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Lending Club Idea Proposal (LC)

Lending Club Idea Proposal (LC)
 

Is the appetite for consumer credit loans from small and regional banks robust enough to return Lending Club to growth in 2017?

Report Available: April 6, 2017

 

Blueshift’s initial research shows LC just coming out of remediation and recovery mode from an internal investigation that found irregularities and led to the resignation of the founder/CEO last May. New management has worked to right the ship and expects to return to growth in Q2 through the rest of 2017 without offering incentives. Issues that will challenge LC’s recovery include the effect of tightening credit standards on the lending environment, as well as the appetite of small and regional banks for investing in consumer credit.

 

Observations

  1. Despite a 23% decline in loan originations, LC’s Q4 earnings and revenue results were better than Wall Street expected. LC’s new management team said efforts to bring key bank investors back to the platform was a success. All the banks that were on the platform prior to May are investing again and five new institutions have been added. In Q4, the total funding contribution from banks was 31%, beating the goal and well ahead of Q3’s 13% bank contribution.
  2. LC projects it will return to a consistent trend of sequential revenue growth throughout 2017. The company will enter into deeper partnerships with platform investors, while also adding an auto refinance product which has experienced early positive feedback.
  3. Marketplace Lending is projected to be on a strong and steady growth trend for consumers seeking loans and for total transaction volume. This is a positive for Lending Club’s recovery effort.
  4. Bank and fintech partnerships are expected to be increasingly popular in 2017. According to a recent Manatt survey, of those regional and community banks not currently working with any fintech companies, 14% said they expect to collaborate in the next six to 12 months and 72% plan to do so in the next 12 to 24 months. Lend Academy has advised online lending companies to prepare for a busy deal-making year, encouraging them to hire additional staff to handle the increased workload.
  5. Online lenders do business on the premise that low income people and weak businesses will pay higher interest rates for access to capital. LC is trying to reduce the risk of subprime borrowers, lowering its borrowing pool by 6%, including many higher-risk borrowers whose loans also come with some of the highest returns. As banks consider whether to provide capital on LC’s lending platform and how much to invest, questions remain if the lower return business will generate enough investment to drive significant growth for LC.

 

What is the appetite of banks for investing in unsecured consumer credit? Are new lenders coming on the LC platform? As lending requirements tighten and rates go up, what will change for LC and the bank investors? Can LC return to meaningful growth in 2017? How strong is the consumer demand for peer-to-peer loans? How competitive is the marketplace/peer-to-peer lending industry? What is the trend for cost-of-loan acquisition? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Regional and small banks, insurance companies, competitors, and industry specialists.

 

Companies: Lending Club (LC), LendingTree, Inc. (TREE), On Deck Capital (ONDK), Goldman Sachs (GS), Yirendai Ltd. (YRD)

 

Research Begins: March 20, 2017