I have been following the discussion about social lending since reading a November 2006 Center Networks post in which CN blogger Allen Stern called social lending the “next Web 2.0 phenomenon.” I’ve followed Prosper in the US, Zopa in the UK and Kiva’s international philanthropic P2P service.

When I saw that one of my favorite Tech bloggers and Twitterers, Rex Dixon, is working in the social lending space at Lending Club, I told him I’d love to learn more about Lending Club and the unique service it provides. Rex connected me with Lending Club’s Senior Vice President, Patrick Gannon. Patrick worked in traditional financial services at Wells Fargo before joining the P2P lending world. He provided a great roundup of the company and market that attracted him to leave traditional financial services and join Lending Club’s team.

Amanda: Describe the service Lending Club provides for Web users.

Patrick: Lending Club (www.lendingclub.com) is a prime consumer lending platform that brings together creditworthy borrowers and lenders to originate and service person-to-person loans.

Approved borrowers get rates that are 25% lower than those of banks, and lenders can make great risk-adjusted returns. Lenders are currently making 12.3% on average on their loan portfolios.

Lending Club pulls credit bureaus for borrowers and verifies borrower identities. Borrowers have good FICO scores of 640 or higher and have a manageable amount of debt (30% debt-to-income ratio or lower) with no current delinquencies.

Lending Club features a portfolio creation tool called LendingMatch™ that makes diversification across dozens of loans meeting a desired risk tolerance possible at the click of a button.

Amanda: What made you decide to move from traditional financial services at Wells Fargo Bank to work with the team at Lending Club?

Patrick: I was introduced to Lending Club through an early investor and was immediately impressed with the business acumen and technical prowess of the team. I joined the company in May of 2007, only a few months after the company had launched, and the team had already put together a leading-edge underwriting, origination, and servicing system.

I was excited by the potential for Lending Club to transform consumer lending in the United States, and thought that the business model was
excellent. I have been extremely happy here and proud to join such
an excellent and fun team.

Amanda: Who are your primary competitors in the market and how have you differentiated Lending Club’s service?

Patrick: There are a number of companies who are in the social lending market, and a number of others have announced their intentions to join. The potential size of the market is huge – there are trillions of dollars of consumer debt in the United States alone – so we believe the market will support a number of leaders.

Lending Club is differentiating itself from the competition by focusing on the responsible lending and community aspects of social lending. Responsible lending means that we only lend to people who are able to service the debt without running into financial trouble, and at a fair, fixed interest rate that we set. The community aspect of social lending means that we offer our services not only through our website, but also through existing associations – alumni, professional, community, and online – where people can borrow from and lend to each other.

In addition, our track record to date has been excellent. As people can see on our statistics page, we have done a good job of limiting defaults by being very careful about extending credit.

Amanda: How has the impending recession affected Lending Club and its lenders and borrowers? Is the social lending model more or less insulated from recession

Patrick: Lending Club is carefully monitoring economic indicators and adjusting our lending as necessary. Historically speaking, in the past 30 years, default rates in recessions have doubled average default rates. By extending credit carefully, and only to those who we consider to be good credit risks, we seek to limit the possibility of loss for lenders.

We think that as so many banks tighten their credit policies and either turn down loan applicants or offer them very high interest rates on their loans that social lending will become an increasingly attractive alternative to those with good credit.

Amanda: Do you have plans to expand this service to European or other international markets?

Patrick: One of the most common inquiries we get at Lending Club is “when are you coming to my country?”

We do think that Lending Club’s model could work in a wide range of countries, and we know that the market for our service is also very attractive. That being said, we are focusing on building our United States business for the time being and do not expect to expand internationally in 2008.

Amanda Mooney: What Web or business trend are you most excited to watch in 2008?

Patrick: Lending Club is interested in the broadening reach of social networks and the quality of the information that will flow through those networks. We are also interested in social lending, of course, and look forward to seeing significant innovation in the market this year.

Image provided by Patrick Gannon. Logo pulled from company Web site.

Amanda Mooney, i5invest Boston