Interview with Lending Club CEO Renaud Laplanche

Editor’s note: The interview below was not conducted by me. Another publication conducted this interview and wrote the article but then decided not to publish it. Lending Club contacted me to see if I wanted to publish the article and I agreed because I thought it would be of interest to you. The links were inserted by Lending Club.

Describe your early days as an entrepreneur. What was the inspiration behind Lending Club?

I started out my career as an attorney in a New York law firm and grew frustrated at the legal industry’s slow adoption of technology, especially when I had to dedicate tedious hours to finding a piece of information that a search engine could locate in seconds. Then I had an entrepreneurial vision and left my law firm to create MatchPoint, an early innovator in content management and document search.  Rapidly adopted by law firms and numerous other industries, MatchPoint quickly built a global customer base of several hundred thousand users. Oracle Corporation acquired MatchPoint in 2005, and renamed the business Oracle Enterprise Search.

A year later, I received a confounding bill in the mail, which was a catalyst to the creation of Lending Club in 2006. I was stunned to realize that, despite excellent credit, my credit card carried an 18% interest rate. Yet at the same time I was only earning 1.5% from the bank on a “high yield” CD. The disparity led me to begin studying the banking industry, and I was startled by the inefficiencies that caused stubbornly high rates paid by consumers yet low returns paid to depositors. I realized that by connecting investors with borrowers, I could shorten the path between the source of capital and the use of capital to deliver greater value for borrowers and investors.

How has Lending Club grown since 2006?

Lending Club continues to experience tremendous success; with annual growth in excess of 100% during each of the past four years.  We’ve now facilitated over $800 million in personal loans, helping more than 70,000 borrowers pay off higher interest debt, finance major purchases and achieve their financial goals. We’re also now at the forefront of creating a rapidly growing new asset class, which has delivered positive and consistent returns during a period of extended upheaval and volatility in most other financial markets.  Because of our increasingly meaningful track record, both retail and institutional investors are adding more than $65 million per month in investment capital to the Lending Club platform, fueling our rapid expansion.

What are some of the bigger entrepreneurial challenges you’ve faced at Lending Club?

Like most businesses, our road to success hasn’t been without challenges. The first hurdle was the uncertain regulatory environment in 2006. My experience as an attorney gave us an edge; we took proactive steps to begin discussions with the SEC and successfully created an innovative alternative structure that allowed us to be the first company to sell publicly registered securities based on individual consumer loans in October 2008.

But shortly after that, a near-unprecedented credit crisis hit the country in full force. Lending money to strangers over the Internet was already a scary idea and it raised many questions about the feasibility of our model: would borrowers suffering from job losses and shrinking home values be able to repay the loans? Would investors experiencing staggering stock market declines be willing to invest in an unproven asset? Instead of giving up, I used my own money to fund loans and generate momentum.  I decided to tighten the company’s credit policy to focus on borrowers with good to excellent credit – which paid off as solid returns went to investors and Lending Club attracted capital in record numbers. Thanks to our great users, and the creativity and commitment of our team, Lending Club is now the dominant market leader in the space with 80% market share, enabling $70 million in loans per month.

What is your approach to building and leading the Lending Club team?

Building a company that is revolutionizing the $2.4 trillion dollar consumer credit industry and that has more than doubled in loan volume annually for four consecutive years requires not only a talented team, but one that evolves and grows along with the business.  Many employees who made substantial contributions to the company’s early success weren’t necessarily in the best roles for the company’s needs as it has evolved from a scrappy startup to the dominant leader in a rapidly growing, heavily regulated market. As a result, we frequently create new roles for valued employees that enable them to thrive and continue to contribute to the company’s success. We continuously evaluate the skills that we need to surpass increasingly lofty goals and seek the most qualified people to fill those positions, whether they are one of several entry-level employees who have developed into department heads or senior executives recruited from Fortune 500 firms.

Though Lending Club is helping to revolutionize the consumer lending industry, much of our skilled financial services talent comes from the traditional banking sector. We encourage employees to rethink how to best provide value to borrowers and investors, which often includes radical departures from the industry status quo.  But the result is a team that draws heavily from the ranks of household names in financial services yet approaches the business excited and empowered to create new and better ways to serve borrowers and investors.

What’s next?

The consumer credit market is a $2.4 trillion industry and we’ve barely scratched the surface. We are building Lending Club to be a serious alternative to traditional bank lending and are constantly looking to develop new, more efficient and consumer friendly products.

Lending Club is growing over 100% annually and we expect to continue that rapid growth. We expect to surpass $1 billion in total loans facilitated since inception by the end of 2012. The future is looking bright!

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Dan B
Dan B
Sep. 4, 2012 10:57 am

Wow, who wrote this infomercial, I mean article again?

Dan B
Dan B
Sep. 4, 2012 5:00 pm
Reply to  Peter Renton

You can say that again. 🙂

Sean
Sean
Sep. 6, 2012 12:06 pm
Reply to  Peter Renton

What info in the article made you decide it was worth publishing? That’s not meant to be sarcastic – this just looks like an advertising insert a company would normally pay to have printed, and I’m wondering what I overlooked.

Dan B
Dan B
Sep. 6, 2012 3:22 pm
Reply to  Peter Renton

True enough. I was just a bit surprised that you ran the article without knowing the source &/or why they didn’t use it…………….assuming that there was a source beyond LC itself. Because as Sean suggests, it really does sound like the source may be LC itself.

Em
Em
Sep. 6, 2012 12:56 am
Reply to  Dan B

Jeff Gannon?

Ari
Ari
Sep. 4, 2012 1:29 pm

I wish LC would hire more people to speed up the process of getting these “in review” to “issued” notes. It grinds my gears watching my money just sit there idly. Also I’m awaiting your article about LC’s collection methodologies. That should be fun!

Dan B
Dan B
Sep. 4, 2012 5:34 pm
Reply to  Peter Renton

When i was young, irresponsible & “hanging around with the wrong crowd”, (which by the way is one of the best all purpose excuses)
…………………….there was one collection agency that would call day after day, for many many weeks on end, at exactly the same time each day. I mean you could set a clock by it. I found it pretty hilarious even at the time, though they did eventually tire of that “tactic”,………… & I use the term loosely.

Hopefully whomever LC contracts to do collections is a tad brighter than that particular outfit………………….not that it would really matter 95%+ of the time.

Bryce M.
Bryce M.
Sep. 5, 2012 1:21 pm
Reply to  Ari

Your money will be tied up for three years once issued. Consider it a cost of doing business. Slow in slow out.

Danny S
Danny S
Sep. 6, 2012 8:15 am

Definitely looking forward to reading the interview with LC’s Collection team. I can only hope its a bit more aggressive than what we saw from Prosper.

Q&A
Q&A
Sep. 6, 2012 3:20 pm

Q: What makes LC feel comfortable letting investors in states where the securities do not have regulatory approval purchase the securities via their secondary Folio market?

Q&A
Q&A
Sep. 7, 2012 4:58 pm
Reply to  Em

The link you provided merely shows that LendingClub will indeed let users from states where the securities are unapproved use FolioFN to buy those securities.

I do not see how your exclamation of “States Rights!” is applicable, here, either. These states have specifically not approved LendingClub’s offerings, yet, LC is letting members sell notes (via LC’s trading market) to those states’ residents…

This makes me nervous on several levels: are the investors who sell on FolioFN liable for securities fraud? Is it LC? If I’ve dumped a bunch of “late” notes, can I possibly be at some point down the line responsible for making someone whole, due to the fact that that person lived in a state where the securities were illegal?

Et cetera…

Q&A
Q&A
Sep. 7, 2012 6:18 pm
Reply to  Peter Renton

“Trust us, it’s legal” ?

Even you don’t seem to fully buy that, as you (rationally) point out that it’s unlikely that anything will come back on individual investors – leaving a Q.

Dan B
Dan B
Sep. 7, 2012 6:36 pm
Reply to  Peter Renton

You meant to say………..investing in new notes is very different than investing in securities traded on the SECONDARY market, did you not? Because FolioFN notes are the secondary market & new notes are the primary market, correct?

DT
DT
Sep. 7, 2012 1:53 pm

Peter – I liked the Lending Club article you published. I am one of the readers you described that mainly reads your blog for information and to improve my ROI, which I have. I rarely comment. Thanks for publishing the article.
DT

John S
John S
Sep. 10, 2012 11:11 am

Peter,

As someone new to the P2P concept that has made some small trial investments at Lending Club, I really appreciate your blog and have been learning a lot from it. Here are a couple of ideas for blog articles that others may be interested in hearing about as well.

A glossary with definitions of terms that are used in LC’s spread sheets. This is something I looked for on the LC site but did not find. Most of the terms used are familiar and I think I know what they mean, but it sure would be nice to know for sure.

Also more information about how the situation would play out if LC were to fail. I read their short Q&A response that they have an agreement with Portfolio Financial Servicing Co to ensure servicing of the loans, but what kinds of fees does PFSC charge for this service? Are there any adverse affects for the lenders or borrowers?

If these items are covered somewhere I’d sure like to read up on them. Thanks again for the great job you are doing!

JS