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New LendingClub platform broadens credit access from 'sophisticated investors'

LendingClub Corp.'s newest platform has the potential to be "very meaningful" to the online lender's overall origination volume, its CEO said.

On a call to discuss second-quarter earnings, Scott Sanborn said the new program offers LendingClub an expanded customer base, more efficient marketing and less risk. As part of the offering, "sophisticated investors" can choose to buy and index certain loans that otherwise would be denied by LendingClub. The program, which is called the Select Plus Platform, will operate outside of LendingClub's core criteria, working instead from investment criteria that the investors have developed.

These are investors such as big card companies or specialty finance companies that have a slightly different view on credit than LendingClub might have at any given time, Sanborn said. These investors, who conduct their own analyses on credit risk, might have insight into certain populations or have knowledge of different segments. LendingClub will have already spent the marketing dollars to get these potential borrowers to its site, so the new offering is essentially an incremental monetization of volume that is otherwise not being monetized, executives said on the call.

The online lender reported second-quarter loan originations of $3.13 billion, up from $2.82 billion a year earlier. LendingClub has been tightening pricing and credit at the higher-risk end of its prime loans. That tightening, which presumably would occur ahead of any potential market downturn, might open up more opportunities for investors to use this new program.

"Over the past year, we've cut credit somewhere close to 20%," Sanborn said on the call. "We had investors coming to us saying, 'Hey, we like some of that risk.' Frankly, this allows them to put their money where their mouths, and their analytics, are."

Should an investor choose to fund a loan, the product offering will still be a fixed-rate installment loan with an annual percentage rate that falls within LendingClub's set criteria. LendingClub will make money the same way as its standard platform, where the investor earns all the interest on the loan and the company earns a transaction fee and does the servicing.

In the next six months, LendingClub aims to add a few partners and optimize the nascent platform. Then the online lender hopes to develop a long-term strategy to fit the Select Plus Platform into its broader platform in an attempt to open its marketplace to others who can service LendingClub's consumers, Sanborn said.

LendingClub shares were up more than 8% in aftermarket trading Aug. 6.