LendingClub — What I Think
LendingClub had the most beautiful idea in fintech history and it was, in the end, almost too beautiful to survive contact with reality. The thesis: cut the bank out of lending entirely. Why should a borrower pay a fat spread and a saver earn nothing while a bank sits in the middle taking the difference for the privilege of intermediating? Connect them directly. Let ordinary people lend to other ordinary people, peer to peer, and split the spread the bank was hoarding. Disintermediate the oldest middleman in finance. On a whiteboard it’s perfect. The purest expression of what fintech was supposed to be.
What LendingClub understood that was genuinely ahead of its time: a loan is just a cash flow, and a cash flow can be sliced, priced, and sold to whoever wants the yield. They turned consumer credit into an asset class retail investors could buy directly. For a brief, electric moment around its IPO it was the most valuable fintech in America and the proof that the bank could be unbundled. The intellectual core of that idea, that credit is data and data can be marketplaced, went on to shape an entire generation of lenders.
Where the dream broke against the wall of reality, and this is the deep lesson: peer-to-peer lending has a chicken-and-egg fragility that only shows up under stress. Your retail “peers” are the most skittish capital on earth. They flee at the first sign of rising defaults, exactly when borrowers most need funding. So the platform that promised to replace the bank found itself desperate for stable, patient capital, which meant courting the very institutions and banks it was built to disintermediate. The marketplace slowly became the thing it set out to kill. The final irony: LendingClub ended its journey by buying an actual bank, so it could fund loans with boring, sticky deposits, the exact model it once promised to make obsolete.
The truth: the P2P dream was right that the bank’s spread was excess, and wrong that you could capture it without the bank’s single greatest asset, a stable, insured, low-cost deposit base. Disintermediation is a wonderful word until you remember that the boring middleman was holding the one thing that makes lending survive a downturn. The vision wasn’t defeated by competitors. It was defeated by the business cycle.
Favorite & worst CEO
Two distinct eras. Favorite, on vision: Renaud Laplanche, the founder, for the sheer audacity of the original peer-to-peer thesis, genuinely one of the boldest ideas the industry produced, and he took it all the way to a landmark IPO. His 2016 departure as CEO amid a board review of loan-sales and disclosure issues is well-documented public record, and I’ll cite it as the fact it is without piling on. Where I land on era: Scott Sanborn inherited a company in crisis and did the unglamorous, genuinely impressive work of turning a wounded marketplace into a real, profitable bank, including the bank acquisition that finally gave it stable funding. I connect more with Laplanche’s founding heresy. But Sanborn’s pragmatism is the only reason there’s still a company to write about, and that pragmatic pivot is itself the lesson of the whole story.
Part of “What I Think About the Top 50 Fintech Companies of All Time.” I’m Prajjwal Chittori. prajjwalchittori.com.