"That includes those over exposed to credit cards at rates of over 20 per cent. It doesn't take a financial engineer to tell you that their debt dynamics are stressful, undermining their ability to live fulfilling lives."
The company is located in Costa Mesa – not far from the Newport Beach, California headquarters of Pimco.
Mr El-Erian left the bond manager in January following reports of friction with Pimco's founder Bill Gross, who left the firm last month. He later told Reuters that he wanted to spend more time with his daughter.
He met Mr Saunders, a former investor in financial technology company Walz, through his daughter's drama class two years ago but did not become involved in Payoff until after quitting Pimco.
Unlike many P2P lenders that began operations primarily by connecting individual retail lenders with borrowers, all of Payoff's lending capability will come from accredited investors.
Read MorePimco executives: 'The firm is moving forward'
The partnership of P2P lenders with professional investors has been criticised by some who see the industry quickly moving away from its roots.
Most of Lending Club and Prosper's loans are now funded by large institutional investors such as hedge funds or wealth management offices, as opposed to individual retail investors.
Others worry that the industry also forms part of the "shadow banking" system of non-bank financial intermediaries that could pose a risk unless its growth is matched by increased regulatory oversight.
At $7bn the amount of loans originated by Prosper and Lending Club is still a fraction of the outstanding consumer bank loan universe but both companies are growing at a brisk clip.
Lending Club is poised to sell shares to the public for the first time later this year, according to people familiar with the planned listing.