Lending Club $108 billion Market Opp ex Facebook: Goodbye Banks! EXCLUSIVE INTERVIEW
“Neither a borrower nor a lender be?” Perhaps for Shakespeare, but NOT for Lending Club. The more lending and borrowing the better, so hopes the newly venture funded Web-based person-to-person lending startup.
Not only is Lending Club up against Shakespearean wisdom, it is tackling the powerful U.S. consumer credit industry, a $2.4 trillion one, powered by powerful financial organizations.
Does Lending Club have a shot? The Canaan Partners and Norwest Venture Partners lead $10.26 million Series A funding says it does. Jeff Crowe of Norwest and Dan Ciporin of Canaan will be spurring along Lending Club’s multi-trillion dollar ambitions as new members of the company’s board.
I spoke with Norwest and Canaan to find out HOW they aim to help Lending Club disintermediate America’s banks! Crowe and Ciporin shared with me exclusive details on the Lending Club BUSINESS MODEL and BUSINESS PLAN that will be used going forward, ex Facebook.
Contrary to popular Facebook perception, Lending Club’s successful VC funding is NOT the simple result of a Facebook App proving itself and graduating to the real world.
Under the direction of founder and CEO Renaud Laplanche, Lending Club, in fact, has long been on a determined track to “disintermediate a $2.4 trillion industry” well before F8 was announced to the world AND with or without Facebook.
The consumer facing Lending Club Facebook App may LOOK like a cool, turnkey F8 tool, but the $10.26 million in VC Laplanche attracted is due to the (very) heavy technology and regulatory lifting Lending Club had already accomplished independendently of Facebook.
The Lending Club Facebook App can NOT be readily replicated due to the high-level software and IP assets necessary for financial transactions processing AND the stringent regulatory hurdles a loan processor must pass.
The core Lending Club value proposition is NOT that it is a social app: Lending Club is a serious Web-based financial service, that just happened to choose to initially be distributed via an online social network
Lending Club was in Facebook discussions before F8 about opportunities to tap into the Facebooker user base, same as it is in discussions with other online community Web sites.
Shakespeare warned “loan oft loses both itself and friend,” but Lending Club is leveraging friendship at Facebook with the goal of bolstering both loan quality AND affinities.
One (big) thing, though: “LEAVE THE BANKS OUT OF THE EQUATION” so warns Lending Club:
By cutting the costs associated with collecting deposits from the public on the one hand and extending loans to the public on the other hand, the Lending Club makes the lending process more efficient.
How much more efficient. Lending Club’s numbers say it “saves its members the equivalent of 6% of the loan amount” (net Lending Club fees).
Lending Club also aims to be to the lenders rescue, positioning itself as offering investors “the ability to gain higher returns than those offered by CDs and savings accounts” while “benefiting from an asset class whose performance is more predicable than stocks and is not correlated to the stock market”:
The average net return of a loan portfolio subscribed through the Lending Club is expected to be slightly above 9%.
The Lending Club target lendor is NOT the typical Facebooker. Lending Club hopes to attract self-directed online investors:
Predominantly professional males with a higher education and income levels within the top 30th percentile. They are tech-savvy, distrust brokerage firms and have an above-average risk tolerance.
The initial target Lending Club borrower is also NOT the typical Facebooker, skewing higher-income, in a deliberate effort to build up a Lending Club “track record of low defaults.”
Lending Club estimates that the 63 million U.S. households with annual incomes of between $31K and $78K hold $490 billion in credit card balances carried over; Credit card refinancing is Lending Club’s prime target addressable market.
Lending Club’s proprietary modeling has carved out a $108 billion addressable opportunity within the U.S. consumer credit industry.
The Facebook Lending Club App served as a proof of concept for Laplanche to demonstrate to the VC community that the Lending Club platform functions in the real world AND that both borrowers and lenders WILL be in the Club, despite Shakespeare.
Going forward, Lending Club will have a two-prong “affinity strategy” to grow its loan base, Crowe and Ciporin told me: 1) building out a Lending Club destination Web site and 2) licensing the platform on a private label basis to alumni associations, professional associations, professional and social networks and other affintiy groups and online communities, on a revenue sharing basis.
All Lending Club loan transactions generate fees: Borrowers are subject to an approximate 1.5 % loan origination fee and an approximate 1/2 % fee is collected from lenders. In order to generate fees, Lending Club must approve and transact loans, while still honoring its stringent credit scoring and review policy to minimize prospective defaults.
Lending Club proudly disclaims to prospective borrowers:
It’s free to check, but we have very high credit standards so we do apologize if you don’t qualify.
Diversifying beyond the Facebook large student user base is key to Lending Club’s successful realization of its business model and plan: The affinity merging of higher-income borrowers with self-directed lenders to drive $108 billion in person to person loans.
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