The online lending community that once offered borrowers the opportunity to “bypass the banks and get better rates” is now technically the best online bank. Radius Bank, awarded best online bank of 2020, fully merged itself into LendingClub this month following the acquisition earlier this year. Radius bank’s website now points to bank.lendingclub.com.
It may be a bit jarring to those who remember Lending Club as a peer-to-peer lending platform, to see the FDIC-insurance guaranty at the bottom alongside offerings like a checking account. Bankrate.com added LendingClub to its rankings this weekend. It gives the company a score of 4.3, a good number of notches below the top score held by Ally Bank at 4.9.
LendingClub is just one of several fintech lenders that are fully transitioning to banks. Square flexed its new banking status starting this month, while Kabbage, under the American Express umbrella, has been pushing business checking accounts pretty hard.
When Lending Club retires its peer-to-peer lending platform on December 31st, users will have the option to transfer their remaining funds to Radius Bank into something called a Founder Savings Account. The company acquired Radius Bank in February this year and has communicated that its efforts have been dedicated to this initiative.
As part of this shift, peers that were part of their soon-to-be discontinued platfrom will be eligible for a “Founder” Savings account.
“We will let you know of the interest rate at launch,” Lending Club’s FAQ says on the matter. “You can expect that it will be a compelling rate, as an exclusive way to thank our investors for their dedication to our community.”
At present, a standard “high-yield” savings account at Radius Bank earns up to .25% APY.
The company acknowledes that not everyone will want to become a banking customer. “If you don’t choose to open a Founder Savings account, your Notes account cash position will continue to build until you transfer those funds to another financial institution.”
Bankrate awarded Radius with the title of “Best online bank of 2020.”
Lufax, an online lending marketplace and one of China’s largest fintech companies, plans on going public by the end of the month on the New York Stock Exchange. Lufax is one of the multiple Chinese fintech companies grappling for a public offering amidst increasing tension between U.S. and Chinese markets.
Offering an online shopping mall for financial products, Lufax connects borrowers to various lending products supplied by traditional and alternative investors alike. Lufax was one of the largest, if not the largest P2P lender in China just two years ago before a major crackdown on the P2P industry forced the company to revamp completely.
Lufax plans to issue 175 million shares that will be priced from $11.5 to $13.5 each, according to a prospectus with the U.S. Securities and Exchange Commission last week. This would net the company around $2.36 billion.
The IPO would give the company around a $30 billion in valuation, lower than the $39.4 billion valuation it received in 2019 from a major backer Ping An Insurance Group.
Lufax reported more than $1 billion of profit in the six months up to June 30th, according to the filing. Last year, the firm’s assets dropped by 6.1% after a 30% reduction in transaction volumes. This was a cut of nearly all P2P transactions, in compliance with regulation from the Chinese government.
After the P2P industry grew unchecked for a decade, fraud concerns bloomed into outrage as hundreds of platforms covering hundreds of billions of dollars defaulted. According to Mckinsey, from 2013 to 2015, fintech firms offering P2P products exploded from 800 to more than 2,500 companies. More than 1,000 of these firms began to default on their debt, ballooning to an outstanding loan value of $218 billion in 2018.
In response to protests, outrage, and stadiums of helpless borrowers trying to gain their funds back from Ponzi schemes, the Chinese government cracked down hard on fraudulent firms. According to Reuters, regulators placed every P2P firm on death row, stating in 2019 that the industry had two years to switch to “small loans.” The shutdowns have cost Chinese investors $115 billion, according to Guo Shuquing, China Banking Regulatory Commission.
Pivoting away from these shutdowns, Lufax and many firms like Alibaba funded Ant Group are switching to lending marketplaces. Lufax works with 50 lending providers that hold $53 billion in assets as of June. Lufax believes that there are trillions of dollars in the untapped alternative finance market in China.
LendingClub is finally ending the “peer-to-peer” aspect of its platform for good. Earlier today, the company announced that it would cease offering and selling Member Payment Dependent Notes effective December 31st.
“Ceasing the Retail Notes program will allow LendingClub to redeploy capital and improve platform efficiency, enabling the company to help even more members as LendingClub progresses towards closing the Merger and becoming a bank holding company,” the company said in an official statement. “All Retail Notes outstanding as of the date the Retail Note program is ceased will be unaffected by the cessation of the program. Accordingly, with respect to such outstanding Retail Notes, LendingClub will continue servicing the corresponding member loans and information regarding such Retail Notes will remain viewable in the applicable Retail Note investor accounts.”
LendingClub rose to fame with its peer-to-peer model nearly a decade ago, but using retail investors to fund loans has been eroding over time. ‘Peers’ Are Almost Gone From Lending Club’s Funding Mix was the title of a February 2019 deBanked story that highlighted this trend, for example.
Meanwhile, the focus on Radius Bank is a reminder that the announcement made nearly 8 months ago is still a work-in-progress.
“In connection with and in furtherance of the Merger, LendingClub has been in regular contact with federal banking regulators and, on September 25, 2020, filed an FR Y-3 application with the Federal Reserve to become a bank holding company,” the company said. “LendingClub plans to offer a full suite of products as a bank. This includes a high-yield savings account that will be initially exclusively available to its existing retail investors and will offer a compelling interest rate, as well as other products that take advantage of the marketplace to allow its customers to both pay less when borrowing and earn more when saving.”
Radius Bank was the subject of a major deBanked Magazine story in 2017 titled Tech Banks: Will Fintech Dethrone Traditional Banking?
On September 23, retail investors on the Lending Club platform in 5 states received strange news, they had been temporarily restricted from buying notes because of the state they lived in. No further information was provided.
74 days later, investors in New York, Florida, Texas, Arizona, and North Dakota (the affected states) are still frozen out from buying notes. Restrictions in a handful of other states have existed for years.
Lending Club was asked about this by Wedbush Securities analyst Henry Coffey on the November 5th Q3 earnings call and CEO Scott Sanborn explained that it was due to a review of their state licensing requirements that was conducted in their pursuit of a bank charter. “As part of our overall preparation for the bank charter, we did an updated review of our licensing requirements,” Sanborn said. “We identified some that we have that we don’t need and some that we believe we need that we don’t have, and that’s what you’re seeing.”
Sanborn went on to describe the overall impact of temporarily losing those investors to their bottom line as immaterial and that they were working quickly to restore investing access.
A month later, the restriction persists. 58 comments on the subject have piled up on a LendAcademy blog post discussing the matter, many of them unhappy. Investors in those states can still trade notes on the secondary market, but that is not really a consolation.
It may not matter. Lending Club stopped relying on individual retail investors as a significant funding source long ago.
StreetShares quietly discontinued a major part of its financing business on November 15, a new disclosure filed with the SEC revealed. “For new customers, the Company is no longer offering to factor invoice receivables,” the letter signed by General Counsel and Chief Compliance Officer Lauren Friend McKelvey says.
The company had purchased more than $112 million in receivables since it began offering this product in December 2016, had serviced 40 customer accounts, and had advanced as much as $7 million on a single invoice as recently as Fiscal Year 2019.
The company has only facilitated $180 million in funding to small businesses since inception in 2014. That would indicate that the invoice factoring portion was roughly half of the company’s funding volume.
As of November 15, the company said it only had one customer remaining that was still using this product and no new ones would be accepted. Instead it would continue to offer only loans and lines of credit.
StreetShares relied heavily on individual retail investors to purchase receivables, their publicly filed financials show. 98.28% of all funds advanced on invoices in FY19 came from the retail investor segment whereas it was only 50.22% in FY18.
The company had also recently reported a heavy net loss and soaring costs.
Ireland can seem like a small place, so much so that on my way to meeting with Colin Canny, Flender’s Head of Partnerships, I quite literally bumped into Flender’s co-founder & CEO Kristjan Koik who was walking through Dublin’s Silicon Docks. I recognized Koik from the who’s who catalogue of executives I had compiled before traveling abroad to explore the Irish fintech scene. He was cordial and polite. And yet through his demeanor I sensed there was more, that there was a story to be told even if it was not ready to be shared.
The following month Flender would reveal remarkable news, a new €75 million funding line, bringing their total to €109 million raised since the company’s founding in 2015. The company is backed by Eiffel Investment Group, Enterprise Ireland, entrepreneur Mark Roden and former Ireland rugby player Jamie Heaslip.
This large amount of funding, even by UK or US standards, makes Flender stand out, and so when I finally meet with Canny on that warm Fall day in September, I’m pretty thankful he afforded me the time.
Flender, Canny explains, is derived from Flexible Lender. The pamphlet he produces and hands to me says that their idea is simple, to provide businesses with the funding they need and ensure the application process is fast, easy, and transparent.
Application details for products like term loans and merchant cash advances require the usual stips like historical bank statements, a profit & loss statement, and a balance sheet. But there’s also a section quintessentially Irish, that is that it can be beneficial to submit your last 2 years herd numbers if you’re a farmer, complete with your last 12 months Milk Reports and property acreage figure.
Canny explains that Flender is not a high-risk fall-back lender, but rather the opposite. “Our credit process is extremely tight,” he says, “in line with banks.” And with good rationale, seeing that the company is still somewhat reliant on a peer-to-peer funding model. More than half of individual peers on the platform are Irish but Canny says that it’s not unusual for non-residents including Americans to lend on the platform as well.
Canny says the Irish market is very “community based.” The transparency of the marketplace aligns with that characterization. Like other peer-to-peer small business lenders in Ireland, borrower identity is publicly accessible on the platform, as are the terms of the loan. Anyone can view the business name of a prospective borrower on the website, the address, a bio, and even their “story.”
Flender taps several marketing channels like Google Adwords, radio, direct sales, and even brokers. Canny says they generate an underwriting decision in as quick as 4-6 hours and fund a business in as little as 24 hours. Borrowers like the product so much that many renew. Seventy percent of the SMEs in the country are peer-to-peer bankable, Canny explains, creating a wide playing field to target.
Meawnwhile, CEO Kristjan Koik told the Irish Times that the top 3 banks in Ireland have 92 percent of the SME lending marketshare so there is still a ton of opportunity for non-banks like Flender to grab hold of.
As for how the massive credit line impacts them going forward? Koik told the Times that they would be cutting interest rates by up to 1 percent across their various loan products. Interest rates now start as low as 6.45% and terms range up to 36 months.
As Canny and I part ways I present one final question, will Flender be expanding abroad? I get no definitive answer. He was cordial and polite, and yet I sensed through his demeanor that there was more, perhaps even a story in the works that was not yet ready to be shared.
Funding Circle UK has begun to refer applicants seeking an amount above their maximum loan size limit of £500,000 to Iwoca, MarketInvoice and French bank BNP Paribas, The Sunday Times reported. Previously, Funding Circle would just turn them away.