Nowadays, a lot of online lenders like LendingClub, Prosper, OneMain, SoFi, Upstart, LightStream, Discover, BestEgg, Mariner, Marcus are emerging quickly, with lower interest rates, more flexible loan limits, they are disturbing the traditional industry of bank.
Take LendingClub as an example, which is the largest online lender for personal loans in US. The business model is “peer-to-peer” or “marketplace” lending, which means it matches borrowers with investors willing to fund their loans. LendingClub assigns a grade to every approved borrower and the grade determines the interest rates of the borrower and helps investors to decide whether or not to invest the loan. (The borrowers can’t see their grades; only investors can). This is how information strategy is put to use to match the needs with the demands more effectively. By Big Data analysis, borrowers would get personalized interest rate based on their monthly debt obligation (rent, student loans, etc.), income, employee, education background. Borrowers with a longer credit history, a higher credit score may choose among a variety of lenders and deal with the most affordable interest rates. The bad-credit borrower have to bare a higher interest rates on the contrary. It’s also the best pricing strategy example by differentiate the risk-based interest rates of the investors with different credit scores of borrowers. What’s more, they even employed group pricing, for instance, Lending club allows joint loan applications. Borrowers with a score of 600 and above and the maximum combined debt-to-income ratio under 35% can be qualified for the joint loan with an extra low interest rate.
Started in 2007, now LendingClub has already facilitated more than $28 billion in personal and business loans. By connecting the investors with the borrowers more directly, the peer-to-peer lending companies remove the middleman of a traditional bank and reshaping the market of borrow and lend.
