Don’t judge a book by its cover. The Lending Club book is more old finance than the new finance cover proclaims. Lending Club is Fintech 1.5 rather than Fintech 2.0.
The headlines say things like:
“Lending Club, a San Francisco-based peer-to-peer lending start-up, filed for an IPO, hoping to raise half a billion dollars at a $5 billion valuation.”
Yet, when you look at the data, Lending Club is not really peer to peer. In order to scale, they started to connect Institutional Investors to lending opportunities. Lending Club is really doing efficient aggregation and risk analysis. I would describe it as a Big Data play more than a peer to peer play. It is a great success story, but the peer to peer label describes their origins more than their present reality.
When you look at the site, what really jumps out are the professional tools to assess lending risk.
The Harvard Business Review shows how their focus is now lending to SME, to the small businesses that got ignored when the Community Banks got gobbled up in bank consolidation. That sounds more like Lending Club will be competing with financing techniques such as Factoring, Receivables Finance and Supply Chain Finance.
Yet headlines and PR matter. This is the first IPO in the world of Fintech4Us. Who cares exactly how Lending Club is doing what they do? The fact is that they have the financial strength to come to market at the same time as the giant Alibaba IPO. Lending Club is a huge success story.
Lending Club has also beaten Prosper to the IPO punch. Expect Prosper and other Fintech ventures to follow suit. In Fintech markets, an IPO is not only a capital raising event and an exit for early investors, it is also a great branding event. Many borrowers and lenders who had not thought about it before will see the IPO and give it a try.
Prime time is a good time to be in Fintech. Ventures that IPO will be hungry for growth. That will drive M&A and that will drive more innovation and more early stage funding.
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