The financial health crisis is here. People are suffering amid the rising cost of living and debts are rising as disposable incomes dwindle to cover the skyrocketing cost of living. Saving money and reducing expenses for millions of households around the world is now a necessity.
Innovation in finance is driven by disruption, and one of the contenders to lead the charge started life as a data-driven tech company but has now morphed into one of America’s fastest growing digital banks.
Strictly speaking, LendingClub defines itself as a technology/financial services company. Founded in 2006, innovation and market disruption are at the heart of its business, says Scott Sanborn, CEO, who joined the company in 2010. A strong advocate for LendingClub’s work, Sanborn says its services have never been as necessary as they are now, as consumers find themselves pushed to – and, in some cases, beyond – their financial limits.
Lower cost financial options for borrowers
At its core, LendingClub offers borrowers loan services at a lower cost than traditional banks. It is able to do this because it acts as a broker matching institutional investors with potential borrowers. Customers can take advantage of a range of loan products from personal and business loans to auto refinance and patient solutions.
The system is remarkably efficient and, according to Sanborn, regularly reduces interest charges on loan repayments significantly, as it puts customers’ interests first when it comes to their financing needs.
He explains: “Imagine that you are going to buy a car from a dealership. Currently, in the majority of sales, you are going to pay more for financing than your risk would indicate. The dealer adds a markup. There is no limit to the size of this increase. And they are not required to forward you to the lender who offers you the best deal. They may also refer you to the lender who gives them the best fee reduction, rate, or incentive. So you spend all that time choosing a car, negotiating the price, but you’re not negotiating the cost of your financing. You leave the lot paying more than you would otherwise have to.
“That’s where LendingClub comes in: through its technology platform, it can match borrowers with the best loan plans, saving them vital savings in the process.”
Sanborn says that at the customer level, LendingClub realizes significant monthly expense savings. “On average, we’re saving customers about $80 a month on their car loan. Imagine – you drive the same car, pay it off in the same amount of time, but have $80 more per month in your pocket.
Developing financial services through mergers and acquisitions
Obviously, the formula works. To date, the fintech has helped more than four million customers and is the US market leader in one of the fastest growing lending categories: credit.
In 2021, LendingClub also entered the banking sector through its acquisition of Radius Bank, where it obtained its banking charter. This event saw the company grow significantly, transforming its identity within the fintech industry. So, is it a fintech, a digital bank or something else?
“I would say we’re a technology company…but we’re a technology company with a banking charter that makes us an all-digital marketplace. We are something really different. There are some direct-to-consumer banks, but we are becoming a digital market bank at a time when consumer preferences are changing a lot.
Sanborn points out that a decade or more ago, what drove customer preference for banking services was the location of a bank branch. The landscape is now noticeably different. “Consumers now see banking as something you do, not a place you go to, and they’re increasingly saying the strength of the mobile experience is what should be driving choice. So our transition to digital banking comes at a time when consumers value the digital experience, and so we can deliver tremendous value to our customers. »
The disruption of traditional credit
LendingClub has a history of disruption in lending and Sanborn believes the disruption to traditional lending models is long overdue because basically they are charging the customer a lot more than they should. “If you look at credit cards as an example, credit card companies separate their customers into two categories. Revolvers – these are people who do not pay off their credit card balance; they have a loan. And then there are the transaction agents – these are the people who use the card as a convenience mechanism and pay it off every month. These traders get benefits. They get rewards, miles, cash back and all those things. Revolvers have to pay for that.
“So you have half the customer base paying for the other half of the customer base. That’s structural inefficiency. If you looked at that customer and said, ‘Hey. What’s the true cost of credit you’re do you need?” you’ll find it’s lower. That’s what we do with personal loans.
Respond to client’s needs
In addition to taking a dynamic approach to lending, LendingClub is unusual in that its core business model increases financial inclusion by expanding access to credit at lower cost. The company sees current customers and the system as ripe for an overhaul. While LendingClub’s market model allows it to seamlessly serve a wide range of clients, its top client has a relatively high FICO score of around 700 and an annual income north of $100,000. The team is focused on providing borrowers who are charged above ratings by lenders, such as women and minority groups, with a much better deal.
“Our client is highly banked,” he says. “In fact, they are 100% banked. They are simply not well served. It works better for the banks than for them. What we are doing for them is providing a nationwide digital solution that disproportionately helps people living in areas where bank branches are closing, as more and more bank branches are closing every year.
Sanborn points to the wave of bank branch closures around the world and the fact that certain demographics are being penalized by the current system using auto loans as an example, although this is true for all credit. “It has long been documented that women and minorities end up paying a higher price at the used car dealership for their financing than others. So we’re addressing some of those systemic inequalities. Above all, we facilitate access to responsibly structured low-cost credit.
Becoming a digital marketplace has moved this process forward. “We don’t have to support bank branches, which is another structural inefficiency. We don’t have any of that – and it creates savings in our model. We also have a very profitable market and can pass those savings on to the consumer while still being very profitable. The combination of our bank, our marketplace and our large and loyal customer base is truly unique in the banking industry.
The importance of digital partnerships
LendingClub’s stratospheric success has been bolstered by the strong network of fintech partners. Currently, they work with a handful of partners, including Persado, Experian, Narmi, TransUnion, and Quad, all of which provide essential services that help LendingClub disrupt traditional banking.
“The amount of innovation happening everywhere, including in financial services, means that being effective requires constant examination of the landscape to see where the innovation is happening – and how you can harness it. Persado helps us unlock that with custom language and content that drives incremental business, which is good for the business and – given the nature of our products – good for the customer as well,” says Sanborn, which embraces the idea that a digital ecosystem serves the needs of an ever-changing environment.
“No company can do everything. There’s so much going on in document optical character recognition, fraud prevention, and data aggregation using differentiated sources. Part of being great is being able to take the pulse of innovation while creating a culture, a structure, that can identify partners and implement with them to drive the business forward.
Essentially, Persado offers a powerful platform that helps LendingClub identify what motivates customers so they can find the right product and deliver the right message to the right audience. “Persado allows us to be predictive in what we do, to get the right result,” he says.
LendingClub has been associated with TransUnion – acting as LendingClub’s primary credit bureau – since its inception. Recently, they also added Experian to the space where they are embarking on the next growth horizon focused on transparency, trust and consumer relevance.
Other partners include Narmi, a digital banking technology provider, and Quad – which provides a postal marketing service – which Sanborn says is remarkably effective. “Some analog marketing is still very important. People are often surprised by this, but it’s a great consumer experience.
A banking perspective for the future
As fintech and all-digital banking continue to grow globally, there is no shortage of opportunity for companies offering disruptive services. LendingClub, since its acquisition of Radius Bank in February 2021, is now perfectly positioned for growth. At this post-acquisition stage, the digital market bank has all of its lending products in-house and now issues them through the bank. “We fund personal loans, auto loan refinance and our purchase finance business through the bank,” Sanborn explains.
“We also launched high-yield savings accounts and CDs. It is collecting deposits to help fund the loans we hold on our balance sheet. The next big frontier will work on a core set of banking experiences that truly target our consumers. »
It’s a bright future – not just for LendingClub, but also for its customers, who are reaping the benefits of choice in a climate where expense control has never been more crucial to day-to-day survival.
“Our primary consumers are heavily banked with a high income, typically over 100,000. They have a high FICO score, between 700 and 710. But they are also heavily in debt. We help them reduce the cost of their debt, manage their expenses and find savings.
He adds, “We are moving towards a banking experience that makes it easy for people to spot where in their life they could find additional savings. If they accumulate these savings, they won’t need to use their credit card in an emergency. That’s our main focus – and the big set of investments we’ll make next.