Social lending goes red hot, as FaceBook enters the space with “LendingClub”
After last weeks entre into the space by Virgin, now FaceBook get into the game.
Hat tip – Wiseclerk
What’s this all about?
By working together, Lending Club members can borrow money at a better rate than they could from a bank, or invest in a pool of loans that carry higher rates than savings accounts. Loans have a 3-year duration.
It seems to operate on a similar method to Zopa, where the risk assessment is taken on by LendingClub.
How It Works
It’s simple. Borrowers apply online and get instant qualification. Their loan applications get listed and selected by lenders. When a loan is fully funded, Lending Club transmits the funds electronically from the lender to the borrower, then withdraws payments back from the borrower every month. Lenders receive loan “portfolio” recommendations based on their preferences, including credit profiles and affinities. Learn more.
The operation does not mention auction anywhere. It seems to operate more like Zopa, in that lenders seek out borrowing classes, or ‘LendingClub Portfolio’s”, A through F. Each portfolio is predicated on borrowers credit risk.
The timing of this announcement today, appears to be to co-oincide with the announcement yesterday of he F8 Facebook application platform. I note the URL reads apps.f8.facebook.com, before you are sent to secure.lendingclub.com.
VentureBeat report on the funding of $2M from angels.
But Lending Club is the first of its kind to integrate its services into a social network.
The social networking angle allows Lending Club to leverage trust. Though not a social network, CircleLending, which Virgin USA just bought, nevertheless positions itself as an intermediary for loans between relatives and friends. Both Zopa, based in the UK, and Prosper, of San Francisco, facilitate loans between complete strangers. Lending Club sits somewhere in between: According to CEO Renaud Laplanche, the goal is not to get friends to lend to friends, but to use the Facebook platform to enable lenders to find borrowers within shared networks, like groups or schools.
The difference between LendingClub and the others in the space, is the integration with FaceBook. This will provide FaceBook greater traction, and monetisation potential.
Then the Facebook platform gives Lending Club a boost: Lending Club uses what it calls “LendingMatch” technology to pair the two parties based on shared connections it finds. While it currently only uses criteria like shared schools or groups or geography, Lending Club plans eventually to link people through friends of friends. It does this without giving lenders direct access to borrowers’ Facebook profiles.
The owners are industry types:
The company has 18 employees, including former executives from Mastercard, Wells Fargo, and eBay. The sources of the angel funding are undisclosed.
It remains unclear to me, the independence or dependence between LendingClub and FaceBook. For example is it exclusive, or can LendingClub make other arrangments outside FaceBook. Are Facebook the Angel investors? Lots of questions, but fascinating to follow.
While different financial operations are appearing, they are narrowing into two distinct sets of attributes. On the one hand, Zopa, and LendingClub are closer to Banks, taking on the borrower risk assessment, bundling them into “risk classes”, and offerring these as investment to their lenders.
The other model, which I will term “social based”, indicated for example by Prosper, Boober, and CommunityLend [disclosure: I am advising on this Canadian entre]. This model allows the lenders to determine their lending approach, and is more personal, and socially oriented.
The degrees of social integration vary, but thats their basic model. Then there are other variants such as CircleLending whose focus is on family and freinds, although their basic model is in the second, social, category.
What is interesting about LendingClub is the apparent integration of the two approaches, although they are closest to the “risk class” approach, because the borrowers personal information is kept private.
Relevance to Bankwatch:
The almost concurrent announcements from Virgin, and FaceBook take Social Lending closer to mainstream. I will say again, that is not a question of Banks being worried about their future so much, as they need to be acutely aware of this space, and getting involved in some types of online social activity, even if its just a blog for now.
Credit Unions continue to lead in that charge, and I would predict one of the next big announcements will be a Credit Union becoming some involved in the space.
Written by Colin Henderson
May 25, 2007 at 10:24
Posted in Social Lending
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