CEO reveals plans for LendingClub’s unique Fintech + Bank model
“We made unsecured lending so easy that people didn’t have to download a mobile app – just name, address, date of birth, boom.” This is Scott Sanborn, who talks about the nifty online lending that made LendingClub an unsecured phenomenon Has made lending.
Now, deep in the implementation of the takeover of Radius Bank, LendingClub is no longer a fintech without an app.
“We now have a mobile app in which people ideally interact with us several times a week,” says Sanborn. “That will generate additional data and offer us a new platform to communicate with our customers.” This ability is important, but compared to the potential of marketing insured deposit accounts to a large proportion of the 3.5 million members of the LendingClub, it’s a small thing.
This prospect should get a lot of competitors to stand up and get their attention. Not only traditional banks and credit unions, but also successful neo-banks such as Chime and Varo, which so far only offer limited or no loan products beyond payday or cash advance.
What it means:
LendingClub aims to adapt and improve its deep customer database and elegant decision-making platform to make its 3.5 million members primary checking account customers.
For competitors, the good news is that the combined company is not yet fully positioned. But building a new hybrid marketplace-banking model is what LendingClub is working on now, having restarted its loan engine as the U.S. economy recovered in the first half of 2021.
The company’s second-quarter numbers confirm the engine is back to full capacity after leadership slowed lending in 2020. The company’s first full quarter as a digital bank was the most profitable in its history, according to Sanborn. The highlights of the second quarter include:
- Market sales increased 86% quarter over quarter, reflecting a 105% increase in issuance fees and a 132% increase in loan sales profits.
- The total consumer loan portfolio grew 145% to $ 795 million.
- Net interest income increased 148% sequentially to $ 45.9 million (excluding PPP loans).
- Deposits rose to $ 2.5 billion.
In a podcast conversation with Jim Marous, co-editor of The financial brand and CEO of Digital banking report, Sanborn explains in detail the reasons for the Radius acquisition and the company’s short-term and long-term plans to leverage the deal, which was closed in February 2021, to expand its product platform.
Three big pluses for a fintech that owns a bank
For LendingClub, the acquisition of a bank was largely driven by financial reasons. The decision also had structural and strategic components.
Since it was founded in 2006 as a “peer-to-peer” lender, LendingClub has come a long way and, in Sanborn’s words, is “the largest provider of unsecured personal loans in the country”. However, without a bank balance sheet, operating costs were high on such a large scale – which meant banks had to issue the loans on behalf of LendingClub and stock lines had to be paid so they could pool loans. The cost of these two factors alone was about $ 60 million, says Sanborn.
As a bank that issues its own loans and uses deposits instead of storage lines, LendingClub achieves a 90% reduction in financing costs. “
There is also a revenue component, adds Sanborn. While LendingClub previously sold all loans to banks, investors and other players, as a bank it now keeps 15 to 25% of the loans on its balance sheet and adds net interest income as a new source of income.
“The income we add for loans we hold is three times that of the loans we sell.” Sanborn states.
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Why regulation means more freedom
Structurally, with the bank takeover, LendingClub is no longer dependent on third parties to be able to grant loans, and is also not prone to political change in Washington, in which the partner bank / fintech model is condemned.
One might think that LendingClub as a fintech would not be limited in its ability to innovate. But Sanborn explains why that isn’t the case:
“If you are not a directly regulated institution, every innovation has to be approved by your partner banks because it is their regulatory risk. And then you have to convince your investors. ”The company’s new hybrid marketplace-bank model, as Sanborn calls it, enables them to have a direct conversation with the regulators about every new innovation.
Strategically and above all, according to Sanborn, “the takeover of Radius Bank gives us“ the opportunity to do more for our customers ”.
“We had cracked customer acquisition on a large scale,” says the CEO, referring to unsecured lending. Most of the company’s 3.5 million customers are happy with LendingClub, he says. “They want to do more with us, and with a banking charter we can do more for our customer base.”
About half of LendingClub’s customers come back to them for an additional loan within five years.
Build the relationship
During the podcast, Jim Marous asked Sanborn about the cross-selling opportunities of this fintech-banking combination. Sanborn pointed out that it is still in the early stages of opening up possibilities, so he is describing “where we are going rather than where we are today”.
Their first job is to customize their credit technology platform that will allow them to provide seamless, easy and efficient decision making and personalization for several new product categories opening up through a bank.
In addition, Sanborn describes one possible type of messaging they could use with their old customers: “Hey, we saved you money on your credit card statements, why don’t we put some of that in a savings account? Why don’t we reward your good buying behavior to keep you debt free instead of rewarding you for going into debt on your credit card? “
What Sanborn envisions goes straight into the Kern Radius checking account, which he calls the Rewards checking account, which gives you money back when you use your debit card.
To bring this new marketplace banking model to life, says Sanborn, “we need to figure out what value people are looking for in order to move their primary checking account.” In other words, how to get those 3.5 million loan customers to open a checking account with LendingClub. “It’s about moving from a single product transaction to a relationship,” says the CEO, “as we begin to think beyond the customer: ‘Would you like another personal loan?'”
If LendingClub can do that, it will ultimately have a huge advantage over other neobanks, believes Sanborn.
“If you compare us to some other challenger banks, we come from where the profit is made, which is lending.” Adding reviews and savings to that mix creates a much deeper platform for exposure from which one can grow.