Santander Group invests $40M in consumer lender Upgrade

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Upgrade, the challenger bank venture of LendingClub founder Renaud Laplanche, is now worth $1 billion after a $40 million Series D funding round led by Santander Innoventures.

Existing investors including Union Square Ventures, Ribbit, Vy Capital and Silicon Valley Bank and new investors Ventura Capital and Uncorrelated Ventures also participated in the round, which brought total funding since the San Francisco company's founding to $200 million.

Renaud Laplanche, CEO and founder, Upgrade
“We think offering affordable, responsible risk products and helping people upgrade their credit finances is the right way to build to build a bank,” says Renaud Laplanche, CEO and founder of Upgrade.

There are now seven neobanks with a valuation of $1 billion, including three in the U.S.: Upgrade, Chime and Dave. The others are Revolut and Monzo in the U.K., NuBank in Brazil and N26 in Germany. Upgrade is the only one to be backed by one of the top 10 banks.

Other challenger banks focused on consumer loans, including Laplanche's former company, LendingClub, have struggled since the onset of the coronavirus pandemic.

But to Chris Gottschalk, senior adviser at Santander InnoVentures, Santander Bank's corporate venture fund, it makes perfect sense that Upgrade is attracting new funding.

“All businesses are going to experience a different environment with what's happening today,” he said. “But there are a handful of tailwinds that Upgrade has in this new environment. We've seen the performance of Upgrade paper hold up during this COVID environment, and access to credit in today's environment is going to be more needed than ever.”

Gottschalk expressed confidence in Upgrade’s leaders, most of whom came from LendingClub.

“Renaud and team are proven operators,” Gottschalk said. “Backing a strong team and fast-growing team in a large market gives us comfort even in this COVID environment.”

The Santander team also liked Upgrade’s strategy of starting with credit, moving to cards and then adding direct deposit and other banking products. Next, Upgrade plans to start offering mobile banking.

“It’s product-led innovation, but also just a better customer experience,” Gottschalk said.

Laplanche founded Upgrade three years ago. The company does things a little differently from others in the personal loan space.

Where others like LendingClub, Prosper, Upstart and SoFi securitize loans and sell them in the capital markets, Upgrade sells its loans to small banks and credit unions.

“Our funding is diversified among a lot of small banks and credit unions and isn't as exposed to the capital markets,” Laplanche said. “We think it's more stable that way.”

Like the others, Upgrade has tightened its underwriting standards as new jobless claims have risen. The company is also relying more heavily on its Upgrade card than on personal loans.

The Upgrade card is a hybrid between a loan and a credit card. Customers choose a period of one to three years to pay for purchases in installments, so they are forced to pay off balances in a set time frame. That enforces financial discipline and helps users avoid credit card debt traps.

“We think offering affordable, responsible risk products and helping people upgrade their credit finances is the right way to build a bank,” Laplanche said.

Upgrade has made more than $3 billion in loans. About 10 million people have applied for credit from the company and about 300,000 have received it.

Upgrade advertises itself online and through partnerships with fintechs like Credit Karma, Laplanche noted.

Laplanche was ousted from LendingClub in 2016, when the company's board said it found problems with some loan sales and inadequate disclosure to the board.

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Digital banking Digital Banking 2020 Marketplace lending Consumer lending Renaud Laplanche Lending Club