Businessmodel of Lending Club

Customer Segments

Lending Club has a multi-sided business model, with two interdependent customer segments that are both needed in order to operate:

• Borrowers: This group consists of individuals and small businesses. Individuals can apply for personal, education, and patient finance loans. Small businesses can apply for loans and lines of credit which can be used to grow their business, buy equipment or inventory, or meet other expenses.
• Investors: This group includes a wide range of entities, ranging from high-net worth individuals and foundations to hedge funds and bank, finance, and insurance companies. They invest in loans through two channels: certificates/investment funds and whole loan purchases. ### Value Proposition

Lending Club offers two primary value propositions for borrowers:

• Cost Reduction: The company’s platform enables it to maintain lower operation costs than those for typical bank loan and credit card programs, transferring those savings onto customers through lower rates. In fact, a survey of borrowers who used its personal loans found that their interest rates were 35% lower on average than the rates they were charged for their outstanding credit cards. Lending Club also avoids hidden fees and allows users to prepay their balances without a penalty.

• Convenience: Customers seeking a loan only have to complete a single application. The company’s system uses its technology and online data to rapidly determine risk, identify a credit rating, and settle on appropriate interest rates. Qualified candidates are able to receive offers in as little as a few minutes and can assess their options with no effect on their credit score. Lending Club offers two primary value propositions for investors:

• Convenience: The company offers investors tools that they can use to select loans customized to their objectives, making it easier to build personalized portfolios. Investors are also given the option of automated investing, a free offering that invests funds in loans that meet specified criteria when they become available.
• Performance: The company provides risk-adjusted returns on loans. Stringent criteria are used to limit the borrower pool to only the most qualified – the typical recipient has a 699 FICO score, 16.3 years of credit history, an 18.12% debt-to-income ratio, and a personal income of $75,055. Further, Lending Club Notes show traditional returns by Grade A-C of 5.26% to 8.69%. Finally, Lending Club offers a brand/status value proposition for both of its customer groups. It is well-established, having been in existence for a decade. It bills itself as the world’s largest online loan marketplace, with hundreds of thousands of borrowers and $16 billion in loan originations. Lastly, it has an A+ rating with the Better Business Bureau and a Net Promoter Score in the 70s, putting it at the higher end of customer satisfaction levels for financial services firms.

Channels

Lending Club’s main channel is its website, through which it promotes its service. The company also engages in direct marketing via snail mail. In 2015, it began a strategic partnership with a collective of community banks in which it offers co-branded personal loans to the institutions’ customers.

Customer Relationships

Lending Club’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through its website while having limited interaction with employees. Investors can even sign up for automated investing so the process can occur without them logging in.

There is a detailed “Education Center” on the site offering advice regarding loans, as well as a “Frequently Asked Questions” section with answers to numerous potential inquiries about the service. That said, there is also a personal assistance component as the company provides phone and e-mail support.

Key Activities

Lending Club’s business model entails maintaining a vibrant platform between two parties:  borrowers and investors.

Key Partners

Lending Club’s key partnership in its operations is with issuing banks, who originate the loans that it offers.

Its main issuing bank is WebBank, an industrial institution that oversees a variety of commercial and consumer financing programs. Lending Club also works with Comenity Capital Bank and NBT Bank for its patient finance and education loans.

Lastly, it has a deal with Cross River Bank in which the entity operates as a back-up in the event that WebBank is no longer able to perform its role.

Key Resources

Lending Club’s main resource is its proprietary software platform, which automates key activities such as application processing and loan funding. Its sophisticated analytical tools make these procedures possible.

It also relies on technology and service staff to provide maintenance and customer support.

Cost Structure

Lending Club has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions.

Its biggest cost driver is sales/marketing expenses, a fixed cost that largely consists of investor and borrower acquisition efforts.

Other major drivers are in the areas of administration, engineering/product development, and origination/servicing.

Revenue Streams

Lending Club has three revenue streams:

• Transaction Fees: Fees charged to borrowers for the processing of their applications
• Servicing Fees: Fees charged to investors for the matching of available loan assets with capital; it is equal to 1% of the total of borrower payments obtained within 15 days of the due date
• Management Fees: Fees charged to investment funds and other managed accounts