Mohamed El-Erian, the former chief executive of investment management giant Pimco, is making a foray into the peer-to-peer (P2P) lending business by investing in US outfit Payoff.
El-Erian has departed from Pimco in January and now is the lead investor in a $12m round for California-based Payoff.
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Payoff aims to help Americans struggling with their credit card payments, by providing lump sums which are recovered through monthly payments that according to the firm, comes with relatively better rates.
However, the firm does not connect retail lenders with borrowers, but rather funds come from professional, accredited investors.
El-Erian said: "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."
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