Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We promised you that we were going to continue on
Speaker 2: the US economy and really the US consumer, the online
Speaker 2: lending marketplace and platform for loans, credit cards, deposit accounts, insurance,
Speaker 2: and where we're talking about Lending Club. They announced one
Speaker 2: hundred million dollars share buyback just about one month ago.
Speaker 2: It was about fifty not fifty, nearly five percent of
Speaker 2: the company's market value on the day of the announcement. Now,
Speaker 2: Atlas have been raising their price targets on the stock
Speaker 2: this year, most recently again raising them since the company
Speaker 2: reported earnings late October. The company posted third quarter results
Speaker 2: that beat estimates. They provided a guidance range for new
Speaker 2: fourth quarter originations with a midpoint above estimates. And the
Speaker 2: stock it's actually up this year.
Speaker 3: Yeah, it is. Shares of the two point one billion
Speaker 3: dollar market cap company about fourteen percent of more than
Speaker 3: twelve percent since reporting those earnings back on October twenty second.
Speaker 3: Delighted to have with us Scott Sanborn, CEO of Lending Club,
Speaker 3: also CEO for close to a decade at Lending Club
Speaker 3: for fifteen years now also with us here in the
Speaker 3: Bloomberg BusinessWeek studio. Herman Chan a Bloomberg Intelligence senior analysts
Speaker 3: for US regional banks. He helped bring all of this together, Scott,
Speaker 3: I want to start with you and just give us
Speaker 3: some size and scope of the business, the consumers that
Speaker 3: you're working with, who's interacting with the platform.
Speaker 1: Yeah, So we serve a customer base we call the
Speaker 1: middle majority. They are if you think about credit, which
Speaker 1: we are a credit centric bank. If you've got a
Speaker 1: lot of money, you don't need a lot of access
Speaker 1: to credit. You pay cash for car, you save up
Speaker 1: to send your kids to college. If you're on the
Speaker 1: other end of the spectrum, you can't really access credits.
Speaker 1: So there's this middle group that are high income, heavy
Speaker 1: users of credit. So they can afford a car, they
Speaker 1: can afford to send their kids to school, but they
Speaker 1: need to use credit to do it. That's who we serve.
Speaker 1: It's a really big customer base. It represents about a
Speaker 1: third of the US population, but it's close to half
Speaker 1: of the credit wallet. So they are more likely than
Speaker 1: average to have every form of credit, and that credit
Speaker 1: is with the exception mortgages, also larger than average. That's
Speaker 1: what we serve.
Speaker 2: How much do these people usually make our average.
Speaker 1: And you know, obviously misleading averages can be misleading. But
Speaker 1: average is about one hundred and twenty five thousand dollars.
Speaker 1: But you can think of it of ranging between call
Speaker 1: it eighty thousand dollars in individual income to about two
Speaker 1: hundred thousand is where we really over index.
Speaker 4: Great. One of the real highlights of your recent investor
Speaker 4: day last we last month was the panel discussion with
Speaker 4: Marketplace investors, and we talked about this earlier before your
Speaker 4: appearance here on radio. One of the panelts talked about
Speaker 4: being aligning performance expectations partnering with better operators. Are you
Speaker 4: seeing that with the private private credit space.
Speaker 3: Yeah, we do. So.
Speaker 1: You know, we were born as a marketplace. Initially, everything
Speaker 1: we originated we sold. When we acquired the bank in
Speaker 1: twenty one, we started to hold a portion of our
Speaker 1: loans on our balance sheet. That both gives us a
Speaker 1: stronger and more resilient earnings profile also allows us to
Speaker 1: do other things innovate using our balance sheet. And what
Speaker 1: we found is just by aligning our interest with our
Speaker 1: loan buyers, we're the largest eater of our own cooking.
Speaker 1: We're the largest holder of lending club loans We care
Speaker 1: very deeply about the performance of the credit and credit
Speaker 1: is always evolving. It's very dynamic. Because we have a
Speaker 1: balance sheet, what we can do is when we want
Speaker 1: to test something new, we test it on our balance sheet.
Speaker 1: Let's try longer duration, let's try a larger loan size,
Speaker 1: let's try a new marketing channel. We hold that first,
Speaker 1: own it, we own it, we make sure it performs
Speaker 1: the way we expect, and then we release that to
Speaker 1: the marketplace. If you don't have a balance sheet, you
Speaker 1: can't really do that. And so that's visible in our
Speaker 1: results across every aspect of underwriting. So lower delinquencies than
Speaker 1: the rest of the industry thirty or forty percent below,
Speaker 1: lower roll rates, higher recovery rates, lower prepayments, lower fraud,
Speaker 1: literally every aspect that you can measure of credit out
Speaker 1: performing on.
Speaker 3: Has that remained consistent this year, in recent months, in
Speaker 3: recent weeks, like you have a great real time view
Speaker 3: of the consumer in the form of how well they
Speaker 3: are doing in terms of paying back their loans. That's right,
Speaker 3: still looking good.
Speaker 1: Yeah, So that's been consistent for you know, we release
Speaker 1: four years of data we put out there, and so
Speaker 1: it's remained consistent but you know it's not it's kind
Speaker 1: of like a duck on a pond. It's remained consistent
Speaker 1: because we're doing a lot of work underneath the cover.
Speaker 1: So you know, something that we shared an investor day is,
Speaker 1: at any given time, we have more than two hundred
Speaker 1: tests in the market where we're evaluating price points changes
Speaker 1: to the credit. So we're constantly adjusting to reflect what's
Speaker 1: happening with the consumer, and that's what's giving us the
Speaker 1: consistent results.
Speaker 2: Well, so that to me says you're very picky about
Speaker 2: who you lend to.
Speaker 1: That's true.
Speaker 2: We are so in terms of your test. So tell
Speaker 2: me what it is I mean, and how many of
Speaker 2: people who apply or want to access your platform. You're like,
Speaker 2: I'm out.
Speaker 1: Yeah. So we're pretty good at selecting who we want
Speaker 1: to have in our portfolio and reaching out to those
Speaker 1: people and then both delivering the price and product experience,
Speaker 1: but also, let's call it the user experience that gets
Speaker 1: them all the way through. So we look for areas where,
Speaker 1: for example, we can control the use of the fun proceeds.
Speaker 1: If you come to me and say I want twenty
Speaker 1: thousand dollars because I'm going to do whatever my kid
Speaker 1: needs braces, or I'm moving cross country. Great, but unless
Speaker 1: I'm paying the orthodontists, I don't actually know that that's
Speaker 1: what you're using it for. Yeah, So we try to
Speaker 1: set ourselves up so that we are in some ways
Speaker 1: controlling the use of proceeds and then making the experience
Speaker 1: such that it makes it really easy. So our largest
Speaker 1: use cases for people who already have debt, credit card debt,
Speaker 1: most notably, which at this point more than half of
Speaker 1: all Americans are carrying. They're carrying it at really high
Speaker 1: rates to three percent interest rate. It's highest they've ever
Speaker 1: been in history. And we say, great, you should do
Speaker 1: this instead. It takes less than five minutes. We're going
Speaker 1: to save you seven hundred basis points. And by the way,
Speaker 1: check all the credit cards that you have that you
Speaker 1: want us to pay off, like we see you have
Speaker 1: Chase or a cap On. Great, check those and we're
Speaker 1: going to pay them directly, so we know you are
Speaker 1: paying off your credit card debt. You're not just saying
Speaker 1: you're going to pay off your credit card debt and
Speaker 1: taking out more money. We are paying it off for you.
Speaker 1: Benefit for you is you know you've consolidated everything into
Speaker 1: one bill. Other benefit is your FYCO score usually goes
Speaker 1: up by thirty thirty five points, right, because you've lowered,
Speaker 1: you know, your your utilization.
Speaker 2: How much can you lower? Like I'm going to tell you.
Speaker 2: Credit card rates just blow my mind about how high
Speaker 2: they are. And I'm just curious, why are they so high?
Speaker 2: Are people so bad? Is it to cover? No, I'm curious.
Speaker 1: Yeah, No, it's a great question.
Speaker 2: It just seems like it's out of control, and I
Speaker 2: think it prevents people from becoming financially solvent or creating,
Speaker 2: you know, kind of getting ahead of the game if
Speaker 2: you will.
Speaker 1: Yeah. Yeah, there's a lot to unpack in that.
Speaker 4: It is.
Speaker 1: No, No, it's a great question, and you know there's
Speaker 1: a number of questions underneath. But I'd say the biggest
Speaker 1: thing is if you think about how people choose credit cards,
Speaker 1: it is not based on the interest rate. Yeah right,
Speaker 1: it's my Skymiles card or whatever, my retail store card.
Speaker 1: I'm going to get rewards for this. They don't even
Speaker 1: know what the interest rate is, or it's a promotional
Speaker 1: rate that resets, so that's one they don't choose based
Speaker 1: on that. Half of the people don't revolve on the
Speaker 1: card they're collecting these rewards. Yeah, but they're not carrying
Speaker 1: a balance. Well, guess who's paying for that? All the
Speaker 1: people that are carrying a balance. Those people don't know
Speaker 1: what their rates are. The research we've done is half
Speaker 1: of all customers don't say they don't know the interest
Speaker 1: rate on their credit cards, and half that say they do.
Speaker 1: More than half of them are wrong, right. They think
Speaker 1: they know their rate, but they don't. And so cards
Speaker 1: have been able And one of the big resets with
Speaker 1: the cards was was driven by the car Act, which
Speaker 1: limited how much cards could increase rates, so they factored
Speaker 1: in higher rates.
Speaker 3: I just want to jump in real quick. We are
Speaker 3: speaking with Scott Sandborn, CEO of a lending club. He's
Speaker 3: been CEO for close to a decade. We're also just
Speaker 3: getting some breaking news too on Apple. Apple's design executive
Speaker 3: Alan Dye poached by Meta in at major coup This
Speaker 3: is the most prominent design executives executive at Apple. This
Speaker 3: underscore is a push by the social networking giant into
Speaker 3: AI equipped consumer devices. We also have here with us
Speaker 3: Herman Chan. He's Bloomberg Intelligence Senior analyst for US regional banks.
Speaker 2: Thanks.
Speaker 4: I wanted to follow up with you, Scott on some
Speaker 4: of the medium term expectations you laid out an investor day.
Speaker 4: You talked about doubling loan originations. We're talking about eighteen
Speaker 4: to twenty billion dollars a year. What are some of
Speaker 4: the levers to get you to that level? You mentioned
Speaker 4: use cases. Maybe you talk about home improvement as a
Speaker 4: use case, and how do you maintain solid credit quality
Speaker 4: as you ramp.
Speaker 2: Up that home improvement is something you're getting into, right.
Speaker 1: That's right, yep. So first and foremost is as I mentioned,
Speaker 1: you know, credit card refinding people out of their credit
Speaker 1: card debt into a fixed rate, lower rate loan is
Speaker 1: number one use case. It's it's about eighty percent of
Speaker 1: what we do. That market is the largest it's ever been.
Speaker 1: There's one point three.
Speaker 2: Trillion eighty percent of what you do. Is that? Wow?
Speaker 2: Go ahead?
Speaker 4: Sorry?
Speaker 1: So that is you know, one point three trillion in
Speaker 1: balances priced at really really high rates. We you know,
Speaker 1: when the rate environment shifted and the inflationary pressure shifted,
Speaker 1: we pulled back on a lot of our marketing. So
Speaker 1: we're currently running today at sort of below our historical volumes.
Speaker 1: So we're just going back into that market turning back
Speaker 1: on marketing channels that we had turned off, and then
Speaker 1: the other areas. You know, personal loans can be used
Speaker 1: literally for anything, right and before credit cards came around
Speaker 1: and came to be, they were the dominant way consumers
Speaker 1: accessed you know, credit for everyday need. So we have
Speaker 1: a major purchase and business that's growing today, call it
Speaker 1: fifty plus percent year on year. That's allowing things like
Speaker 1: elective medical procedures, you know, lay six races for your kid,
Speaker 1: you know, all kinds of procedure of fertility treatments, teeth implants,
Speaker 1: so things that insurance doesn't pay for but you want
Speaker 1: to do and you want to do right away. Private
Speaker 1: school education it's another one. So home improvement is sort
Speaker 1: of an next adjacency. People right now are staying in
Speaker 1: their homes longer. You know, seventy five percent of Americans,
Speaker 1: their mortgage rate is under five percent. They're not going anywhere,
Speaker 1: and the homes are getting older. So the homes need
Speaker 1: to be invested in, they need to be improved. So
Speaker 1: effectively enabling home improvement through an unsecured loan, where again
Speaker 1: we are controlling the use of proceeds. We can pay
Speaker 1: the supplier we can pay the contractor. We've got the
Speaker 1: capability through an acquisition we announced to you know, disperse
Speaker 1: this in phases to multiple parties. So we're really excited
Speaker 1: to kick that off.
Speaker 2: We've only got like thirty seconds left. Hair consumer doing okay.
Speaker 1: I'd say the consumer we serve is demonstrating themselves to
Speaker 1: be remarkably resilient.
Speaker 3: That a lot.
Speaker 1: It's a drinking game, but we'll acknowledge that the sentiment
Speaker 1: isn't great.
Speaker 2: Yeah, come back soon. I have to tell you that
Speaker 2: I think we're all like, I want to go, I
Speaker 2: want to go. Please come back late, because I think
Speaker 2: you have a great advantage and view into what's going
Speaker 2: on in the economy. We'd love to Okay, we would too.
Speaker 2: Scott Sandborn, chief executive officer of Lending Club, are amazing.
Speaker 2: Herman Chen Bloomberg, Intelligence Senior Analyst for US regional banks