Startups and financial giants like Goldman Sachs are competing for the increasingly crowded consumer lending space. In the face of this threat, Lending Club emphasized new product innovation in its Q1'18 earnings call as its path to growth.
- Lending Club launched new product features to both borrowers and lenders last quarter, and is starting to see them pay early dividends. Lending Club introduced a Direct Payoff feature that allows borrowers to pay off their debt obligations — mainly credit cards — in exchange for a better rate on loans. On the lender side, the company introduced securities made up of whole loans that are traded in over-the-counter markets. This provides investors with potential liquidity in their investment.
- So far Lending Club’s new credit-scoring model is working. Lending Club released its fifth-generation credit-scoring model at the end of last year, which leverages 10 years of Lending Club data, AI, and machine learning. Although it’s too early to make any hard judgements, the company is seeing “increases in the overall kind of financial health … of the loans.”
- After tightening its credit model, loan originations dipped in the last quarter. This puts even more pressure on Lending Club to improve products that target high-quality borrowers. With more lending companies battling for the same high-quality borrowers, it will be more difficult for Lending Club to keep up origination growth. In particular, Lending Club is battling both nimble startups and big bank balance sheets. In April, Upgrade, which was a founded by Lending Club’s former CEO, said it was originating $100M in personal loans per month. Meanwhile, Goldman Sachs’ digital finance unit Marcus has already originated $3B in consumer loans since its October 2016 launch.