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Fast-rising personal debt driving Lending Club’s success

Lending Club CEO Scott Sanborn is pictured in the company’s offices in Lehi on Wednesday, Nov. 13, 2019. Lending Club is the largest online consumer lender in the U.S. and a company on the comeback trail after almost going under a few years back.
Lending Club CEO Scott Sanborn is pictured in the company’s offices in Lehi on Wednesday, Nov. 13, 2019. Lending Club is the largest online consumer lender in the U.S. and a company on the comeback trail after almost going under a few years back.
Steve Griffin, Deseret News

LEHI — Spiraling consumer debt is helping drive a blossoming financial technology sector that has led to dozens of new, online business models that are looking to disrupt traditional banking institutions.

But in 2007, the idea of creating an online personal loan marketplace that connected borrowers in need with investors looking for a little return on their cash was a novel concept.

Now, peer-to-peer business models are commonplace, but Lending Club was among the first to see an opportunity to disrupt some of the staid practices of traditional banking. As the company’s founder pointed out early on, there was a lot of room for carving out a profitable business within a traditional banking system that was paying out next to nothing in savings account interest while charging upward of 20% when loaning out the same money.

The company would grow big enough, and fast enough, to become one of the darlings of Silicon Valley startups and in 2014 launched a blockbuster initial public offering that raised over $800 million on a valuation of almost $9 billion.

It would turn out to be the starting point for a downhill slide in stock value, and matters only got worse a couple years later when the founder and CEO stepped down amid a scandal that included allegations of questionable business practices.

A wholesale revamp soon followed, including the ascension of Scott Sanborn into Lending Club’s top position following earlier roles with the company as head of operations and chief marketing officer. Since Sanborn took over as CEO, the company has been on the rebound and as of the end of the 2019 third quarter, returned its first profit in years.

Earlier this year, Lending Club opened the doors on a new Lehi office and has since grown the staff there to over 500. On a recent visit, Sanborn sat down with the Deseret News to talk about the company’s comeback, the current state of financial technology companies and how record personal debt is helping drive new business toward the Lending Club.

Editor’s note: This interview has been edited for length and clarity.

Deseret News: Lending Club was out in front of pretty much everyone when it launched a peer-to-peer loan network over a decade ago. For those who may not be familiar with your model, could you walk us through it?

Scott Sanborn: We are a credit marketplace, which means we connect people looking for money, that’s generally consumers looking for credit with people who have money, and that’s investors looking for yield. And so the investors earn the interest on the loans and they take the risk of default. And Lending Club sits in the middle of that transaction.

DN: You just turned your first profit in years and industry watchers have been bullish on the company’s performance since you took over the helm. What factors are driving people to seek out personal loans from Lending Club?

SS: There’s over a trillion dollars in credit card debt outstanding today and nearly half of all American consumers have credit card debt. Despite interest rates being at or near record lows, credit card rates are actually at or near record highs right now. There are a lot of reasons for that, but it’s just a statement of fact. So our core value proposition is, hey, if you didn’t pay off your credit card last month, you have a loan and it’s not a very good one. Let us save you an average of typically about 20% off of the the interest rate you’re paying on your card. And what we offer is also a fixed rate instead of a variable rate, so it’s better for your FICO score and there are a number of other advantages. But the key one is, it’s a lower cost, fixed duration way to pay them off.

DN: Lending Club’s early model was heavy on individual investors and light on institutions, but over time that ratio has flipped, and now most of the loans are being covered by institutional investors. How has this played out in a financial realm where you’re competing against both banks and other specialty lending institutions?

SS: So banks use deposits to fund loans and typically serve the highest credit quality customer. Specialty finance companies typically borrow money to lend out so they have to serve higher risk customers because they have a higher cost. And so those are two different segments. We have a great product across that spectrum. We’ve got amazingly low interest rates for super prime quality customers and very competitive loan rates for near prime customers One’s funded by banks, the other one is funded by asset managers. So that’s one breadth of the model that is a real benefit.

DN: You’re company went through a widely publicized scandal in 2016 but since you took over the helm, it appears Lending Club is on a path of recovery, recently returning to profitability and according to your reporting, processing some 53,000 applications on average every day during the last quarter. Talk about navigating the challenges of getting Lending Club back on its feet after this rough patch?

SS: So what happened was, the company lost trust, right? Trust takes time to rebuild but I knew it was possible. This is a a company that is very values driven and it’s something we’ve been really consistent about documenting, incorporating into our hiring practices and evaluating performance against those values. And we added a new value which was do what’s right and earn back the trust of our loan industry and earn back the trust of the equity investors. We knew we would have to work hard to do that and we rebuilt the management team and brought in people who are excited about the next phase of growth and committed to this vision of the company. In the early days of the company there was a lot of drive to go faster and kind of push. In the first year after I took over we actually shrank the company and held loan volume flat. The idea was taking growth off the table and just focusing on rebuilding the trust of investors. So, 2017 was stabilizing the business, in 2018 the team was getting back to growth and market leadership. And this year has been about getting back to profit.

DN: As a digital platform, Lending Club can essentially operate anywhere. What drove the decision to expand the San Francisco-based operation to Utah earlier this year?

SS: We actually had plans in place for the Utah expansion before 2016. When we were ready to revisit those plans, we refreshed the analysis and went through the selection process again, looking at lots of competitive cities including Denver, Phoenix, Austin and a number of other places. At the end of it, we came to the same conclusion, which was Utah was right for us. You know, there’s this unquantifiable stuff here around the commitment of the employees and values in the state that really match our values. We are a purpose-driven company that’s trying to disrupt a very major industry and be on the side of the consumer. The strong values of the company have alignment here. When you’re doing a spreadsheet, that’s something to factor in, but it’s a major factor and we now have a staff of about 550 working here.