The Lending Club Corp. (LC) is the worlds largest P2P lending platform. The company claims that $22

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The Lending Club Corp. (LC) is the world’s largest P2P lending platform. The company claims that $22 billion in loans had been originated through its platform up to January 15, 2017, of which about $2 billion funded in the last quarter of 2016. It was the first P2P lender to register with the SEC. For the history of LC, see Davidson (2013).

The Business Model
According to lendingclub.com/about-us-action and en.wikipedia.org/wiki/lending-club, Lending Club enables borrowers to create “loan needed” listings on its website by supplying details about themselves and the loans that they would like to obtain. All loans are unsecured personal loans and can be between $1000 and $40,000. On the basis of the borrower’s credit score, credit history, desired loan amount requested, and the borrower’s debt-to-income ratio, Lending Club determines whether the borrower is credit worthy and assigns to its approved loans a credit grade that determines payable interest rate and origination fees. The standard loan period is 3 years. Investors can browse the “loan listing needed” on Lending Club website and select loans that they want to invest in, based on the information supplied about the borrower, amount of loan, loan grade, and loan purpose. The loans can only be chosen at the interest rates assigned by Lending Club, but investors can decide how much to fund each borrower

The Revenue Model
Investors make money from interest. Rates vary from 6.03% to 26.06%, depending on the credit grade assigned to the loans. Lending Club makes money by charging the borrowers an origination fee and the investors a service fee. The size of the origination fee depends on the credit grade, and it ranges 1.1–5.0% of the loan amount. The size of the service fee is 1% on all amounts the borrower pays. The company facilitates interest rates that are better for lenders and borrowers than they would receive from (or pay to) most banks. Note: Because lenders are making personal loans to individuals, their gains are taxable as personal income, instead of investment income (i.e., they pay more tax).

The Secondary Market
The investors have the ability to place the unsecured notes they receive from LC for sale before the notes have reached maturity. This service is offered in a partnership with FOLIOfn Investments which charges a 1% fee on note sales, making Lending Club the first peer-to-peer lending network to offer a secondary market for peer-to-peer loans.

Problems Faced by Lending Club
During its first year, LC grew very fast, added business partners, and involved financial institutions (e.g., hedge funds) in its operation. Then a slew of problems emerged that resulted in the stock price to lose over 80% of its value, its CEO left, and the SEC launched an investigation of the business. The SEC realized that individual lenders have no experience in assessing credit risk nor they have access to information that a bank does. The borrowers and the lenders depend on what they are told by LC. LC itself aims to take no risk, selling the loans to others. In short, the P2P lending business pushes loan volume at the expense of credit equity. Therefore, some argue that LC troubles show why P2P does not work (e.g., see Hutchinson (2016)). For more about LC problems, see Chafkin and Buhayar (2016). Finally, delinquencies of borrowers climbed in recent years. As a result, LC tightened its credit and increased its fees and interest rates (per Buhayar (2016)).

Conclusion
Despite all the problems, LC is alive and growing. The quality measures resulted in losses in 2016. But its share price is slowly climbing, and financial analysts are willing to wait rather than recommend to sell the shares of LC.

Questions
1. It is said that “LC is a kind of eBay for loans.” Discuss.
2. Search information about the SEC investigation. Write a report.
3. Find the B2B activities on the site.
4. Compare LC with Funding Circle in the United Kingdom. Write a report.