Today, Lending Club announced a new partnership, one that many of us have been anticipating for some time. It has been almost two years since Google invested in Lending Club and we have all been waiting for some kind of partnership to be announced since then.
While the partnership announced today is not what many of us anticipated it is significant because it marks a first for Lending Club and could open up an entirely new growth area for the company.
Google for Work Partners Program
The deal announced today between Lending Club and Google is for partners in the Google for Work program who are looking for a loan. But what is interesting is that these loans will not be put on Lending Club’s platform, they will all be funded directly by Google. Lending Club will create a special program with customized underwriting rules just for Google.
The pilot will allow loans up to $600,000 for approved Google reseller partners. These are companies that are reselling Google for Work services who are looking to expand. There will be no origination fees on these loans and they will be two-year loans with only interest due in the first year. This will allow Google partners to get favorable loan terms probably better than they could get elsewhere.
A New Way to Deliver Credit
I called Lending Club this morning and chatted with CEO Renaud Laplanche to get some background on this new partnership. Laplanche explained why he is so excited about this new program:
Corporations like Google have always wanted to provide credit to their partners and clients but didn’t have the ability to do so. By joining with Lending Club they now have this ability. It is a new way to deliver credit. Google can fund the loans and accept a lower interest rate benefitting the borrower who will have more money to spend on Google’s services.
When I asked Laplanche if they would ever make these loans available to current Lending Club investors he said probably not. The reason being that these are low interest loans and he didn’t think there would be much demand from investors.
How low are the interest rates being charged? They start at 5% for the first year and will then vary in the second year depending on payment record. And there are no upfront fees for the borrower whatsoever.
Despite this fact Lending Club will earn a fee for every new loan they originate and will also earn servicing fees as the loan is paid back. Laplanche would not disclose the fees they will earn on either side but I think it is safe to say that they will be lower than their published fees.
Two Significant Factors
I think there are two significant factors in play with this deal. First, we are dealing with Google, an incredibly successful company that has one of the largest databases of small businesses on the planet. If this partnership goes well maybe it could be expanded to Google’s Adwords clients. That would open up a massive source of business borrowers for Lending Club.
Second, this partnership marks the first time that Lending Club has created a customized underwriting model for one client. In Lending Club’s quest for scale some people have questioned whether Lending Club can really access enough borrowers to maintain their rapid growth. This turns the tables on that idea. With one deal Lending Club could get access to a huge number of borrowers that costs them virtually nothing. Clearly, Wall Street likes this deal sending Lending Club’s stock price soaring almost 5% today as of this writing.
This partnership is not what I was expecting to be the first joint venture between Lending Club and Google. I asked Laplanche about future partnerships between the two companies and not surprisingly he would not give any indication other than to say that this is not the end of what they will do together.
Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.