LendingClub Is Ending Its P2P Lending Platform -- Now What?

A young couple signing up for a loan and shaking hands with a bank representative.

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LendingClub recently announced that its signature Retail Notes -- that is, the ability of everyday people to fund loans for peers -- will be shutting down before the end of 2020. This is big news, as LendingClub pioneered the peer-to-peer (P2P) lending model in the first place, and begs the question: Now what?

LendingClub is shutting down its retail investing platform

LendingClub's business model pioneered the peer-to-peer (P2P) lending industry. If you aren't familiar with how this works, here's a quick example. Let's say that you want to borrow $20,000 through LendingClub's personal loan platform. You would fill out a credit application, LendingClub would assign you a risk rating, and would post your loan on its marketplace. Investors could then decide to fund some (or all) of your loan, and they would receive a proportional amount of your monthly loan payments, including interest, for doing so.

In a surprising turn of events, LendingClub just announced that it plans to shut down its retail loan marketplace, also known as its Notes platform.

The move has to do with LendingClub's agreement to acquire Radius Bank. LendingClub plans to use the acquisition to roll out new and innovative banking products, including a high-yield savings account. In the SEC filing revealing the news, LendingClub said that it "plans to offer a full suite of products as a bank." However, it appears it isn't financially viable to continue P2P lending, at least in the current form.

According to LendingClub's website, "Unfortunately, under a prospective banking framework, it is not economically practical for LendingClub to continue to offer Notes. So, we had to make the difficult decision to retire the Notes platform effective December 31, 2020."

LendingClub will stop accepting new retail accounts effective Oct. 8 and plans to retire its mobile app on Nov. 10. The last day for existing accountholders to purchase Notes will be Dec. 27.

What this means -- and what it doesn't

To clarify, this means that everyday investors like you and me won't be able to create a LendingClub account, deposit funds, and invest in other peoples' loans.

It does not mean that LendingClub is shutting down its lending business. In fact, in its SEC filing revealing the news, LendingClub specifically mentioned that it aims to continue its mission to help customers "pay less when borrowing." In other words, if you're shopping around for a personal loan or auto refinancing loan, you don't necessarily need to scratch LendingClub off your list.

Furthermore, this won't affect any existing notes LendingClub investors own in their accounts, nor will it necessarily affect institutional investors who do business with LendingClub.

The future of LendingClub

As I mentioned, LendingClub plans to essentially transform its business from a peer-to-peer lending platform to something that more closely resembles an online bank. The company specifically mentioned a high-yield savings account offering and plans to offer a version (known as the Founder Savings account) exclusively to investors on the platform. And in an email to its current retail investors, the company said that it is looking into new products that "would retain the peer-to-peer spirit of Notes under the prospective banking framework."

In a nutshell, this is a big pivot for LendingClub's business model, but one that could help it compete more effectively within the fintech industry. We'll have to stay tuned for the next steps, but it's fair to say that this news is likely to be a bit of a disappointment for LendingClub investors.

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