Discover Wants to Steal Lending Club Customers

May 31, 2016 | By: Sean Murray

Discover used to demonstrate to potential borrowers how their personal loans stacked up next to loans offered by Wells Fargo. But with Lending Club, another rival, showing weakness lately, the columns on their personal loan comparison page have been rearranged to put themselves directly next to Lending Club.

Prosper Marketplace, as shown above, has been part of this comparison chart for quite some time as well. Personal loans from Citi also used to be listed, but they were removed as a competitor last summer. Discover, according to this, seems to show that their loan program offers many advantages over Lending Club.

Both companies market heavily using direct mail and that probably won’t change any time soon. 96% of Discover personal loan borrowers have FICO scores above 660. Meanwhile Lending Club’s minimum required FICO score is technically 640. Both are going after the same type of borrower.

Discover only originated $3 billion in personal loans (which is separate from its credit card business) in 2015 while Lending Club originated $8.3 billion.

Lending Club has at least two weaknesses at the moment, one being that approved loans on the platform could go unfunded if there are too few investors, a problem they’re facing right now. The other is that their relationship with a bank to make their entire business model work is under fire. Discover on the other hand is already a bank and doesn’t have to worry.

Lending Club’s stock price jumped late last week on news that Citigroup might buy the loans that the company originates. The bind Lending Club finds itself in makes a potential Citi deal look like a rescue bailout. If the company cannot find buyers for its loans however, it could indeed be in jeopardy, an issue that has been raised by observers for some time.

It cannot be understated that in Discover’s 2015 earnings report, they championed the originate-to-hold approach. “We believe our brand, disciplined underwriting and ‘originate to hold’ model will continue to allow us to compete very effectively,” they wrote.

Last modified: May 31, 2016