LendingClub: APIs Create “Dynamic” Lending Pricing


Credit markets are tightening. The Federal Reserve has been busy raising interest rates, and in a macroeconomic environment that could charitably be described as uncertain, buying and selling consumer loans is proving to be a difficult process.

As institutional investors look for more ways to access these loans and loan portfolios, they face a range of challenges, LendingClub CEO Scott Sanborn told Karen Webster of PYMNTS. But technology, along with the evolution of online marketplaces that connect buyers and sellers, is making access, pricing and options transparent and real-time.

Sanborn said the steps contained in institutional investing are innumerable. Teams of investors assess the interest and attractiveness of an asset class, the risk/return potential, the liquidity and the history of this potential investment in different macroeconomic environments.

The underwriter’s background is also taken into consideration, Sanborn said.

“And one avenue that is overlooked,” he told Webster, “is lender counterparty risk.”

Inefficiency was a feature of the whole process. Excel spreadsheets, with thousands of rows of data, a dizzying array of formulas, and manual entries (which leave room for error) have been the norm.

Institutional investors need help with due diligence, Sanborn said, and with drafting contracts and investment schedules once they do make the decision to buy or sell. What ends up happening is that each buy and sell contract becomes an individual bespoke activity, with its own bespoke transaction.

LendingClub, for its part, had a new opportunity to ease those pain points, and the company had “put all that energy into the borrower onboarding process…but hadn’t done it yet on the investor side.” .

And now, he said, the company has solved those problems. In May, LendingClub launched a pair of initiatives designed to give institutional investors greater access to loans on LCX, the company’s automated auction platform.

Related: LendingClub’s LCX platform for obtaining client-to-client transactions

The market advantage

The online market, he said, is particularly valuable in a dynamic lending environment.

“The market provides a continuous feedback mechanism,” he said, and it does so in real time. For example: if dozens of investors bid on the same “type” of loan, the platform and underwriters have a clear signal that more loans of that type should be issued.

Investors themselves are sophisticated and run their own models which in turn provide feedback to the platform which can improve pricing and underwriting.

The mechanics of everything

LCX now allows institutional investors to sell LendingClub loans to each other, while users can also buy loan portfolios on the platform. This all comes as the San Francisco-based company hit a milestone of more than $2 billion in loans traded on LCX since its launch in 2019.

The network uses technology (including application programming interfaces, or APIs) and the marketplace model to provide what it calls dynamic pricing and same-day settlement of LendingClub loans. Loans can be purchased at fixed prices on fixed issues; investors can also choose their own loans based on credit criteria.

See also: LendingClub says client-to-client lending marks the evolution of its online marketplace

“Even if you don’t have an API,” he added, “we can provide a simple clickable interface that allows the platform to interact with you.”

For LendingClub, there’s the added benefit of operating with a streamlined back-office team, where staffing levels are a fraction of what they were a few years ago, even as lending volumes have increased.

Looking ahead, as consumers continue to feel the pinch of inflation, Sanborn said loan issuance will be about 85% tied to core borrowers. Everything depends on the softness of the economic landing in the context of the tightening of the Fed.

“We are selective – but the balances held by our customers in checking and savings accounts have not budged in the past nine months,” he said. “They have been remarkably stable. Interesting. Thus, our main client was able to absorb the increase in the cost of living without dipping into his savings.

He noted that at present, the environment is still optimistic for institutional investment. For example, banks have been flooded with excess deposits and the cost of capital is relatively low.

LendingClub’s consumer-facing operations are helping to drive demand for personal loans as individuals and families grapple with rising credit card debt costs. Bundling these personal loans for institutional clients, or integrating them into LendingClub’s balance sheets, still generates strong returns.

“We eat our own cooking,” he told Webster, “and that helps set the market price and build investor confidence that our interests are aligned.”



About: PYMNTS’ survey of 2,094 consumers for The Tailored Shopping Experience report, a collaboration with Elastic Path, shows where merchants are succeeding and where they need to up their game to deliver a personalized shopping experience.


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