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Lending Club Report Lending Club refers to the world's largest online peer-to-peer lender in loan origination terms. The company has been able to appreciate in value over the past years. The major stakeholders of the company include lenders and borrowers. Lending Club bills in itself is the most popular peer-to-peer lending network. The platform is an example of an emerging sharing economy; the platform connects thousands of individual and business borrowers with regular people who are willing to fund their loans. It eliminates the need for borrowers to approach credit unions and traditional banks. Factors that will determine whether Lending Club will be profitable include their ability to compete effectively in the target markets.
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The company's ability to attract new investors or borrowers and maintain relationships with the existing borrowers and investors is also vital to the company's future profitability. The company should also be in a position to control its operating costs. Its cost structure should be better relative to those of banks. The company should continue leveraging on the fact that it does not incur branch costs because it is not a fractional lender or a deposit taker. Therefore, it is in a better position to sidestep the capital costs and extensive compliance of which many banks endure in Basel III and Dodd-Franks determined financial area (Nowak, Ross & Yencha, 2018). Investors should value Lending Club as a marketplace technology company. The original vision of the company being a marketplace still holds true today. The company has been continuously embracing the idea of a marketplace bank and has been tending towards becoming a financial health club. They have led the resurgence and transformation of the personal loans space. The company's lending model is more akin to providing a platform or a marketplace between lenders and borrowers than a finance company. There is a big difference between the business model of the lending club and the specialty firms. Such firms normally keep cash on their balance sheet in order to loan money to the customers. The specialty firms tend to be volatile to the interest rates because a rise in interest rates leads to a lower profit. This is not evident in the case of Lending Club. The company is characterized by a diversified portfolio, gives solid returns, and is less volatile. For specialty firms to grow, they need more capital. As such, they are obliged to borrow more capital through equity dilution. This takes place in a situation where a company issues a new stock, which leads to a reduction of the stakeholder's ownership percentage of the company. Lending Club opted to check its growth in an attempt to mitigate the risks. They implemented a credible credit process to ensure that capital flows from the investors and that the investor returns are stable (Jagtiani & Lemieux, 2019).
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Considering the reasons why lenders can obtain a higher interest rate than investing their money in a bank, the platform is based online, implying that they are in a better position to operate with lower overhead and can offer cheaper services compared to the banks. Lending Club does not have any physical branches, and they do most of their business strictly online. This gives them a strong online presence and a formidable client base.
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References Jagtiani, J., & Lemieux, C. (2019). The roles of alternative data and machine learning in fintech lending: evidence from the LendingClub consumer platform. Financial Management, 48(4), 1009-1029. Nowak, A., Ross, A., & Yencha, C. (2018). Small business borrowing and peer‐to‐peer lending: Evidence from lending club. Contemporary Economic Policy, 36(2), 318-336.