Lending Club strikes $150m deal with Citigroup

Lending Club has entered a $150m tie-up with Citigroup, the number three US bank by assets, marking a key step in the attempt by the biggest peer-to-peer lender to "transform" the banking system.

Since 2007 the San Francisco-based company - which matches consumers keen to refinance expensive debt with investors looking to lend - has roughly doubled its total loans funded each year, to $7.6bn.

Along the way it has signed deals with regional lenders such as Union Bank of California and BancAlliance, a national consortium of 200 community banks, allowing them to offer co-branded personal loans to their customers through the Lending Club platform.

But the partnership announced on Tuesday morning is its first with a so-called universal bank.

According to Renaud Laplanche, Lending Club's founder and chief executive, Citi will use the firm's platform to supply up to $150m to "underserved" borrowers that its branch network is unable to reach.

Such a goal is consistent with Citi's obligations under the Community Reinvestment Act, a 38 year-old law obliging it to direct a portion of its lending to deprived areas.

"Many commentators were asking, [the smaller deals] are all well and nice, but when are we going to see a partnership with one of the major banks like Wells Fargo or Citi? The answer is now," Mr Laplanche told the Financial Times.

The deal is a sign of the rapidly-maturing online lending industry, which traces its origins to a first wave of start-ups on the west coast of America in the mid-2000s.

While firms such as Lending Club, Prosper and SoFi have since attracted plenty of interest from hedge funds and Wall Street bigwigs - John Mack and Vikram Pandit, the former chiefs of Morgan Stanley and Citi, have backed several ventures - it is only recently that bigger institutions have come on board.

Last week Prosper, the second-biggest online lender by assets, said it had received a $160m cash injection from investors including Credit Suisse, JPMorgan and BBVA Ventures, the venture arm of the Spanish bank.

Also on Tuesday, LendKey - a private New York-based firm which connects borrowers with local banks and credit unions - said that Apollo Global Management, a private equity firm managing about $160bn in assets, had agreed to buy up to $1bn of student loans refinanced via its platform.

The LendKey and Lending Club deals were announced to coincide with the opening of LendIt USA, a big industry get-together in New York.

Mr Laplanche, who gave the keynote speech to about 2000 delegates, said that the market leader remains determined to grow in a "deliberate way."

About $390bn of the total $890bn in US credit-card receivables is a good match with Lending Club's credit standards, he said, while plenty of investors are "willing to invest more" on the platform.

Meanwhile, he said, the firm's basic model could be applied to other products, such as car loans and mortgages.

"When we say we are transforming the banking system we don't mean it in a confrontational way," he said. "We believe banks can benefit from the transformation."

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