Renaud Laplanche LendingClub 2014 Keynote
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Renaud Laplanche LendingClub 2014 Keynote

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LendingClub CEO's keynote presentation at LendIt 2014

LendingClub CEO's keynote presentation at LendIt 2014

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  • 1. Transforming the banking system into an online marketplace 2014
  • 2. Remember life before the Internet? Circa 1970 businesses ! captured value through… Vertical integration Scale Brand Poor value exchange Limited choice Limited information For the consumer this meant…
  • 3. The technology revolution delivered major efficiency gains Cost of a 10 
 minute phone call 1970 Today 90x $4.50 $0.05 Size of a computer (cubic feet) 1970 Today 100x ~20 ~0.2 TV channels " available 1970 Today 40x 5 200 Note: Phone calls are domestic, 1970s call was LA-NYC! Sources: Federal Communications Commission “Trends in the U.S. International Telecommunications Industry” August 1998, AT&T website April 2014, Xfinity website April 2014, “The Evolution of TV Viewing” by John Carey of Fordham University 2002, PCWorld “Timeline: 50 Years of Hard Drives” September 2006
  • 4. Banking has not experienced the 
 same improvements No efficiency gains since 1900 Net US revenues of financial intermediaries as % intermediated assets (i.e. unit cost of intermediation) Note: Quality Adjusted! Sources: Liberum “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation”, Philippon Thomas, March 2014, http://bit.ly/1gRuAEB
  • 5. Early 1970s Today Consumer value capture is even lower today 0%! 4%! 8%! 12%! 16%! ~8% ~13% Borrower Rate Savings Rate Note: 1970 borrower rate is commercial bank interest rate on 24 month personal loan Feb 1972; Today borrower rate is commercial bank interest rate on credit cards assessed interest Feb 2014; 1970 savings rate is average 3 month secondary market CD rate Feb 1971-1973; Today savings rate is 3 month CD rate in the secondary market as of April 2014 Sources: Federalreserve.gov G.19 and H.15 reports, bankrate.com April 2014
  • 6. The banking industry became more concentrated ~ 20% ~50% Early 1970s Today Top 10 banks share of deposits Note: Today marketshare is based on 2013 data! Sources: SNL Financial 2014, Federal Reserve Bank of Richmond Economic Quarterly Volume 92/4 Fall 2006
  • 7. There is limited differentiation PREMIUM MULTI-SPECIALIST WINNERS VALUEFAILING Strong Weak Quality StrongWeak Value Trader Joes Costco Whole Foods Grocery
 stores USAA Wells Fargo Capital One Credit Unions Citi Bank BOA TD" Bank Banks Note: N ~3,000! Source: Oliver Wyman consumer survey
  • 8. Banks even look the same Wells Fargo Bank" San Francisco! Today Union Trust Company San Francisco! Early 1900s Source: artandarchitecture-sf.com
  • 9. 4. Sharing! economy 3. Many to many! marketplaces 2. Marketplaces OMG. The Internet. 1. Online storefronts % US Adults" buying online: ~20%" (2000) ~70%" (2014) Improved efficiency, more information, expanded choice Note: Measure is % of US Adults who report ever purchasing a product online; Data is averaged across sources for 2014! Sources: PEW Internet Research Project, E-Marketer, Walker Sands Communications
  • 10. 10% 20% 30% 40% 50% 60% 70% 200520062007200820092010201120122013 A few examples in financial services 20 40 60 80 100 120 140 1975 1995 1998 2004 2010 2014 Internet enables lower cost Aggregated information, easy transact $ per trade " (Charles Schwab) % UK car insurance originations" from online aggregators 1. Online Storefront 2. Marketplaces Sources: Oliver Wyman, Wired, CNN
  • 11. Walmart can’t sell you a broken laser pointer…but I can Revenue ($bn)3. Many to Many Marketplaces" ! - more choice" - lower cost" - efficient pricing Source: Ebay financials
  • 12. The rise of sharing Views About 32,000,000 results 1m" (2004) 1,200m" (2013) Users 20k" (2007) 500m" (2013) Tweets per day Uploaded hours per minute 0.6" (2006) 100" (2013) Sources: Oliver Wyman, Facebook, Twitter, Youtube press releases, Video is from YouTube
  • 13. Slower start for sharing of financial information, but growing fast now 1,010 300 80 120 10 2 2009 2012 Users (M) Source: Facebook Paypal Mint press releases
  • 14. 0 10 20 30 40 50 60 70 80 90 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 A shift in the national psyche Google search index “happiness” (US only) Search for happiness " and fulfillment rises " in importance Backlash against " consumerism and " banking industry Building businesses out of passions and hobbies Note: Monthly average of weekly index data pulled April 2014! Source: Google trend Things that matter. Pass 'em on. “Helping our generation ! understand what’s ! happening in the world.” Christopher Altek! & Jake Horowitz Eli Pariser &! Peter Koechley
  • 15. And the sharing economy was born 4. Sharing Economy Higher utilization of my existing assets Sharing with each other
  • 16. Leading sharing economy marketplaces are highly valued 8 highest valued US VC-backed private companies Total equity funding Latest valuation Part of the sharing economy Source: Wall Street Journal “Billion-Dollar Startup Club” January 2014 http://graphics.wsj.com/billion-dollar-club/
  • 17. The convergence of Internet trends & banking gave birth to marketplace lending Source: McKinsey & Company Operating expenses as % of outstanding loan balance Internet enabled low cost model 1. Online storefronts Traditional Bank Lender Lending Club
  • 18. The convergence of Internet trends & banking gave birth to marketplace lending One place for transparent information and transaction made easy 2. Marketplaces
  • 19. The convergence of Internet trends & banking gave birth to marketplace lending Lower intermediation costs, more choices 3. Many to many marketplaces All Loans originated and issued by WebBank, a FDIC insured Utah state bank. 1. Servicing fee is average for 60-month loans. Principal + Interest Funding Investors Borrowers
  • 20. The convergence of Internet trends & banking gave birth to marketplace lending Higher utilization of existing assets 4. Sharing economy ~13% Borrowers Rate Investors Rate 0%! 4%! 8%! 12%! 16%! ~5% Traditional Bank Lenders Lending Club Note: Average Lending Club Interest Rate for 36-month loans in Q1 2014.; Lending Club Investor Rate is Median Adjusted Net Annualized Return for investors with 100+ notes, note concentration of <2.5% of portfolio value, and portfolio age of 12-18 months; ! Traditional Bank Lender borrower rate is commercial bank interest rate on credit cards assessed interest Feb 2014; Traditional Bank Lender savings rate is 3 month CD rate in the secondary market as of April 2014 Sources: Lending Club, Federalreserve.gov G.19 and H.15 reports, bankrate.com April 2014
  • 21. Marketplace lending is becoming increasingly diverse Consumer Pay Day Purchase Finance Education Financing Real Estate Merchant Cash
 Advance SMB Credit Source: Foundation Capital 2014
  • 22. And a global phenomenon $ $2.4bn $1.4bn $1.9bn Sources: Liberum “P2P Lending: Opportunity & how to invest” March 2014
  • 23. Experiencing rapid growth Lending Club Prosper Funding Circle Zopa Ratesetter CAGR: 130% LoanOriginations($Billions) Sources: Liberum “P2P Lending: Opportunity & how to invest” March 2014
  • 24. Lending Club leading the way $791,348,200 ($Millions) Annual Run Rate:" $3,165,392,800" ! Year over year Q1:" 124%
  • 25. Benefiting from lower operating costs Lending Club in 2015 Traditional bank lender Lending Club’s cost advantage Opex / total balance outstanding, Basis points 135 is steady state, ~40 is excess mktg in 2015 to fund growth 40 Marketing 175 135 IT 29 Other 28 G&A 20 Origination 19 CS / collection Billing / fraud FDIC Branch Total opex 310 270 40 695 100 35 30 30 100 170 10 220 0 220 425 35 0 10 130 10 80 39 Source: McKinsey & Company
  • 26. While improving customer experience Borrower" Net Promoter Score1 Average NPS Scores Lending Club Credit Unions Com m unity Banks Regional Banks Credit Cards National Banks 79 insurance online services retail technology telco travel/hospitality banking Industry
 averages 1. As of April 2014 for borrowers that were approved for loans! Sources: Bain, Lending Club
  • 27. And bringing transparency
  • 28. Becoming more useful to more people Tuition financing Patient financing Small business loans
  • 29. More useful to more people
  • 30. More useful to more people
  • 31. More useful to more people
  • 32. More useful to more people
  • 33. Partnering with the banks to transform banking Bank Partner Happy Bank Customers Other Investors Large Customer Base" Low cost of capital Great Customer Experience Low operating cost+ =
  • 34. And today we are pleased to announce