Lending Club & Google: Look Out Banks

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Lending Club

Source: web

Banks have been taking a brutal beating lately – in both public relations and competition. And now, the heat’s just been turned out as Google announces it now has a stake – albeit a minority one – in the peer to peer lending company, Lending Club. So do banks need to be worried? Maybe.

This minority stake comes to more than $125 million and was garnered when it acquired shares from existing lenders. It’s not the only one, though. Foundation Capital also announced it too was going to throw some support to the company.

Lending Club

Lending Club, as many know, is the peer-to-peer, or P2P, site that lets people take out personal or business loans at lower rates than credit cards, as long as they have good credit. That might be one of the saving graces for some banks. You can’t qualify with anything less than a 660 credit score. Many banks have the same requirement, of course, but at least they’re not bringing in consumers that can’t qualify for the traditional bank loan. This, of course, has many wondering just how good the peer to peer lending companies are if many peers don’t qualify.

The difference is that the fees and interest rates are lower.

This Google investment, though, values the rapidly growing Lending Club at an impressive $1.55 billion, with is almost three times the valuation of the last fund-raising round less than a year ago, according to the New York Times. Google, of course, has long since mastered its ability to pick the winning business models from the always changing technology sector. Plus, it’s grown quite accustomed to the start up investing models. That said, even those biggest supporters of the search engine giant understand that Google coming into the financial sector is riskier than usual for the risk taking conglomerate.

By allowing our members to directly invest in and borrow from each other, we avoid the cost and complexity of the banking system and pass the savings on to the consumer,

Lending Club explains on its website. It continues by saying that both sides win with better rates for borrowers and better returns for investors. It also says it’s loaned more than $1.65 billion, including more than $350 million in the last quarter.

For potential investors, they’re given the opportunity to earn solid returns and uses as proof its twenty three consecutive quarters of positive returns for those investors.

Bank’s Futures in Jeopardy?

The real question is whether America’s banks should be worried and if you believe what Lending Club says, it’s a definitive yes. In fact, both Google and Lending Club believe it’s so,

Lending Club is using the Internet to reshape the financial system and profoundly transform the way people think of credit and investment,

said Google’s David Lawee.

We are excited to be a part of it.

The deal breaks down like this: David Lawee will take on the role as an observer with Lending Club Board alongside its currently existing Board members, including Kleiner Perkins’ Mary Meeker, Former Morgan Stanley CEO John Mack and former U.S. Treasury Secretary Larry Summers. For his part, Lawee brings to the table an already established relationship with Lending Club. He is Google’s vice president for corporate development and has had an impressive career with the technology giant.

An Option for You?

So is peer to peer lending right for the average consumer? For those with strong enough credit histories, it could be quite advantageous. Members invest and borrower from each other and eliminates, in its entirety, the complex costs, fees and other requirements associated with traditional borrowing. Measures are taken to protect the privacy and identities of investors and borrowers – although borrowers must provide information to not only Lending Club, but with those taking the leaps of faith. For both sides though, Lending Club promises it

strongly protects your personal and financial information. Investors and borrowers never know each others identities; we will never sell, rent or otherwise distribute your information; and we only share what’s necessary to complete your requested transactions.

Transparency

It’s also found a way to ensure a transparent policy without compromising that privacy – which is something some bank have struggled with in recent months. The computer hacks have made it complicated for many to keep their faith in the banks that continuously are hit with denial of service attacks and have yet to find a way to better protect its customers by halting the efforts of these hackers who are nowhere and everywhere. In fact, no one has been able to provide any other information other than the attacks themselves. It’s quickly leading to a loss of faith by some who say enough time has passed to have finally identified the groups while taking better measures to protect bank customers, “It just hasn’t happened”, says one consumer advocate.

Lending Club promises both borrowers and investors that it will always provide transparent policies with an “open book” approach to its model, management and borrowing and investing process. It also promises to break news to those customers before it breaks on the evening news, which often happens in a modern financial sector.

P2P Requirements

For those interested in borrowing from Lending Club, you’ll need a strong credit history as mentioned, but you must also be a US citizen or permanent resident and at least 18 years old with a valid bank account, a valid social security number and a FICO score of at least 660. Further, they also need a debt-to-income ratio (excluding mortgage) below 35% and their credit history must show that they responsible borrowers. Doing this means they have 2 or more revolving accounts, such as credit cards, and those accounts must have at least 36 months of credit history and with less than 7 credit inquiries in the last 6 months. Finally, there are some states that make it illegal for residents to borrow from peer to peer lenders. Those states include Iowa, Idaho, Maine, Mississippi, North Dakota, and Nebraska.

So is peer to peer lending something that would work well in your financial tool box? Let us know your thoughts on the new way of borrowing money.

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About Author

Casey is a seasoned writer in personal finance. He has written a number of articles that have been published in magazines and blogs around the country. His advice has helped millions make better choices about how they save their money.


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