Author Topic: LendingClub + Alliance Partners Partnership  (Read 4801 times)

LendingAlpha.com

  • Newbie
  • *
  • Posts: 28
  • Lending Alpha | Visit http://www.lendingalpha.com
    • View Profile
    • Lending Alpha
    • Email
LendingClub + Alliance Partners Partnership
« on: February 09, 2015, 02:42:01 PM »
The new partnership between LendingClub and Alliance Partners increases brand awareness, increases loan volume, and decreases borrower acquisition cost.
  • BancAlliance’s members stretch across 39 states, and combined would rank fourth in branch count among all U.S. banks, and 14th in assets.
  • Alliance Partners will co-brand loans at its banks as well as invest in certain loans (presumably lower graded/risk loans).
  • This partnership provides an additional loan origination channel for unsecured consumer loans that increases loan volume and decreases the acquisition cost per borrower.

It looks like small community banks are on LC's side. The battle is really just against the traditional big banks:
http://si.wsj.net/public/resources/images/MI-CH718_LENDIN_16U_20150208161807.jpg

https://lendingalpha.com/blog/2015-02-09-lending-club-partners-with-alliance-partners/
Lending Alpha (http://www.lendingalpha.com)

Fully Automate Your LendingClub Portfolio - Simple and Effective for Everyone.
-Loan Selection
-Trade Execution
-Performance Optimization

Fred93

  • Hero Member
  • *****
  • Posts: 2235
    • View Profile
Re: LendingClub + Alliance Partners Partnership
« Reply #1 on: February 09, 2015, 04:00:05 PM »
This is a sourcing deal.  I expect that LC will be doing may sourcing deals, exploring many avenues for reduced cost sourcing of borrowers.  Would be interesting to know the terms of the deal, ie how much does LC pay for these leads?

The story built around the deal however jumped to a lot of conclusions.  It is probably the story that the media was fed.  I would consider these conclusions more tentative.  We don't know how many loans these banks are going to source, or how they're going to work out.  We don't know how much these banks are going to invest.

Individual banks of course make decisions about who to refer, if anyone, and individual banks make decisions about what to invest in, so the notion that a deal with an "alliance" of banks has a certain meaning is weak.  l

LendingAlpha.com

  • Newbie
  • *
  • Posts: 28
  • Lending Alpha | Visit http://www.lendingalpha.com
    • View Profile
    • Lending Alpha
    • Email
Re: LendingClub + Alliance Partners Partnership
« Reply #2 on: February 09, 2015, 05:14:59 PM »
Prosper's CEO did mention in a recent interview that acquisition cost used to be more than originations revenue. That implies that borrower sourcing costs was more than 5% (typical origination fee) of the average loan size ($15k), or $750. Optimized borrower acquisition sources are likely lower around $350, according to one of the LC stock analyst report's assumptions. In a partnership like the one today with Alliance Partners, LC may be giving up half of the origination revenue, which would be somewhere around $300-350 or at par with what it usually costs them anyways. The benefits for LC would be a wider reach of borrowers, increased brand power, and securing borrowers away from the competition. I expect that the last point would increase the sourcing cost of the competition, which serves as an advantage to LC's business model.
Lending Alpha (http://www.lendingalpha.com)

Fully Automate Your LendingClub Portfolio - Simple and Effective for Everyone.
-Loan Selection
-Trade Execution
-Performance Optimization

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: LendingClub + Alliance Partners Partnership
« Reply #3 on: February 09, 2015, 11:32:16 PM »
Looks like Alliance enters more on the "investor" side rather than the "borrower" side.

We do not need more institutional investors; we need more banks that can bring borrowers to the platform.

Unfolder

  • Full Member
  • ***
  • Posts: 118
    • View Profile
Re: LendingClub + Alliance Partners Partnership
« Reply #4 on: February 10, 2015, 12:22:05 AM »
Doesn't matter what the deal actually is, spread those tentacles LC, cancerous growth in every direction is bullish

RazzleDazzle

  • Jr. Member
  • **
  • Posts: 71
    • View Profile
    • reamerge.com
Re: LendingClub + Alliance Partners Partnership
« Reply #5 on: February 10, 2015, 01:06:15 AM »
I'm with fred, I think more institutional money flowing into LC where banks can leverage cheap underwriting of LC to fund loans from their sheets. LC can keep charging origination fees i.e. their revenue.

Such a thing was already done by Titan Bank I believe. Bryce Mason can comment on this.

lascott

  • Hero Member
  • *****
  • Posts: 1435
    • View Profile
    • Appreciate my post and want to try LendingRobot? URL below
Re: LendingClub + Alliance Partners Partnership
« Reply #6 on: February 10, 2015, 09:09:26 AM »
Such a thing was already done by Titan Bank I believe. Bryce Mason can comment on this.

Podcast 24: Jonathan Morris of Titan Bank on the Banking Perspective
by PETER RENTON on SEPTEMBER 24, 2014
http://www.lendacademy.com/lap24-jonathan-morris-titan-bank/
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

LendingAlpha.com

  • Newbie
  • *
  • Posts: 28
  • Lending Alpha | Visit http://www.lendingalpha.com
    • View Profile
    • Lending Alpha
    • Email
Re: LendingClub + Alliance Partners Partnership
« Reply #7 on: February 10, 2015, 02:10:46 PM »
Here are my thoughts on the LC/Alliance Partners partnership:
  • Lower and more stable borrower acquisition costs - The details of the partnership terms aren't public, but I assume that LC is sharing some of the originations revenue with the Alliance. My guess would be up to half since that's closer to the market average for borrower acquisition costs (50%* 5% fee * $15k avg. loan size = $375). This is a good deal since it's increasingly competitive to acquire new borrowers given the new competitive environment. Prosper, up until very recently, were seeing losses because their borrower acquisition costs were higher than originations revenue. Also, the bread-and-butter borrower lead generation has been mostly using mailers (snail-mail solicitations), but with players aggressively coming into the game, this strategy will become ineffective in the long run (cost-benefit).
  • Wider borrower network reach/more loan dollars/future opportunities - Partnerships generate 40% of Prosper's new loans, so partnerships are a also big part of borrower lead generation. This is significantly more so for Small Business loans due to targeted solicitation costs. BancAlliance's 200+ banks make up the 4th largest bank when measured by the number of branches/banking centers. This may be equivalent to $200-300 billion in customer assets. New community banks ($100M-$10B in assets) may also join the BancAlliance network and provide additional growth over time. Ultimately, this relationship allows LC to penetrate further in the consumer loan market share. It also sets them up for small business lending in the future through this ecosystem/existing partnership.
  • More stable/institutional investor dollars - One of the harder things to do in marketplace lending is to find investors on the other side of the market. More importantly, institutional dollars have historically been fickle, but this type of partnership from a bank would be a more consistent provider of capital to fund loans. Many of the smaller marketplace lending platforms struggle because the lack of investor dollars, which hinders the borrower's experience as loans don't get funded. So, any large scale partnership that aids borrower acquisition probably will continue to be coupled with the other side to provide capital.
  • Higher availability of riskier loans - Typically, banks as investors focus on investing on lower lower risk loans (grades AA, A, and B). This works out well for the other investors in LC's marketplace because of an increase in availability of riskier loans (grades C, D, E, F/G). As of today, there's a short supply of these loans for investors that I often see new loans in this tranche snatched up within 15 seconds of a new loan cycle.
  • Small Banks are on LC's Side - Though LC's disrupting the traditional banking model, smaller community banks will side with LC because consumer lending has been a declining business for smaller banks against the big banks for over the last two decades. Smaller bank partnerships with LC offers a competitive advantage against the big banks in consumer lending, all while enjoying higher margins on both the originations and investing side of the transaction (due to LC's business model efficiency) than their native consumer lending operations.
  • Market share exclusivity - LC's partnerships lock up potential partnerships from Prosper and other marketplace lenders in the future. This could translate to stronger market share retention (stickiness) and higher borrower acquisition costs for LC's competitors.
Lending Alpha (http://www.lendingalpha.com)

Fully Automate Your LendingClub Portfolio - Simple and Effective for Everyone.
-Loan Selection
-Trade Execution
-Performance Optimization