Or, more likely, just drive down bank profit margins.
I think it does beat a C.D. from a risk/return perspective. It's probably higher risk than a C.D. but returns largely compensate for it I believe.
To me this is possible because the Lending Club is desintermediating a business that was traditionnally 'high margin'.
Net it all out and hopefully we get a Darwinian marketplace for lenders, lenders who don't need acres of employees preparing powerpoints for each other in class A office space.
Of course, the true measure of estimating risk is hidden until a crisis occurs. Interesting to see where it all ends up.
Arguably, they demonstrated that you can accept a lot of risk and then if things go wrong the Fed will bail you and your creditors out. Not _quite_ the same thing as simply underestimating risk.
If you compare them to other assets with a similar risk profile and payment structure, such as short dated treasury notes and annuities, you will find that the rates are at least competitive.
Disclaimer: My response has a US bias.
However, I am skeptical (prove me wrong) of the statement in the article - "Lenders get a return on their investment that is typically much better than traditional Certificate of Deposit or Saving Accounts". In finance terms, I will be surprised if they have a higher RAROC [1] as compared to large banks. If they really do, then congratulations (you will put banks out of business in a few years)??
[1] https://en.wikipedia.org/wiki/Risk-adjusted_return_on_capita...