lending volume this year, the result of investors’ skepticism of future returns on online loans and because they see greater opportunity in other bonds.
This article originally appeared on Recode.net.