Lending Club Company Case Study

Company background

Building Lending club was established in 2006 with a goal of allowing individuals to borrow and lend directly among themselves. After making P2P lending services available to the public. Company matches borrowers and lenders based on many factors at the very beginning. In December 2007,Lending club collaborate with WebBank, which helps it meets the regulatory requirement. Next year, it issued notes so that lenders would purchase these instead of lending loans directly to the borrowers.

Lending club attracted more investors through processes below. First, it began to enlarge its fund base, then formed LCA to offer funds to accredited investors and purchasers. LCA also offer SMAs to investors. The external institutional investors had begun to invest on the platform.

Strength  

Market background: according to the exhibit 1, from 1945-2012, the total U.S. consumer credit has dramatically increased, which means the market has huge potential opportunities for the lending institutions with lower risk. According to exhibit 2, it shows the personal loans have largest growth compare with other consumer credit. It also has great match with the Lending club’s main service.

Lending club’s side:

Lending club has cost advantages compare with the banks, due to it has no physical buildings and it is operated in electronic way and highly automated.

It has its own criteria to evaluate borrowers’ risks, for example using FICO score. which has been widely used in lending decisions in U.S, it’s a relatively stable and believable measurement to evaluate personal credit.

Lending club attracts awareness from borrowers by building relationship with Mint.com, Credit Sesame, Pool Corp, etc. It receives rounds of equity. The company also reconstructed its management team including many high level and experienced employee.

It has larger customer base compare with banks or other credit institutions. Specifically, the small business lending will be a big potential customer base that the lending club can expand its business into.

Customer’s side:

Lending Club gives the transparency commitment to it investors, which allows the investors to access the daily information and status of the loan.

According to the advertised borrowing rates on personal loans, the lending club gives the lowest rate to its customers. it is a big attract to the customers who can borrow the money with lower cost.

Weakness

Customer’s side:

Lending club still has default risk, since the notes are not listed on the securities exchange and transferred online. The holder of notes has no right to receive money from borrower.

Meanwhile, Lending Club have limited obligations so if borrower don’t pay back money, the lender still have loss and can’t get guarantee from lending club.

Lending club’s side:

According to the exhibit 5, only 65% of borrowers credit scores over 650, which is defined as good borrowers. Therefore there is 35% borrowers might brings uncertainty to the lending club in many aspects.