Setting the stage for what could become a wide-ranging effort in the U.S. financial services market, Virgin USA, the North American arm of Sir Richard Branson's Virgin Group PLC, has acquired a majority stake in CircleLending Inc., a peer-to-peer lending company.
Like the British mogul's other investments — which include the Virgin Atlantic airline and the Virgin Mobile phone company — CircleLending plans to adopt the Virgin handle, though its name has not been decided.
Asheesh Advani, CircleLending's founder and chief executive, said Wednesday that his company will be a "launching pad to brand Virgin in the U.S." in financial services. Virgin Group arms provide credit cards and other financial services in the United Kingdom, Australia, and South Africa.
CircleLending's specialty is arranging and servicing loans extended by individuals to friends and family members. But Mr. Advani said the Waltham, Mass., outfit's first new product as a Virgin holding will be a direct mortgage.
The company also is looking at opportunities in student lending and financial planning, he said, and a credit card "definitely is part of the plan."
Anthony S. Marino, Virgin USA's senior vice president of corporate development, told American Banker, "CircleLending caught Virgin's attention because their products are game-changers."
The peer-to-peer lending platform "provides a broad opportunity to address consumer needs, and the Virgin brand allows us to bring a unique tone of voice to the market," Mr. Marino wrote in an e-mail. "We are … building a major, Virgin-branded financial services company in the U.S."
Mr. Advani said that Virgin USA had approached his company, and that the parties had been "talking for a few months" before the stake sale. "They are pretty rigorous in their analysis of what industries to enter. They tend to pick industries that are overly regulated or very traditional in their approach, and financial services" fits the bill.
CircleLending started in 2001 as a facilitator of unsecured loans, added peer-to-peer small-business loans in 2003, and began supporting mortgages a year later. All told, it has arranged $190 million of loans. Jim Smith, CircleLending's vice president of marketing and sales, said last month that mortgages now make up about half its business and are its fastest-growing line.
Mr. Advani said his company expects to roll out the direct mortgage in the next 12 months. It will be offered as a supplement to its peer-to-peer home loans, giving the borrower a larger loan amount with a "blended cost of capital, which will always be lower, because it includes some element of money from family and friends."
CircleLending is assessing whether to broker the direct loans from partner banks or lend the funds itself, he said.
Dan Schatt, a senior analyst with Celent LLC's retail banking group, said Virgin USA is taking "a very smart approach." The conglomerate saw "the opportunity of integrating a P-to-P lending provider with a standard financial services offering" before others did. "The opportunity there from the bank perspective is really about pairing this product" with other offerings.
The peer-to-peer model "can allow people that would have otherwise not qualified for a bank loan to potentially qualify," he said. For instance, a parent can offer a child a debt-consolidation loan that would then qualify the child for a bank loan.
Also, "not being turned down" for the loan produces "goodwill," Mr. Schatt said. "You're also talking about opening up a market … for primary financial services products that may not have been possible had this not been part of the equation."
Frances Farrow, the CEO of Virgin USA, said in a press release: "Our investment … is consistent with Virgin's focus on developing fresh approaches to consumer issues" and "will form the foundation for a major new Virgin-branded financial services offering in the U.S."
Mr. Advani said that CircleLending's management will remain in place, but that it is recruiting.
"We've just scratched the surface on understanding the power of family and friend transactions and how they can change the financial services landscape," he said. The task ahead "really is about taking what we've learned about the motivations of family and friends to help each other in financial transactions, and translating that."
