Ex-Pimco boss El-Erian invests in P2P lender Payoff

Ex-Pimco boss El-Erian invests in P2P lender Payoff

Former Pimco chief executive Mohamed El-Erian has become the latest big name from the world of traditional financial services to take an interest in P2P lending, making an investment in US outfit Payoff.

In a deal first reported by the FT, El-Erian - who left investment management giant Pimco in January - is the lead investor in a $12 million round for Payoff.

California-based Payoff is pitching itself to Americans struggling to pay off their credit cards, offering lump sums that are then recovered through monthly payments that, the firm says, come with considerably better rates. Scott Saunders says that he founded the company to "restore humanity and bring a little levity to financial services".

Although styling itself as a peer-to-peer marketplace, the firm does not connect retail lenders with borrowers. Instead - as is increasingly the case throughout the P2P market - funds come from professional, accredited investors.

The firm is hoping to gain an edge on rivals through behavioural science, enlisting Galen Buckwalter, one of the scientists who built the dating site eHarmony's matching engine, to help bring psychometric testing to its lending decisions.

In an article for Bloomberg, El-Erian compares the Payoff model to Uber, which he says is creating a P2P platform "that is dismantling barriers to entry in a comprehensive way".

Writes El-Erian: "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."

El-Erian is not the first traditional Wall Street-type to see promise in the P2P market. Last year Prosper lured Stephan Vermut, founder of Merlin Securities, as CEO while Lending Club - set to raise $500 in an IPO - counts former Morgan Stanley CEO John Mack and ex-US Secretary of the Treasury Larry Summers as directors.

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