LendingClub's new pitch to institutional investors
LendingClub introduced an institutional investor platform Thursday aimed at tapping the growing market of securitized marketplace loans.
Called LCX, the platform includes dynamic pricing and same-day settlement data of fully funded loans. It comes on the heels of Select Plus platform, which LendigClub launched in August to enable savvy investors to purchase loans made to borrowers who previously would have been rejected.
Anuj Nayar, LendingClub’s financial health officer, said the changes to its online marketplace, including the launch of Select Plus, were a direct result of feedback from the institutions seeking to purchase securitized consumer loans.
“Our most sophisticated investors are coming back to us and saying, there are loans you wouldn’t approve, but if you did approve them, we’d buy all of them,” Nayar said.
LendingClub began creating new investment platforms for financial institutions in 2017 when it became clear consumer debt was becoming a mainstream asset class, Nayar said. That was the first year the company originated more than $1 billion in loans a month.
Unsecured personal loans are increasingly being packaged into an asset class for institutional investors, much in the same way that mortgages are bundled into mortgage-backed securities.
In the fourth quarter of 2018, there were eight marketplace lending securitizations, totaling $2.6 billion, according to PeerIQ.
In a company blog, LendingClub argues that institutional investors are drawn to such securitized marketplace loans primarily for their higher yields.
“This is a huge step forward in the evolution of unsecured consumer loans as an asset class,” Valerie Kay, LendingClub's chief capital officer, said in a press release.
Personal loan debt hit an all-time high of $138 billion in 2018, according to the latest figures from TransUnion. Fintechs such as LendingClub and Social Finance have helped to lead that surge as they continue to siphon away customers for unsecured personal loans from traditional lenders.
A recent study from Experian found that digital lenders more than doubled their market share in the past four years.
Consumers have turned more to fintechs for personal loans mostly based on the digital methods used to apply for such loans. LendingClub sees some 44,000 consumers a day comes to its website seeking a personal loan, Nayar said.
“As the scale has been moving so quickly, we as a company have been very much thinking about how to make it easier for LendingClub to attract more and more investors,” he added.
LendingClub’s online marketplace brings in consumers seeking personal loans, mostly to refinance credit card debt at a lower interest rate. Those borrowers are matched with investors that bear the risk of default.
Talk of a pending recession has not made institutional investors skittish about purchasing personal loans, Nayar said.
He added that for LendingClub, “there’s always a concern to manage for an impending recession.”
“Our investors have already factored in future risks. They have to, because they’re thinking about the repayment rate in the years 2021 and 2022. It’s built in,” Nayar said.
“We have thousands of borrowers coming to us that range from subprime to superprime, and our job is to match them with investors that are looking for a price that matches their criteria.”