November 2013 was yet another eventful month for the Online Direct Lending market in the United States. LendingClub announced $3 billion in loan originations to date, and LendingClub and Prosper combined to originate over $280 million during the month.
While $280 million is still a new overall record, Prosper’s origination volume did fall to $47.7 million, from $51.3 million the month before. However, as some astute observers pointed out, including LendAcademy, that decrease is actually more attributable to the fewer number of business days this past November than to anything else.
With this in mind, let’s take a look at why business days matter, how they impact origination volume, and whether or not the day of the week has any particular effect on lending volumes.
If you look at any of either Prosper or LendingClub’s data in detail, you will notice that loans are only originated on weekdays, not including bank holidays. The graph below shows origination volume for the past 2 weeks.
It may seem surprising that a web-based lender would care about days of the week and not be able to originate new loans 24/7. After all, computers don’t need to take weekends off, and they certainly don’t observe Thanksgiving. However, we should remember that even the online P2P origination platforms rely on certain pieces of the traditional banking system, and WebBank, the Utah-chartered entity that actually makes the loan to the borrower, only does business on “banking days”.
As the number of business days can vary from month to month, a more accurate measure to gauge the growth of lending platforms may in fact be “originations per business day”. Let’s take a look at LendingClub and Prosper using this metric.
With all the discussion around business days, weekends, and holidays, one might wonder if day of week also has any association with origination volume. The below graph shows average originations by business day for the past 6 months, split by the day of the week.
As we can see, LendingClub does have somewhat higher originations towards the beginning of the week, while Prosper is relatively steady aside from a slight hump on Wednesday. It is not clear from the data whether this is purely coincidental or instead owing to the timing of marketing campaigns or any other factor.
Investors in Online Direct Lending should be enthused by the continued growth of high-quality originations. When analyzing trends both overall as well as in your own portfolio, it is useful to understand how the number of business days will affect monthly results. In addition, knowing how the weekly flow of originations differs by platform may help to target investment dollars at the right time.