? Upgrade Inc. is hyper-focused on compliance in light of its CEO's past
? The digital lender competes against but also partners with traditional banks
? Upgrade is looking beyond lending to other credit products, CEO says
Renaud Laplanche is perhaps best known for his time as chairman and CEO of LendingClub Corp. He left the digital lender in May 2016 following an internal review of manipulated data in some loan sales and an alleged failure to disclose a personal stake in a company pitched as an investment for LendingClub — an allegation the company later retracted. These actions triggered several regulatory and legal inquiries that the company is still grappling with today.
Laplanche said he is no longer involved at the company, aside from being a large shareholder.
In the meantime, he launched a new company, Upgrade, that also operates in the digital lending industry. Laplanche sat down with S&P Global Market Intelligence in San Francisco to offer insight into his work after LendingClub. What follows is an edited transcript of that conversation.
Upgrade Inc. Founder and CEO
S&P Global Market Intelligence: What lessons did you learn from your experiences at LendingClub?
Renaud Laplanche: I learned a lot in 10 years. That's a long time. Clearly compliance is important. We don't want any compliance issue to ever happen at Upgrade. We've probably made more investments in compliance than any other startup frankly ever has. Data integrity is key, and transparency is very important. These are areas where we've probably over-invested and also tried to use technology to solve problems in better ways.
For example, in terms of data integrity, we're using the blockchain protocol to create a time-stamped, immutable record of every transaction and every document.
It's really a great, very efficient system of record of every document at any point in time. We hope it gets adopted more broadly and becomes the de facto system of record.
Some have described Upgrade as a mix of LendingClub and credit scoring and monitoring service Credit Karma Inc. Would that be a good description of what Upgrade does?
At a very high level, yes. In the sense that we do have credit monitoring alerts and credit education in the way Credit Karma would. We're making loans using a marketplace lending concept the same way LendingClub would. But I think probably the parallel stops there because we can be more useful [with] both sides. There's a lot of data synergies that we can take advantage of.
On the loan side, we want to do a lot more than just making personal loans. This is our first anniversary of our launch and we are already launching our second product: personal credit line.
The goal is to continue to offer new innovative credit products that will help our customers throughout many occasions and life stages, ranging from student loans to mortgages to home equity lines of credit [and] auto loans — really the entire range of credit products that our customers might need.
Who would you say your competitors are?
For the most part, it's traditional banks.
The personal loan is really the way to pay off an existing credit card balance and refinance at a lower rate. The personal credit line is an alternative to a credit card.
There's $1 trillion of credit card balances outstanding that carry interest at very high costs, about 17%. The credit card industry is very [consolidated]; 75% of that $1 trillion resides with six major credit card issuers: Capital One Financial Corp., Discover Financial Services, Citigroup Inc., Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co.
That's our competition.
If you're competing against the banks, does that mean you don't partner with them?
It's a really interesting relationship with banks, where we partner on some levels and we compete in other places.
There are synergies between banks and Upgrade, mostly with smaller banks. We've seen a lot of community banks and credit unions, or even regional banks that are interested in buying loans from the marketplace.
What they've found typically is their net yield on the loans they buy from us is usually higher than the loans they originate directly to their customers because our cost of operations is lower. It's a lot more costly for the bank to directly originate the loan to customers than to buy a loan from the marketplace.
That's one benefit for the bank. The other, for smaller banks, is to gain access to a national operation like Upgrade.
Many community banks have a handful of branches within a small geographic area. It's useful for them to diversify geographically and be able to buy loans from all [of the more than 40] states where we license.