Another P2P Student Lender

TechCrunch has an article about a new p2p student lending site called GreenNote. In addition to facing many of the same challenges that await Fynanz, GreenNote will have additional obstacles to overcome in order to attract investors. Perhaps the biggest challenge is that the interest rate is not set by lender bidding and is fixed across all loans (currently 6.8%, the rate of a Federal Unsubsidized Stafford Loan). Not only will GreenNote have a hard time competing with Fynanz in terms of the potential returns for investors, but Fynanz also provides some protection against defaults by guaranteeing at least 50% of the principal on defaulted loans. GreenNote provides no such guarantee.

Given that they do offer a very good interest rate for students, they will surely have no problems attracting borrowers. However, I think GreenNote has a long road ahead if they intend to attract enough investors in order to meet the demand. Unless they can eventually insure part of the loan principal as Fynanz does or provide a secondary market for liquidity, I have serious doubts as to whether they will be able to compete with Fynanz and survive the long road to profitability.

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