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LendingClub

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Lending Club Corporation
Company typePrivate
IndustryPersonal finance, Software
Founded2006
HeadquartersSan Francisco, California[1]
Key people
Renaud Laplanche,[2] CEO; Carrie Dolan, CFO; Scott Sanborn, COO; John J. Mack, Director,[3] Mary Meeker,[4]Soul Htite[5]
ProductsPeer-to-peer lending
Revenue98 million USD[6] (fiscal year ended December 31, 2013)
Number of employees
379[7]
Websitelendingclub.com

Lending Club is a US peer-to-peer lending company, headquartered in San Francisco, California. It was the first peer-to-peer lender to register its offerings as securities with the Securities and Exchange Commission (SEC), and to offer loan trading on a secondary market. Lending Club operates an online lending platform that enables borrowers to obtain a loan, and investors to purchase notes backed by payments made on loans. Lending Club is the world's largest peer-to-peer lending platform.[8] As of March 2014, the platform has originated over 4 billion USD in loans.[9]

History

Early history

Lending Club was initially launched on Facebook as one of Facebook's first applications.[2][10] After receiving $10.26 million in a Series A funding round in August 2007, from venture capital investors Norwest Venture Partners and Canaan Partners, Lending Club was developed into a full-scale peer-to-peer lending company.[2][11]

On April 8, 2008, Lending Club temporarily suspended new lender registration, canceled its affiliate program and entered a "quiet period" while it awaited approval to issue promissory notes to lenders.[12] On June 20, 2008, Lending Club filed an S-1 statement[13] with the U.S. Securities and Exchange Commission (SEC) seeking the registration of $600 million in "Member Payment Dependent Notes" to be issued on its Web site.[14] On August 1, 2008, Lending Club filed an amendment to its Form S-1[15] outlining new interest rate formulas as well as more details on a "resale trading system".[16] On October 14, 2008, Lending Club announced its completion of the SEC registration process, posted the filed prospectus on its website, and resumed new lender registration. Notes issued on or after October 14, 2008 represent Lending Club securities rather than direct obligations of the ultimate borrower and are tradable (can be bought and sold) on the Foliofn trading platform.[17] In March 2009, Lending Club raised $12 million in a Series B funding round led by Morgenthaler Ventures.[18]

2010s

In April 2010, the company raised $24.5 million in a Series C funding led by Foundation Capital and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.[19] In August 2011, Lending Club raised an additional $25 million in venture capital from Union Square Ventures and Thomvest, owned by the Thomson family of Thomson-Reuters.[1][20] This led to Lending Club earning a $275 million post-money valuation and an increase of $80 million in valuation from the preceding year.[21] Thomson-Reuters founder Peter J. Thomson also invested an unspecified amount of his personal fortune into Lending Club.[22]

In fall 2011, Lending Club's headquarters moved to downtown San Francisco; its earlier offices were located in Sunnyvale and Redwood City.[1] Co-founder Soul Htite moved to China to start Dianrong.com, a peer-to-peer lending company based in Shanghai. In 2012, the company employed about 80 people, with Renaud Laplanche continuing as the company CEO and chairman of the Board of Directors.[1][23][24] The company averaged about $1.5 million in loan originations daily, with a total of $600 million since its founding.[9]

In April 2012, Lending Club's SEC registration from 2008 was renewed for $1 billion USD in Member Payment Dependent Notes and became effective on April 10, 2012.[25] In June 2012, the company received $15 million in new funding from Kleiner Perkins Caufield & Byers and $2.5 million of personal investments from John J. Mack. Kleiner Perkins partner Mary Meeker joined Mack on Lending Club's board of directors.[4] This led to a $570 million valuation of the company.[26] In November 2012, Lending Club surpassed $1 billion in loans issued since inception and announced they were now cash flow positive.[27]

As of March 15, 2013, Lending Club had facilitated more than 100,000 loans, for a total of $1.5 billion.[28] In May 2013 Google purchased a stake in Lending Club, leading to a valuation of $1.55 billion, which was nearly three times as much as the company was valued in June 2012.[26] The investment by Google was part of a $125 million secondary round.[29][30] As of this time Lending Club was responsible for facilitating more than $1.9 billion loans in total.[26]

Lending Club also began partnering with smaller banks in order to help streamline their small loans operations. In June 2013 the company partnered with Titan Bank in Texas and Congressional Bank in Maryland in order to help them facilitate loans that would have been otherwise unprofitable for them.[31] Laplanche has stated that Lending Club plans on unveiling a small business loans platform in early 2014, after it surpassed over $2 billion in loans in June 2013.[32] The company is preparing to be IPO-ready in 2014.[33][34]

Stevenson Place, San Francisco, the location of Lending Club headquarters

Business model

Overview

Lending Club enables borrowers to create loan listings on its website by supplying details about themselves and the loans that they would like to request. All loans are unsecured personal loans and can be between $1,000 - $35,000. On the basis of the borrower’s credit score, credit history, desired loan amount and the borrower’s debt-to-income ratio, Lending Club determines whether the borrower is credit worthy and assigns to its approved loans a credit grade that determines payable interest rate and fees. The standard loan period is three years; a five-year period is available at a higher interest rate and additional fees. The loans can be repaid at any time without penalty.

Only investors in 26 US states are eligible to purchase notes on the Lending Club Platform.[35] However, eligibility differs when purchasing notes on the secondary market, FolioFN. Borrowers from all but 5 US states are eligible to apply for a loan.[36]

Investors can search and browse the loan listings on Lending Club website and select loans that they want to invest in based on the information supplied about the borrower, amount of loan, loan grade, and loan purpose. The loans can only be chosen at the interest rates assigned by Lending Club but investors can decide how much to fund each borrower, with the minimum investment of $25 per note.[37]

Investors make money from interest. Rates vary from 6.03% to 26.06%, depending on the credit grade assigned to the loan.[38] Lending Club makes money by charging borrowers an origination fee and investors a service fee. The size of the origination fee depends on the credit grade and ranges to be 1.1%-5.0% of the loan amount. The size of the service fee is 1% on all amounts the borrower pays.[39] The company facilitates interest rates that are better for lenders and borrowers than they would receive from most banks. It has averaged between a six and nine percent return to investors between its founding and 2013.[40] However, because lenders are making personal loans to individuals on the site, their gains are taxable as personal income instead of investment income. Therefore income from Lending Club loans may be taxed at a higher rate than investments that are taxed at the capital gains rate.[41]

Loan ownership

After the notes are issued, Lending Club purchases the loans from the issuing bank and notes become the obligations of Lending Club, and not of the ultimate borrower: Lending Club promises to pay the noteholder monies it receives from the borrower less its service fees, while the holders of Lending Club notes have the status of unsecured creditors of Lending Club. This means that there is a risk that the investor may lose all or part of the investment if Lending Club becomes insolvent or declares bankruptcy, even if the ultimate borrower continues to pay.[24]

The investors have the ability to put notes up for sale before the notes have reached maturity. This service is offered in a partnership with FOLIOfn Investments which charges a 1% fee on note sales, making Lending Club the first peer-to-peer lending network to offer a secondary market for peer-to-peer loans. Other peer to peer lending networks have subsequently also partnered with FOLIOfn Investments to offer a secondary market.[42][43]

Credit risk

When initially founded, Lending Club positioned itself as a social networking service and set up opportunities for members to identify group affinities, based on a theory that borrowers would be less likely to default to lenders with whom they had affinities and social relationships. It developed an algorithm called LendingMatch for identifying common relationship factors such as geographic location, educational and professional background, and connectedness within a given social network.[44][45][46]

After registering with the SEC, Lending Club stopped presenting itself as a social network and maintaining that social affinity will necessarily reduce the defaulting risk. It now presents the algorithm just as a search tool for investors to find Notes they would like to purchase, using borrower and loan attributes such as the length of a loan term, target weighted average interest rate, borrower credit score, employment tenure, home ownership status, and others.[47] To reduce default risk, Lending Club focuses on high-credit-worthy borrowers, declining approximately 90% of the loan applications it receives [48] and assigning higher interest rates to riskier borrowers within its credit criteria.[9] Only borrowers with FICO score of 660 or higher can be approved for loans.[38]

Loan performance statistics

As of March 22, 2013, the average Lending Club borrower has a FICO score of 706, 16% debt-to-income ratio (excluding mortgage), +14 years of credit history, $70,491 of personal income and takes out an average loan of $12,855 that s/he uses for debt consolidation or for paying off credit card debts. The investors had funded $1,501,287,675 in loans and received $128,277,038 in interest payments. The nominal average interest rate is 16.34%, default rate 4%, and an average net annualized return (net of defaults and service fees) of 9.64%.[9][49] The average returns of investment for Lending Club lenders are between 5.47% and 10.22%, with 23 straight quarters of positive returns as of the second quarter of 2013.[32]

Board of directors

Recognition

In 2011 and 2012 the company was named to as one of the AlwaysOn Global 250.[56][57] Lending Club is the winner of the World Economic Forum 2012 Technology Pioneer Award.[58] It has been recognized by Forbes as one of America’s 20 most promising companies in 2011[1] and 2012,[59] and by Fast Company as one of the ten most innovative financial companies in the world.[60] It was named one of the Disruptor 50 by CNBC in May 2013, as a disruptive innovator in next generation financial services.[61]

See also

References

  1. ^ a b c d e "America's Most Promising Companies (2011): Lending Club". Forbes. November 30, 2011.
  2. ^ a b c Barret, Victoria (December 2, 2010). "Making Personal Loans For Fun And Profit". Forbes.
  3. ^ Campbell, Dakin (April 12, 2012). "Ex-Morgan Stanley CEO John Mack Joins LendingClub Board". Businessweek.
  4. ^ a b Taylor, Colleen (June 6, 2012). "Lending Club Lands $17.5 Million from Kleiner Perkins and Morgan Stanley Chairman John Mack". Tech Crunch. Retrieved June 8, 2012.
  5. ^ https://www.lendingclub.com/public/board-of-advisors.action
  6. ^ CHERNOVA, YULIYA (January 27, 2014). "LendingClub Checks Off Items on IPO-Readiness List". Wall Street Journal.
  7. ^ "Forbes 2014". Forbes. January 2014. Retrieved April 19, 2014.
  8. ^ Schumpeter Peer review The Economist 5 January 2013; Accessed 22 March 2013.
  9. ^ a b c d "Lending Club Statistics". Lending Club. Retrieved April 16, 2012.
  10. ^ Allen Stern (August 6, 2007). "LendingClub Founder and CEO, Renaud Laplanche – Interview". Center Networks. Retrieved April 1, 2012.
  11. ^ Ohayon, Ouriel (September 11, 2007). "Entretien avec Renaud Laplanche, CEO de LendingClub". Tech Crunch. Retrieved April 5, 2012.
  12. ^ "Quiet Period". Lending Club. Retrieved April 8, 2008.
  13. ^ - Lending Club S-1 Filing PDF. Retrieved (7-3-2008)
  14. ^ - Techcrunch. Lending Club Files For SEC Registration. Retrieved (7-3-2008)
  15. ^ - Lending Club S-1 Amendment No. 1. Retrieved (8-6-2008)
  16. ^ - Lending Club Files Amended S-1. Retrieved (8-6-2008)
  17. ^ - Lending Club SEC Prospectus. Retrieved (10-15-2008)
  18. ^ Wauters, Robin (March 19, 2009). "Lending Club gets a 12 million credibility boost". Tech Crunch. Retrieved May 12, 2009.
  19. ^ Wauters, Robin (April 14, 2010). "Lending Club". Tech Crunch. Retrieved August 15, 2010.
  20. ^ Levy, Ari; Campbell, Dakin (September 8, 2011). "LendingClub attracts attention of investors". San Francisco Chronicle.
  21. ^ Pui-Wing Tam (August 3, 2011). "Lending Club Nabs $25 Million In New Funding". Wall Street Journal. Retrieved May 28, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  22. ^ Wade Roush (September 8, 2011). "Thursday Deals Roundup: Zagat, Platfora, Lending Club & More". Xconomy. Retrieved June 27, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  23. ^ Mui, Ylan Q. (March 8, 2010). "With bank credit frozen, small U.S. businesses starting to turn to microlenders". Washington Post. Retrieved April 4, 2012.
  24. ^ a b "Lending Club prospectus (government filings)". Lending Club. August 15, 2011. Retrieved April 2, 2012.
  25. ^ "Lending Club Commences $1 Billion Note Offering". Lending Club. April 10, 2012. Retrieved May 17, 2012.
  26. ^ a b c Dakin Campbell & Ari Levy (May 2, 2013). "Google Buys Stake in LendingClub Startup Valued at $1.55 Billion". Bloomberg News. Retrieved May 28, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  27. ^ Empson, Rip (November 6, 2012). "Lending Club Surpasses $1B In Personal Loans, Hits Profitability". Tech Crunch. Retrieved January 30, 2013.
  28. ^ Loan Performance Statistics" Lending Club; Accessed 15 March 2013
  29. ^ Leena Rao (May 1, 2013). "Readying For An IPO, Peer-To-Peer Lending Marketplace Lending Club Raises $125M From Google And Others At $1.6B Valuation". TechCrunch. Retrieved May 28, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  30. ^ MICHAEL J. DE LA MERCED (May 2, 2013). "Lending Web Site Gains a Shareholder in Google". New York Times. Retrieved May 28, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  31. ^ Mark Calvey (June 20, 2013). "Community banks find a friend in Lending Club". San Francisco Business Times. Retrieved June 27, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  32. ^ a b "The Growth of Peer-to-Peer Lending". Bloomberg News. June 20, 2013. Retrieved June 27, 2013. {{cite web}}: Italic or bold markup not allowed in: |publisher= (help)
  33. ^ Stephen Shankland Lending Club plans IPO -- maybe within 18 months CNET 6 December 2012; Accessed 15 March 2013
  34. ^ Lending Club CEO on Getting a Loan Without a Bank CNBC 14 March 2013; Accessed 16 March 2103
  35. ^ "Lending Club". Lending Club. Retrieved April 19 1, 2014. {{cite news}}: Check date values in: |accessdate= (help)
  36. ^ "Lending Club". Lending Club. Retrieved April 19, 2014.
  37. ^ - About Lending. Retrieved (12-28-2007)
  38. ^ a b "Interest Rates and How We Set Them". Lending Club. Retrieved May 18, 2012.
  39. ^ "Rates and Fees". Lending Club. Retrieved April 16, 2012.
  40. ^ John Blackstone (March 24, 2013). "Share and Share Alike". CBS News. Retrieved May 28, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  41. ^ ROBIN GOLDWYN BLUMENTHAL (December 15, 2012). "The 9% Club: Food for the Yield-Starved". Barron's. Retrieved May 28, 2013. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  42. ^ - Lending Club. Lending Club SEC Registration. Retrieved (10-15-2008)
  43. ^ "How Trading Works". Retrieved May 28, 2013.
  44. ^ "How It Works". Retrieved December 28, 2007.
  45. ^ Daniel Wolfe (December 6, 2007). "P-to-P Debt Consolidating To Affect Bank Balances?" (PDF). American Banker. Retrieved December 12, 2007.
  46. ^ Chu, Kathy (December 25, 2007). "Alternative lending sites often have good deals". Businessweek.
  47. ^ "Lending Club Prospectus" (PDF). October 15, 2010. Retrieved March 1, 2011.
  48. ^ Matthew Zietlin (December 14, 2012). "Why Is Larry Summers Signing Up With Lending Club?". The Daily Beast. Retrieved May 28, 2013. {{cite web}}: Italic or bold markup not allowed in: |publisher= (help)
  49. ^ Earn Solid Returns Lending Club; Accessed 22 March 2013
  50. ^ David Benoit John Mack Joins Board of Alternative Lending Company Wall Street Journal, 12 April 2012; Accessed 18. March 2013
  51. ^ Sarah McBride Mary Meeker breaks her investment fast Reuters 6 June 2012; Accessed 18 March 2013
  52. ^ Lending Club Current report (From 8-K) US Securities and Exchange Commission, 22 February 2013; Accessed 18. March 2013
  53. ^ a b c d e Rip Empson With An IPO On Its Radar, Lending Club Adds Former Treasury Secretary Larry Summers To Its Heavyweight Board TechCrunch 13 December 2012; Accessed 18 March 2013
  54. ^ Why Is Larry Summers Signing Up With Lending Club? The Daily Beast 14 December 2012; Accessed 18 March 2013
  55. ^ Board of Directors Lending Club, Accessed 18. March 2013
  56. ^ "Announcing the 2011 AlwaysOn Global 250". July 30, 2011. Retrieved June 27, 2013.
  57. ^ "Announcing the 2012 AlwaysOn Global 250". July 25, 2012. Retrieved June 27, 2013.
  58. ^ "Technology Pioneers". World Economic Forum. Retrieved May 17, 2012.
  59. ^ "America's Most Promising Companies (2012): Lending Club". Forbes. February 7, 2013.
  60. ^ The world's top 10 most innovative companies in finance Fastcompany.com 11 February 2013; Accessed 22 March 2013.
  61. ^ "Lending Club". CNBC. May 15, 2013. Retrieved June 27, 2013.

Further reading

  • Peter Renton, Renaud Laplanche (2012), The Lending Club Story ISBN 978-1-48113-173-5
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