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Six months ahead.

Lending Club

Lending Club Zooms Into Car Refinancings

screen-shot-2016-10-25-at-12-57-25-pmMany Americans learned through Lending Club that they can refinance their credit card debt online; now, the lending marketplace is hoping they’ll start refinancing their automotive loans using its platform, too.

Indeed, though automotive lending is a massive market, car refinance is far smaller owing to a lack of awareness, suggests Lending Club CEO Scott Sanborn, with whom we spoke by phone earlier today. “People know they can refinance their home. But after their home, their car is their second-largest purchase, yet the car refinance market in the U.S. was about $40 billion last year.”

In comparison, the overall U.S. auto loan debt market had grown to $1.103 trillion by this past June, according to the research firm Experian Automotive.

For Lending Club, it’s a prime opportunity (no pun intended), though it carries plenty of risk, as well.

The publicly traded, San Francisco-based company has struggled throughout 2016, following the forced resignation of its founder and CEO Renaud Laplanche in May over alleged conflicts of interest and a mishandled sale of loans to Jefferies Group.

Laplanche’s departure shook investors’ faith that the platform was among the strongest in the world of online lending. It also prompted more investors to examine whether the platform had become overly reliant on Wall Street banks that were looking for yield but are notoriously fickle customers.

Scott Sanborn, who took over as CEO and who’d served as the company’s chief operating officer prior, has taken drastic steps to get the company back on course, but none has had a meaningful impact just yet.

For example, in addition to hiring a new CFO, a new COO, a new general counsel and a new chief capital officer, Bloomberg reports that a separate new initiative hasn’t gone as well as hoped: providing loans to small businesses via partnerships with Alibaba and Alphabet.

Asked about that earlier today, Sanborn says that what “gives us confidence when I think about auto is that it’s not just leveraging our technical skills and learnings but also takes advantage of our marketing acquisition skills,” which he suggests Lending Club has been less able to do with its small loans program, given that it’s depending on partners for their distribution.

Sanborn also argues that though Lending Club has plenty of competition, the large auto lenders aren’t among its worries.

More here.

For Online Lenders, It’s Suddenly Touch and Go

Screen Shot 2016-05-26 at 9.45.52 PMA year ago, privately held online lenders like Prosper, SoFi and Avant looked all but certain to go public at the same unicorn valuations their venture investors had assigned them — if not higher. They were seemingly reshaping the student, consumer and small business lending business. The market they’re chasing is enormous: The U.S. consumer lending market is a $3.5 trillion industry, and 22 of  the largest online marketplace platforms originated just more than $5 billion of unsecured consumer credit in 2014 and more than $10 billion in 2015.

They also talked a big game. When SoFi raised a whopping $1 billion from Softbank last year, CEO Michael Cagney told Bloomberg: “I’m looking at over $1 trillion of market cap from the banks, and I think it’s all vulnerable.”

Fast forward to today, and it’s online lenders that suddenly look like sitting ducks.

In an SEC filing Monday, Lending Club, which announced the surprise departure of its founder and CEO last Monday, revealed that investors who “contributed a significant amount of funding” for loans are now examining that performance “or are otherwise reluctant to invest.”

That’s a huge problem. Lending Club can’t originate a loan until it has sold it to another party.

It’s not just Lending Club that’s grown overly reliant on institutional sources of capital to keep its business afloat, though the problem is just becoming widely understood now.

For many casual observers in Silicon Valley, the first signs of trouble in the online lending category emerged in late April, when the WSJ reported that Avant made $514 million worth of new loans in the U.S. in the first quarter, a 27 percent drop from the fourth quarter of 2015. Then, two weeks ago, Prosper confirmed that it planned to cut roughly 28 percent of its staff in response to falling loan volume. And Prosper’s news came just a day after OnDeck Capital said its own first-quarter losses had more than doubled as demand for its loans began to nosedive.

Of course, the kicker came last week, when Lending Club CEO Renaud LaPlanche resigned following an internal audit that turned up $22 million in loans that were sold to Jefferies yet didn’t meet the investment bank’s criteria.

Fast growth, big risks

If the shift in the companies’ fortunes seemed abrupt to Silicon Valley, it wasn’t a surprise to many in the financial industry. They’ll tell you they’ve seen this movie before.

Online lending “grew incredibly quickly from loan volumes of almost nothing eight years ago to many billions of dollars a year,” says Max Wolff, chief economist at Manhattan Venture Partners, a merchant banking firm in New York. “But what started out as a disruptive movement known as peer-to-peer was far more novel than what it became, which, in many cases, is a front for whoever is providing [some of these startups with] capital to lend.”

Think banks like Goldman Sachs and Jefferies. Think hedge funds and insurance companies.

The obvious benefit of taking capital from larger institutions is that they allow online lending companies to grow, and quickly. While companies operating in this space come with inherent advantages — they use automated loan applications; they have no retail branches; they use electronic data sources and tech-enabled underwriting models that help them to quickly identify a borrower’s credit risk — having deep-pocketed friends has made other things easier. Among them is being able to provide funding decisions within 48 to 72 hours, and to offer small loans with short-term maturities.

Until recently, Wall Street has happily obliged. And why wouldn’t it? With interest rates so low for so long, these new lending products have been an attractive place to generate revenue. Some online lenders — whose customers include small businesses, consumers, and students — have charged more than 60 percent in annual interest on their loans, including origination fees.

More here.