Transforming the Banking System Renaud Laplanche CEO, Lending Club
Disclaimer Some of the statements in this presentation are "forward-looking statements or are projections. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. The Company may not actually achieve the plans, intentions or expectations disclosed in forwardlooking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Past performance is no guarantee of future results. Investments may lose value over time and no return is guaranteed. Information presented is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Percent of U.S. Households Adoption of new technologies seems to get faster 100 90 Rates of Adoption of New Technologies 80 70 ELECTRICITY 60 50 40 TELEPHONE COLOR TV CELLPHONE 30 20 10 INTERNET 0 1900 1915 1930 1945 1960 1975 1990 2005 Source: The New York Times, 2008.
Years to 50% Penetration And the data shows it is getting faster 80 U.S. Household Adoption Rates from time of mass availability 70 60 Stove Telephone 50 40 Clothes Washer Clothes Dryer 30 Air Conditioner Manufactured Car Refrigerator Computer 20 Electricity Dish Washer Microwave Cell Phone Smartphone 10 Color TV VCR Internet Broadcast Radio Tablet* 0 1860 1900 1940 1980 2020 *Projected. Sources: The New York Times, 2008. Business Insider, 2012. Consumer Electronics Association, 2013.
1996 1998 2000 2002 2004 2006 2008 2010 2012 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Incumbents often cling to the past until it s too late $B 70 60 Revenue Annual, 1996-2012 Kindle Fire & DC Comics deal $B 7 6 Revenue Annual, 2000-2012 50 40 5 4 Blockbuster launches disc-by-mail 30 20 10 Opens e- book store 3 2 1 Launch of subscription model Netflix delivers billionth DVD 0 0 Source: Company filings, literature search
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Disruptors change their industries for the better $B 70 60 Amazon Revenue Annual, 1997-2012 Incumbents and new entrants innovate in response Amazon Local Kindle Fire 50 40 30 20 10 0 Walmart.com launch Prime Amazon MP3 Kindle Nook launch ShopSavvy & other price comparison apps launch Borders bankrupt Target & Best Buy match AMZN prices during holidays WalmartLabs formed Source: Company filings, literature search
The financial sector has gotten big 9% Financial Sector as a Percentage of GDP 1950-2012 8% 7% 6% 5% 4% 3% 2% 1% 0% 1950 1957 1964 1971 1978 1985 1992 1999 2006 Note: Financial Sector defined as Finance & Insurance Source: U.S. Department of Commerce, Bureau of Economic Analysis, 2012
Innovation has often come from outside banking Financial Sector as a Percentage of GDP 1950-2012 9% 8% 7% 6% Credit Cards 1920s, 1950s ATMs 1965 Mobile Payments 1997 Mobile Merchant 2010 5% 4% 3% 2% 1% 1920 1930 1940 0% 1950 1960 1970 1980 1990 2000 2010 Note: Financial Sector defined as Finance and insurance; Source: U.S. Department of Commerce, Bureau of Economic Analysis
Mobile innovation also coming from outside banking Banking Customers Using Mobile 3-month period Innovations 35% 30% 25% 20% 15% 10% 5% 0% 2011 2012 Source: Bain & Company: Customer Loyalty in Retail Banking
Big banks have taken retail from community & regionals 65% Retail Loans as a Percent of Total Loans Quarterly, 1984-2012 60% 55% 50% 45% 40% 35% 30% 25% National Brands take over Large banks (assets >$10B) Other banks (assets $100M-$10B) 20% 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Source: FDIC, Quarterly Banking Profile
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Credit card debt has continued to grow $B 1200 1000 800 600 400 200 0 Credit Card Debt, Interest vs. Risk-free Rate Average Credit Card Interest Rate 2-Year Treasury In 1980s, consumers paid $1.2 trillion in credit card interest over risk-free rate Total Credit Card debt In decade of 2000s, consumers paid $10.8 trillion in credit card interest over riskfree rate 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: St. Louis Fed, Federal Reserve
Banks are driving earnings the old-fashioned way $B 50 40 30 20 10 0 Q1 2012 vs. Q1 2013 Earnings Major banks Fees Costcutting We saw improvement in asset quality indicators over the quarter However, tighter net interest margins and slow loan growth create an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention. FDIC Chairman Martin J. Gruenberg, May 29, 2013 Source: FDIC, Quarterly Banking Profile
Large banks have not earned customers loyalty NPS measures loyalty and advocacy through one question which ties to customer economics 80% Average NPS Scores 2012 Would you recommend us to a friend? Extremely likely 70% 60% Other industries 9-10 % promoters 50% retail online services 40% technology 7-8 minus 30% travel/hospitality insurance 20% telco 0-6 % detractors 10% Extremely unlikely 0% Net Promoter Score (NPS) Source: Bain & Company: 2012 NPS Survey
Big bank Traditional model introduces inefficiency and risk Branch Networks Leverage in System Institution Branches Branch employees Bank of America 5,400 ~38,000 Wells Fargo 6,200 ~43,000 10x 9x 8x 7x 6x 5x 4x 3x 2x 1x 0x 9x 1x Sources: USA Today (2013), company websites, Reuters (2011)
We radically transformed lending No inherent leverage No branches Use of automation Principal + Interest Origination Fee (Upfront) Servicing Fee (Ongoing) Borrower Investors Funding
Business model is fundamentally lower cost than banks Opex / total balance outstanding, Basis points Lending club in 2015 Typical bank competitor Lending Club s cost advantage Comments Branch 220 220 Branch cost typically 30-35% of banks total opex FDIC 10 10 LC does not pay FDIC fee CS / collection Billing / fraud Origination 19 39 G&A 20 Other 28 135 is steady state, ~40 is excess mktg in 2015 to fund growth 170 100 30 30 130 80 10 0 LC uses primarily online support, billing and passes on collection fees to investors LC's origination is largely automated vs bank typically has manual components LC has leaner HQ IT 29 Marketing 135 40 175 100 Total opex 270 40 310 695 35 0 35 425 LC expected to have 35 b.p. higher marketing in steady state due to investor marketing LC s op cost drop from 750 bps of o/s loans in 12 to 310 bps in 15 is driven primarily by operating leverage fixed cost decline from 450 to 120 bps
May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Lending Club has shown fast, consistent growth Cumulative Lending Club Originations $M 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Source: Lending Club data
Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 The model continues to grow $MM 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Total Loans Outstanding Lending Club market share Consumer peer to peer loans outstanding* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% *consumer peer to peer loans defined as Lending Club and Prosper Sources: Prosper.com website, Lending Club data
Net Charge-Off Rate We have not compromised on risk performance 16% 14% 12% 10% 8% 6% 4% Net Charge-Off Rates All grades, all terms 2011 2010 2008 2009 2% 0% 2012 4 8 12 16 20 24 28 32 36 Months on Book Source: Internal Lending Club data as of May 2013
We re proud of our customer experience 1 Average NPS Scores 2 80% 70% 60% 50% 40% 30% 20% 10% 0% 79% Other industries retail online services technology travel/hospitality insurance telco Sources: Company website, Bain
Investors have been flocking to us Lending Club Notes have provided a Net Annual Return between 6%-10%* We have added sources of institutional capital Credit Structure High Net Worth / Family Offices Self-Directed Retail Institutional Direct 3rd Party Managers *Return calculations based on accounts that have invested in 800 or more unique borrowers, based on platform performance as of May 13, 2013 Source: Internal Lending Club data
The future the sky s the limit and beyond Credit cards Insurance Rest of the world Business loans Mortgages Student loans Consumer loans
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 The music industry decided to work with Apple B 30 Rejection Adoption Acceptance 25 20 15 10 5 Industry fights rise of digital RIAA & industry players sue series of digital music distributors Partnerships develop with some bumps in the road Nov 2004: The Complete U2 available in itunes Aug 2007: Eminem sues Apple for copyright infringement Industry fully partnered with itunes Nov 2010: Beatles catalog available in itunes Songs downloaded in itunes Store 0 Source: Apple, literature search
And retailers with ebay Retailers did not want to be associated with this But now some are partnering with ebay
Banks now working with Lending Club Investors Borrowers Self-Directed Retail High Net Worth / Family Offices Institutional Direct Credit Structure Online Mktg Partnerships Offline Mktg 3 rd Party Managers Banks Banks now using Lending Club as a platform to deploy capital Bank Customers
Q&A Renaud Laplanche CEO rlaplanche@lendingclub.com