Although they operate very different business models, both the digital marketplace bank LendingClub (NYSE: LC) and the artificial intelligence lender Upstart (NASDAQ: UPST) are market leaders when it comes to online personal lending, each having originated at least $10 billion of unsecured personal debt in 2021. While Upstart originated more loans and will likely continue to do so, LendingClub has a big funding advantage, which will be key as interest rates rise and if economic conditions get more difficult. Here's why.
Many fintech companies will take all or most of their loan originations and sell them to third-party investors like hedge funds, insurance companies, or asset managers, or pool loans into asset-backed securities (ABS) for investors that can't hold whole loans directly on their balance sheets. Another method is to partner with banks that have their own deposit bases to fund the loans and put them on their balance sheets.
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LendingClub Has a Huge Funding Advantage Over Upstart