Lending Club is an online credit marketplace operating in the US. The company is at its heart a matchmaking business that connects people who are happy to make loans with small businesses and individuals. However, the business also operates a highly interconnected platform of products and services that create additional value for its customers.
Individuals and SMEs apply for loans that, if approved, are then divided up into $25 fragments that can be purchased on Lending Club’s online platform. These fragments, termed ‘notes’, have an associated risk profile attached to them indicating the risk and the return available. Investors can choose to be an ‘active investor’ - selecting the notes they prefer or ‘passive’ - selecting the risk profile they desire, allowing Lending Club to purchase the notes on their behalf. If a borrower defaults on their loan the note holders are not repaid. The grade given to each note indicates the potential risk associated with it. These grades range from ‘A1’ indicating the lowest risk to grade ‘G5’ as the highest, in total there are 35 grades. The lower the rating the higher the return is for the investor. Notes can be traded on Lending Club’s platform creating additional liquidity.
Lending Club offers personal, business and medical patient loans.
Personal borrowers can apply for loans between $1,000 and $40,000 at rates ranging from 5% to 30% depending on individual circumstances. While business can borrower up to $300,000 with rates starting at 5.9%. Patient solution plans allow for up to $50,000 in borrowing and charge between 4% and 25%. Patient solution loans are only available to patients receiving treatment at a Lending Club enrolled practice.
Lending Club was founded in 2006 as a Facebook application designed to let connected people lend to each other. The business evolved into a stand-alone P2P lender after receiving $10.26 million of venture capital investment in August 2007. The company then experienced rapid growth and it became the first P2P lender to go public in December 2014. Lending Club has made over 1.6 million loans, worth around $20 billion. However, since its IPO Lending Club’s shares have lost close to 75% of their value as the business has faced various challenges including the resignation of CEO Renaud Laplanche.
CUSTOMERS – WHO THEY ARE:
Lending Club has six major customer groups (all customers must be based in USA)
* Individual investors
* Institutional investors
* Individual borrowers
* SME borrowers
* Medical patients
* Medical practices
All together the company processed 1.6 million loans. 14% of borrowers are repeat customers, and it is estimated to have over 700,000 users.
ENGAGEMENT – VALUE CREATION PROPOSITION:
Lending Club creates value for each of these five groups in different ways:
Lending Club provides a high ROI for lenders and its online platform allows individuals to lend relatively small amount compared to traditional investing platforms and the ability to build a portfolio of loans reduces risk.
Lending Club allows companies to diversify their portfolios and make decisions quickly based in Lending Club’s credit checking. Large investors including hedge funds have utilised Lending Club’s platform, as traditional institutions have neglected SMEs and individuals with weak credit records.
Quick and easy way of accessing loans of between $1,000 and $40,000
Quick and easy way of accessing loans up to $300,000
Financing options to help pay for medical bills accessed through medical centres affiliated with Lending Club.
Medical practices must pay a fee to become associated with Lending Club. This relationship enables practices to offer credit financing to patients. The availability of credit increases the likelihood of a patient agreeing to pay for the treatment they need.
DELIVERY – THE VALUE CHAIN:Potential borrowers and lenders access the service through the Lending Club website. Borrowers apply online and if they are successful their loan is assigned a grade between A1 and G5 (35 in total) based on their credit worthiness and the underlying risk. Investors also sign up online and build a portfolio of notes that represent small fractions of loans, this can be done passively or actively on the company’s website. Investors receive monthly repayments and interest into their online accounts as borrowers repay their loans. If a borrower defaults on their loan then the holders of notes associated with that specific loan will lose their money. Medical practices can contact the company through the website to arrange a meeting to discuss enrolling with Lending Club. Patients can access loans through the site or through their doctor’s medical practice.
MONETIZATION – VALUE CAPTURE:
Lending Club had revenues for the full year 2015 of $430million. This was 103% above the previous year's results. The business had a net loss of $5million for the full year 2015 and facilitated over $8.4billion worth of loans.
Lending Club charges a 1% service fee on each loan but extra collection charges may apply if borrowers miss payments and loans are not repaid on time. These include 8% of the amount recovered and 30% of legal fees, plus costs if required.
Written by Thomas Murray under the direction of Prof Charles Baden-Fuller, Cass Business School, in September 2016. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016