When Renaud Laplanche founded LendingClub 12 years ago in 2006, the lending landscape was a very different place. Most consumer and business lending was done through traditional banks, and to say that peer-to-peer (P2P) or marketplace lending was nascent would be overly generous.
LendingClub was one of the early pioneers of the model and — as Laplanche told Karen Webster in a recent conversation about the Series C funding raised by his new venture Upgrade — the intervening 12 years have done a lot to prove the basic tenet upon which LendingClub was founded: Using technology and automation can lower borrowing costs and deliver a better consumer experience. However, he noted, it took time — seven and a half years, in fact — before LendingClub reached $1 billion in underwritten loans.
Upgrade has come to market in a different time, and has had a much different experience. Launched a little more than a year ago in April 2017, Upgrade hit $1 billion in loans underwritten at its one-year anniversary. According to Laplanche, Upgrade is on pace to have underwritten $2 billion this year and believes it is on a track to increase that to about $4 billion to $5 billion by 2020.
“Doing everything the second time really helps,” Laplanche joked with Webster — but noted more seriously that there is a big advantage in knowing that a low-cost, fixed-rate personal loan is a highly desirable product to an extremely wide demographic of consumers.
Though Upgrade has launched a lending marketplace product similar in feature and function to LendingClub’s, Laplanche said that, this time around, he and his team of former LendingClub executives aren’t interested in building a new firm around that now 12-year-old model.
“When we left LendingClub in 2016, we started to think about the model we had created for online lending, and we thought there was so much more we could be doing with it than what we had done with LendingClub,” Laplanche said.
It’s a vision that has, as of today, closed of a round of Series C funding led by CreditEase FinTech Investment Fund. The new financing will fuel Upgrade’s continued product innovation on the heels of its Personal Credit Line launch and the expansion of Credit Health, Upgrade’s credit monitoring and education product.
That’s because (as one might infer from its name), when it came to founding Upgrade, the question wasn’t how the firm could simply offer a better version of what it had before, but how it could offer something better and offer more: an upgrade.
More Data, More Products
The personal loan to refinance credit card debt — or fund other projects — is a great product, Laplanche noted. It offers consumers a lower cost, more predictable option to retire expensive credit card debt, while offering investors an excellent opportunity for an attractive return on investment (ROI). It’s why that “super useful” product was Upgrade’s first.
Its second product, which launched a few weeks ago, is very different: a consumer credit line of up to $50,000 that qualified borrowers can draw from to use as they choose — to pay down debt, make purchases or both, and pay back in installments over a preset interval. Funds from an Upgrade credit line can be transferred to a consumer’s checking account on the same day so they can use their debit cards to make purchases in stores or pay bills. What consumers don’t use on their credit line, they don’t pay for — and there is no cost for establishing an account.
Laplanche said the credit line combines many of the “good things” about credit cards and personal loans into one product, while protecting the consumer against the fees and interest rates that can increase the cost of using a credit card product, which can come from only paying the minimum balance each month.
“About half of American families carry a balance of credit card debt every month. This is an issue that cuts across demographics,” Laplanche said. “Very often, you actually see higher earners also carrying the highest balances because they can get the credit limits. We wanted Upgrade to have a broad appeal, because the base of consumers that can use our services is also very broad.”
Also important, he noted, is the product’s ability to keep the consumer from getting in over their head and biting off more on the line than they can chew and pay back. Upgrade’s real-time view into the consumer’s bank account allows the risk team to monitor their free cash flow in any given month — and make real-time adjustments to credit line access before debit-to-income ratios turn everyone, including the consumer, upside down.
Looking under Upgrade’s hood, Laplanche said it is a tech platform that was built entirely around what products Upgrade wanted to launch in the next five to 10 years. It’s a design and architecture that accelerates time to market for new products by minimizing how much of the platform must change to accommodate new product features and functions. Though the personal loan and line of credit are two entirely different products, Laplanche said that, from the point of view of the platform itself, roughly 70 percent of the functionality remains the same.
An Ongoing Relationship
One of the revisions Upgrade brought to its platform is using new tools to change the relationship that Upgrade has with its borrowers. LendingClub, he noted, was a relatively low-touch proposition: A consumer would apply for a loan, be accepted, utilize the loan, then pay it back, and maybe come back in two or three years if they needed a new loan.
With Upgrade, Laplanche said, borrowers don’t just get access to funds — they gain free access to Upgrade’s Credit Health suite of tools to help them build better credit and become more responsible credit users. The benefits include standard credit line monitoring and alerts, educational content and interactive tools that help customers make better decisions about how to use their money so as to improve their financial health. Even those who may be turned down for a loan are given tools to improve their financial standing, so they can try again in three or six months and have a different outcome.
The tools also let customers figure out their free cash flow every month, and how to divert more of that cash flow into savings. Savings, he noted, that every consumer needs, because economies change.
An Ever-Changing Borrowing Landscape
The world in which Upgrade launched is very different than the one LendingClub jumped into (economically speaking), and odds are good, Laplanche said, that change will continue to be the only real constant in the economic landscape. As of now, Upgrade’s borrowers are generally between the ages of 35 and 45, making slightly more money than others, and have an average credit score of 690 — right in line with the U.S average.
Today, things are very strong, but bull runs don’t go forever — and, at some point, consumers will have to face a down market and all the unpleasant externalities that go with it. Financially healthy customers (who better understand credit, savings, debt and how to manage all three), Laplanche noted, are much more likely to take those downturns in stride than those who are living paycheck to paycheck, without a financial safety cushion.
Upgrade, he said, wants to be a positive force in helping customers make the changes they need to make now so that, when an inevitable downturn comes, they will be in better financial health to power through it.
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