Today, Lending Club announced a partnership with BancAlliance, a consortium of 200 community banks with assets ranging from $200 million to $10 billion. Similar to the bank partnerships Lending Club already has in place these banks will be investing in consumer loans originated by Lending Club, loans that they don’t want to or couldn’t afford to make themselves. They will also be sending their own customers and prospective borrowers to Lending Club.
At the end of 2014, Sugar River Bank’s loans to individuals totaled $1.4 million, or less than 1% of its $261 million in assets. Now the bank is committing $5 million for individual loans through the Lending Club deal by purchasing the loans of borrowers who apply through the Lending Club website. Sugar River Bank makes mostly real-estate and small-business loans, but doesn’t have enough demand to justify a large program for evaluating borrowers with different credit histories.
What this does is further cement Lending Club, and this industry in general, as a way for banks to partner to grow their business. For any bank without a significant credit card portfolio this is becoming a no-brainer. Smaller banks can now do what they used to do for most of the 20th century: make personal loans to people in their community.
On the flip side this gives Lending Club many of the benefits of a branch network without any of the costs. Consumers will soon be able to walk into banks all over the country and apply for an unsecured consumer loan that will be underwritten by Lending Club. And this is a program that is eminently scalable. I can see no reason why most of the 7,000 banks in this country won’t have a program like this in place in the near future.
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.