Dive Brief:
- LendingClub, as of Dec. 31, is retiring the retail peer-to-peer (P2P) platform that allows consumers to invest in fractions of loans originated by the company, it said in a securities filing last week.
- The move represents a pivot away from the 14-year-old company's original vision, as it prepares to become a bank holding company amid its $185 million February acquisition of Radius Bank.
- Acquisitions have helped drive other P2P lending players from the space. Metro Bank, for example, in August announced it was acquiring RateSetter, a British P2P lender. Meanwhile, Goldman Sachs in May bought Folio Investments, which offered a secondary market where investors could buy and sell Notes. Folio discontinued that market in August.
Dive Insight:
About 17% of LendingClub's loans, which borrowers often use to consolidate credit card debt, were funded by retail investors as of June, a four-year high, according to American Banker. Despite that, LendingClub has leaned away from P2P investing and into institutional investing — largely for its higher volume.
"It is very hard to scale lending through crowdfunded money," said Ravi Anand, managing director of ThinCats, a U.K. alternative lender that wound down personal investments in December, according to Fintech Futures. "P2P was a moment in time response following the financial crisis."
The Radius deal, which is expected to close by mid-2021, gives LendingClub a route to a banking license — an end goal that similarly gave British fintech Zopa a reason to get out of P2P lending this year.
Another factor: LendingClub increased its minimum threshold to open an account from $25 to $1,000.
"While the fintech industry has been moving away from P2P lending since 2016, LendingClub's decision to shut down its retail P2P platform marks the end of an era," Matt Burton, the founder of the fintech Orchard, told Peter Renton last week. Renton co-founded the online lending conference LendIt Fintech. Orchard, which specialized in developing technology and analytics for online lending, was acquired by Kabbage in 2018.
"Unfortunately, under a prospective banking framework, it is not economically practical for LendingClub to continue to offer Notes," the company told investors in an email Wednesday. "So, we had to make the difficult decision to retire the Notes platform effective December 31, 2020."
LendingClub indicated it is looking to develop new products that would "retain the peer-to-peer spirit" of the Notes platform. The company said it will launch a high-yield savings account that would first be available only to its existing retail clients, who would be able to automatically transfer cash weekly from their investment accounts.
However, Renton told American Banker: "They've just lost a lot of goodwill with that investor base."
