Lending Club Explores Big Bank Partnerships

The alternative lending sector has largely risen in the U.S. and elsewhere due to big banks’ lack of financing to individuals and small businesses as they seek to reduce investment risk. Players like Lending Club champion an alternative source of working capital and financial products for SMEs that cannot otherwise access them through mainstream financial institutions.

But with record-low interest rates, big banks are beginning to acquire some of the loans serviced through these digital platforms. It’s placed some alt-lenders in an interesting predicament: having to collaborate with the mainstream banks even though their business was established as an alternative to them.

One such alternative finance player is Lending Club. The firm’s founder Renaud Laplanche recently spoke about the situation in an interview with Quartz, published Thursday (June 18).

“We work a lot with banks now, and CRA [the Community Reinvestment Act] often comes in conversation about something banks would like us to do more of,” he told the publication, explaining how mainstream banks are reaching out to alt-lenders to fulfill requirements of the CRA to boost lending to underserved community members. “They are having trouble reaching these populations because they don’t necessarily have branches in particular areas, so having an online platform is a way to reach them.”

Lending Club recently partnered with Citi Bank to fulfill many of these needs. Their collaboration, announced last April, sees Citi getting credit for fulfilling loans to those in need without having to vet new customers, because Citi can access those customers through Lending Club.

“The idea of convincing the banks to work with us was pretty far-fetched,” Laplanche said. “The thinking was that the banking industry considered us as competitors and would fight us. It turns out that hasn’t been the case.”

He added that while it may appear that big banks get to retain credit for the loans without taking on the risk, there is a high level of security and scrutiny that goes into choosing where the loans end up. Instead, banks get to save money, he said.