Editor’s note: The interview below was not conducted by me. Another publication conducted this interview and wrote the article but then decided not to publish it. Lending Club contacted me to see if I wanted to publish the article and I agreed because I thought it would be of interest to you. The links were inserted by Lending Club.
Describe your early days as an entrepreneur. What was the inspiration behind Lending Club?
I started out my career as an attorney in a New York law firm and grew frustrated at the legal industry’s slow adoption of technology, especially when I had to dedicate tedious hours to finding a piece of information that a search engine could locate in seconds. Then I had an entrepreneurial vision and left my law firm to create MatchPoint, an early innovator in content management and document search. Rapidly adopted by law firms and numerous other industries, MatchPoint quickly built a global customer base of several hundred thousand users. Oracle Corporation acquired MatchPoint in 2005, and renamed the business Oracle Enterprise Search.
A year later, I received a confounding bill in the mail, which was a catalyst to the creation of Lending Club in 2006. I was stunned to realize that, despite excellent credit, my credit card carried an 18% interest rate. Yet at the same time I was only earning 1.5% from the bank on a “high yield” CD. The disparity led me to begin studying the banking industry, and I was startled by the inefficiencies that caused stubbornly high rates paid by consumers yet low returns paid to depositors. I realized that by connecting investors with borrowers, I could shorten the path between the source of capital and the use of capital to deliver greater value for borrowers and investors.
How has Lending Club grown since 2006?
Lending Club continues to experience tremendous success; with annual growth in excess of 100% during each of the past four years. We’ve now facilitated over $800 million in personal loans, helping more than 70,000 borrowers pay off higher interest debt, finance major purchases and achieve their financial goals. We’re also now at the forefront of creating a rapidly growing new asset class, which has delivered positive and consistent returns during a period of extended upheaval and volatility in most other financial markets. Because of our increasingly meaningful track record, both retail and institutional investors are adding more than $65 million per month in investment capital to the Lending Club platform, fueling our rapid expansion.
What are some of the bigger entrepreneurial challenges you’ve faced at Lending Club?
Like most businesses, our road to success hasn’t been without challenges. The first hurdle was the uncertain regulatory environment in 2006. My experience as an attorney gave us an edge; we took proactive steps to begin discussions with the SEC and successfully created an innovative alternative structure that allowed us to be the first company to sell publicly registered securities based on individual consumer loans in October 2008.
But shortly after that, a near-unprecedented credit crisis hit the country in full force. Lending money to strangers over the Internet was already a scary idea and it raised many questions about the feasibility of our model: would borrowers suffering from job losses and shrinking home values be able to repay the loans? Would investors experiencing staggering stock market declines be willing to invest in an unproven asset? Instead of giving up, I used my own money to fund loans and generate momentum. I decided to tighten the company’s credit policy to focus on borrowers with good to excellent credit – which paid off as solid returns went to investors and Lending Club attracted capital in record numbers. Thanks to our great users, and the creativity and commitment of our team, Lending Club is now the dominant market leader in the space with 80% market share, enabling $70 million in loans per month.
What is your approach to building and leading the Lending Club team?
Building a company that is revolutionizing the $2.4 trillion dollar consumer credit industry and that has more than doubled in loan volume annually for four consecutive years requires not only a talented team, but one that evolves and grows along with the business. Many employees who made substantial contributions to the company’s early success weren’t necessarily in the best roles for the company’s needs as it has evolved from a scrappy startup to the dominant leader in a rapidly growing, heavily regulated market. As a result, we frequently create new roles for valued employees that enable them to thrive and continue to contribute to the company’s success. We continuously evaluate the skills that we need to surpass increasingly lofty goals and seek the most qualified people to fill those positions, whether they are one of several entry-level employees who have developed into department heads or senior executives recruited from Fortune 500 firms.
Though Lending Club is helping to revolutionize the consumer lending industry, much of our skilled financial services talent comes from the traditional banking sector. We encourage employees to rethink how to best provide value to borrowers and investors, which often includes radical departures from the industry status quo. But the result is a team that draws heavily from the ranks of household names in financial services yet approaches the business excited and empowered to create new and better ways to serve borrowers and investors.
The consumer credit market is a $2.4 trillion industry and we’ve barely scratched the surface. We are building Lending Club to be a serious alternative to traditional bank lending and are constantly looking to develop new, more efficient and consumer friendly products.
Lending Club is growing over 100% annually and we expect to continue that rapid growth. We expect to surpass $1 billion in total loans facilitated since inception by the end of 2012. The future is looking bright!
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.