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LendingClub Founder and CEO, Renaud Laplanche – Interview
social lending earlier this year. Companies such as Zopa and Prosper are expanding across international lines as the market continues to grow. Lending Club is a new entrant into the social lending market and currently works exclusively within the Facebook platform. To find out more about Lending Club, I spoke with Founder and CEO, Renaud Laplanche.
Allen: Can you provide a brief background about yourself?
Renaud: I grew up in France, was trained as a lawyer, completed my MBA in London Business School and worked for New York law firm Cleary Gottlieb in Paris and in New York for a few years, then founding TripleHop Technologies, the software company that designed MatchPoint, in 1999 and sold it to Oracle in 2005.
Allen: What is Lending Club and where did the idea come from?
Renaud: When I started TripleHop, I charged the first few expenses on my credit card. In 3 months, I had accumulated $20,000 on my card, and realized I was paying 18% interest despite my good credit score. This was before raising any capital for the company, so I refinanced the expenses with a small loan from a group friends from my sailing club, at a 10% interest rate. This experience set the founding principles of Lending Club:
- Most people are paying high interest rates on personal loans and credit cards, because they don’t have the time to shop around for better rates.
- Technology can be used to match lenders with borrowers, and identify connections among people through social networks and online communities. These connections build up trust on the lender side and responsibility on the borrower side.
Allen: How does the service work?
Renaud: Lending Club essentially disintermediates the banks. Banks typically collect deposit from the public and pay 1% to 5% in return through savings accounts and CDs, then turn around and lend that same money out to borrowers at a 13% rate or more through unsecured personal loans and credit cards. We have created a platform that lets borrowers and lenders meet directly online and trade money at an average rate of about 10%. As a way to help build confidence on the lenders’ side, we have decided to limit access to borrowers with at least a 640 Fico score and less than 20% debt-to-income ratio. This combination will result in low defaults and excellent net returns for the lenders. The flip side is that we have to turn down a fair number of borrowers.
Allen: What’s the team like at Lending Club?
Renaud: It is an interesting mix of technology and finance geeks :) We have many experienced finance professionals from Mastercard, Wells, GE Capital, First Data, a group of bright engineers from Oracle, user experience folks from Razorfish, and marketing people from eBay. The result is the highest performing team I have ever seen working together.
Allen: Who is your typical customer?
Renaud: Quite frankly we are still figuring this one out. An analysis of our current base might be misleading because traffic is currently gated through Facebook. We anticipate, however, that most borrowers will be 22-34 year old urban professionals. Lenders population break down into multiple segments: we’re seeing a lot of people loading $200-$300 into their Lending Club account (but that might very well be people "tryign it out"), quite a few $1,000 – $5,000 investments, and also a few larger investments from "super-lenders". Lenders’ demographics are all over the place at this point.
Allen: Who are your competitors?
Renaud: Prosper is really the only other person-to-person lending marketplace available in the US at this point, but we do not feel competitive with them at all. Both Prosper and Lending Club can be very successful, and the success of both companies will be much more dependent on how fast we can grow the p2p lending space together rather than how well we compete against each other. With 2.4 trillion dollar in personal consumer debt (other than mortgages), it is a big market out there.
Allen: Prosper and Zopa are available outside of Facebook. Since you are exclusive to FB, do you think this hinders your ability to generate continued loans?
Renaud: We’re definitely generating less loans than we could, because traffic is cureently gated through Facebook. The Facebook-only launch was the perfect way to test the power of the affinity model, using connections among users to increase trust and desire to help each other, and to gather a lot more user feedback before opening up further. We will be announcing more partnerships and expanding beyond Facebook soon.
Allen: Do you have a monetization plan? If so, can you share some details? Are you funded?
Renaud: Lending Club charges an origination fee of 0.75% to 2% to the borrowers and a servicing fee of 1% to the lenders. That’s how we monetize the loans.
Allen: Can you share some details about your marketing plan?
Renaud: We will be expanding beyond Facebook and will be announcing a number of partnerships before the end of the year. Tactically, we have a few more "surprises" coming up, like the video contest that you have seen running for the last couple of weeks that generated lots of attention on YouTube and elsewhere.
Allen: What’s coming in the next 3-6 months for Lending Club?
Renaud: There is so much I can reveal at this point; all I can say is that you should expect many changes, annoucements and bold moves. Our expansion beyond Facebook will materialize in several ways.
Allen: What’s been your biggest lesson learned since you started Lending Club?
Renaud: Sharing problems openly with the community works. We have been very open from Day 1 about the issues we are having with our high decline rate (we are declining about 70% of all applications) and as a result were contacted by several lenders and borrowers with very interesting thoughts about how to better handle this issue, and will be coming up with concrete steps towards a solution as a result in the next few weeks.
Allen: Where do you see Facebook moving this year? Do you believe the growth it has experienced will continue?
Renaud: I think Facebook’s growth will be very dependent on their ability to appeal to the 25-34 age range. It seems that this portion of their user base is rapidly growing; I certainly hope that will continue to be that way.
Allen: Since Facebook is a closed environment, do you believe Lending Club has a cap on how many loans you can actually offer?
Renaud: Facebook says it has 29 million users right now. You can make a lot of loans among 29 million tech-savvy, college-educated people.
Allen: What advice do you have for those thinking about starting a web application?
Renaud: Make it social, lively, open to the community. All these things work.
Allen: Which RSS feeds are you reading these days?
Renaud: I get sailing news, and the usual suspects like Techcrunch, Read/WriteWeb, Mashable and CenterNetworks. I also get finance news from Kiplinger and NetBanker.