Bankers Take 10 Months to Do What LendingClub Did in 5 Years

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It took LendingClub Corp. five years to arrange $200 million of consumer loans in a quarter. A group of former Barclays Plc bankers just reached the milestone in 10 months.

Marlette Funding LLC, started by ex-employees from a Barclays credit-card unit, said in a statement that it arranged more than $450 million in consumer financing after unveiling a website in March to match investors with borrowers. More than $200 million was in the last three months of 2014.

LendingClub, which opened in 2007, pioneered the business and navigated regulations to grow into the industry’s dominant player. It was on pace to originate about $4 billion in loans last year and pointed to that lead as an advantage over new rivals as it sold stock to the public in December. Marlette’s quick start shows there’s still room for entrants to chase profits.

“You’re going to see a number of these competitors pop up,” said Michael Tarkan, an analyst at Compass Point Research & Trading LLC. LendingClub’s early start is an advantage, he said. “Could it be replicated? Absolutely.”

LendingClub’s stock almost doubled last month after the public offering, briefly valuing the firm at more than $10 billion. The shares have slid 19 percent this month.

Key Differences

LendingClub’s main competitor, Prosper Marketplace Inc., also saw business surge last year. The company, founded around the same time as LendingClub, stumbled as it worked to comply with U.S. Securities and Exchange Commission regulations and settle an investor lawsuit. A new management team took over in early 2013 and more than tripled the amount of loans arranged on the platform to $1.6 billion last year.

Marlette is less known. The Wilmington, Delaware-based company is run by Chief Executive Officer Jeffrey Meiler and some of his colleagues from Juniper Bank, a lender Barclays bought in 2004 and built into one of the largest U.S. credit-card issuers. Twenty-six of Marlette’s 33 employees worked there.

While Marlette’s main service -- arranging unsecured three-and five-year loans for as much as $35,000 -- mimics LendingClub’s and Prosper’s, it differs in key ways.

The startup relies entirely on investment managers, banks and other institutions to provide capital for loans arranged through its site, It doesn’t let retail investors provide funding -- a feature of platforms run by LendingClub and Prosper that earns them the moniker of peer-to-peer lenders. Borrowers use the money to refinance other debts or make purchases.

Aligning Interests

Marlette lets investors buy only whole loans. While that’s an option at LendingClub and Prosper, they also allow buyers to acquire portions of a debt, in increments as small as $25.

Another difference is that Marlette plans to take on some of the loan risk. Prosper and LendingClub currently make money through origination and servicing fees and don’t keep a portion of the loans they help originate on their balance sheets. While the firms say that helps them avoid risks, the structure has been compared to the originate-to-distribute mortgage model that contributed to lending excesses before the U.S. housing bust.

“Part of our model is to eat our own cooking,” Meiler said in a phone interview. “The idea is to get alignment of interests with investors,” while earning more from the borrowers, he said.

Even as entrants multiply, there is ample demand to fuel growth, said Mark Palmer, an analyst at BTIG LLC. U.S. consumers had $882.1 billion in revolving credit outstanding at the end of November, according to preliminary Federal Reserve data.

“The fact that you have other players gaining traction speaks to the fact that the alternative lending model has significant merit,” he said. “With a market of this size, there should be more than enough business to support multiple players.”

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