LendingClub bought a bank at a time – 2021 – when a fintech obtaining a bank charter was “extraordinarily difficult,” said CEO Scott Sanborn.
Fast-forward five years, to a regulatory environment amenable to chartering, and Sanborn now faces more fintech competitors who’ve received or are applying for charters.
“It’s cool to be a bank now,” said the CEO of the $11.9 billion-asset lender, which is changing its name to Happen Bank this summer. “I think everyone sees that.”
With regulators open to novel chartering, fintechs like Affirm and PayPal are applying for industrial loan company charters. Or they’re seeking to buy banks, like subprime lenders Enova and OppFi have moved to do. International players such as Revolut, Bunq and Nubank have all sought charters from the Office of the Comptroller of the Currency. And the CEO of fintech Chime recently said it’s “it’s more of a when, not if” the company applies for its own bank charter.
While competition is good for consumers and leads to innovation, “I think we’ll see a decent amount of people skinning their knees,” Sanborn predicted.
A charter carries a “very different level of regulatory expectation and operational discipline,” Sanborn said, and fintechs pursuing that route should brace for “a learning curve” as they build out necessary governance, risk and compliance infrastructure and adapt to standards expected of a regulated bank.
The San Francisco-based firm arguably experienced its own stumble five years ago, when it agreed to pay $18 million to settle Federal Trade Commission charges that it deceived customers about hidden fees. The company, though, disagreed with the FTC’s allegations.
Sanborn also noted rivals come and go, pointing to Goldman Sachs’ Marcus and Sumitomo Mitsui Banking Corp.’s Jenius Bank as one-time competitors for LendingClub. Jenius Bank has said it’s winding down, with Axos Financial acquiring its deposits; Marcus has been pared down to an online platform only offering high-yield savings and certificates of deposit.
In “unsecured consumer, if you try to build your models by looking at bureau data, you're going to get a bunch of unfortunate surprises,” Sanborn said, noting that behavioral signals and rigorous modeling are built into the company’s underwriting approach.
“We feel good about our ability to compete, because we're very clear on who our customer is,” Sanborn said. That’s the “motivated middle: high-FICO, above average income, digitally savvy consumers actively managing their financial lives,” the bank has said.
“We're not trying to be everything to everybody,” Sanborn said. “We're really targeting this customer that we know is trying to move their finances forward.”
The digital bank intends to make its identity clearer: LendingClub is changing its name to Happen Bank in July. Founded in 2006, the company got its start as a peer-to-peer lending platform, but left that model behind in 2021 with the acquisition of Boston-based Radius Bank.
“It was clear to me then that the name was losing its relevance,” Sanborn said. When LendingClub became a bank, the moniker was “inherently limiting.”
The name also didn’t make sense to some customers. The company’s debit card doesn’t carry the LendingClub name, because customers said “that's really weird, to have the name LendingClub on a debit card, because it’s my money. I'm not borrowing this; this is my money,” he said.
And consumers who hadn’t worked with the company had no idea what it offered under the LendingClub name. However, “you say the word ‘bank,’ it means you're trustworthy,” and offers “peace of mind; I can keep my money with you,” Sanborn said. “Some of the nonbank companies that have failed and tied up people's money has created a heightened awareness of that.”
The Happen Bank wordmark is designed to stand out, and convey innovation and ease, Sanborn said. “Happen” leans forward, signaling momentum, with the word “bank” underneath, “supporting that,” he said.
LendingClub’s core product is personal loans, which are largely used by customers to address credit card debt, but the company has added checking and savings products over the last 18 months. Sanborn said those products represent where the bank aims to go.
About 60% of the bank’s checking accounts are opened by customers first acquired through lending, he said. The checking account “rewards good behavior,” allowing customers to receive double cash back when paying their loan from their checking account, he said. Home improvement financing is also a strategic priority for the company this year.
“Customers do want to do more with us once they realize we're a bank,” he said.
Being a digital bank without a branch footprint, the lender can offer a higher deposit rate, Sanborn said. The bank’s deposits rose 14% year over year, to $10.2 billion in the first quarter. The company reported net income of $51.6 million, on a 16% rise in net revenue, to $252.3 million.
The bank’s customers have an average of about five credit cards, and LendingClub’s DebtIQ tool enables customers to see all of their credit card balances and interest rates in one place. That tool is free for deposit or lending customers, although Sanborn said he would like to launch it to the broader market at some point.
The bank doesn’t offer its own credit card and doesn’t plan to as of now. “Never say never,” but it would have to be on-brand for the company, Sanborn said. “We would need to identify a value proposition that reflects responsible use of credit.”
