Imminent rate hikes pose challenges for lenders


With 2021 over, 2022 looms as a landscape of challenges and opportunities for financial service providers.

The recent announcement that the Federal Reserve would seek to raise interest rates as early as next month raises the question of how ready we are for the Great (Interest Rate) Reset.

After all, so much depends on the Fed Funds rate – usually a benchmark against which other debt is valued. Credit card interest rates, which are now in the percentage points for teenagers, will go up.

Scott Sanborn, CEO of LendingClub, pointed out to Karen Webster of PYMNTS that the vagaries of the pandemic could make the results of any rate hike a little different.

According to Sanborn, most recessions have been marked by periods of credit deterioration. But credit held up well during the 2020 recession and has remained strong ever since.

LendingClub, he said, expects a return to pre-pandemic delinquency levels. But the company’s installed base – and target customers – are responsible borrowers. This core demographic, he told Webster, can be defined as people earning at least $100,000, with relatively high credit scores, who are struggling with high debt.

Many of these people, as Sanborn noted, live paycheck to paycheck. Joint research between PYMNTS and LendingClub shows that around 40% of people who earn at least $100,000 a year live paycheck to paycheck, sometimes struggling to make ends meet. This is a key population, Sanborn said, who will seek to shore up outstanding debt as rates rise.

“There’s an inherent positive selection,” he told Webster, “As they come to us because they want to make good financial decisions and they want to cut costs [of debt].”

Read more: New report: 53% of high-income Americans live paycheck to paycheck

These consumers, he said, have not overtly benefited from government stimulus (or unemployment, for that matter). And they will sit up and notice that their credit card debt is getting much more expensive and take a proactive approach to that debt – and they have the financial capacity to do so.

But they will always worry about whether they’re making the right decisions, Sanborn said — whether they have the right information and strategies at their fingertips. There is a new opportunity for a digital bank to build a brand by helping consumers make smart financial choices.

See also: 82% of consumers who are pessimistic about the economy cite inflation

Ray acquisition

To that end, he said, the recent integration of Radius Bank sets the stage for LendingClub to pivot from the entry point of helping people manage credit card debt (or save money). money on their auto loans) and, over time, capture spending and savings. , as well as building cash cushions along the way.

The movement is therefore moving towards results-based banking, where a wider range of real-time data and information can help LendingClub move away from its (purely) lending roots.

As he explained to Webster, “By capturing the banking relationship, we’ll be much more able to reach out and say, ‘Hey, do you see your credit card rate just went up? Maybe you should move the balances on this card to another that costs less or put it into an installment loan.

Other LendingClub offerings allow consumers to more adroitly match their cash flow (via paycheck receipts) and their expenses. He said the cloud and platform model allows LendingClub to unlock deep analytics capabilities and create engaging experiences.

Credit, after all, is a data problem, and the company, Sanborn said, has billions of data points gleaned over 15 years to make the most effective lending decisions — and do so with confidence.

There is no shortage of challenger banks that have been able to lower the cost of various financial services and products and foster smooth user experiences. Yet they have yet to help consumers overcome the major cash flow problems that so often arise in life.

Finding Gains in Uncertainty

The conversation with Webster came amid the company reporting results that delivered record fourth-quarter revenue and net profit topped the high end of guidance. Revenue was just under $819 million, up 157% from 2020 levels, and the company posted a profit of $29.1 million after reporting a loss one year ago.

Sanborn said LendingClub will continue to grow its on-balance sheet loan portfolio and move more to cloud-based mobile platforms.

Read also: LendingClub Aims for Cloud, More Mobile Platforms First in 22

He said the company ended the year with “a lot of momentum” as LendingClub was able to deliver record revenue and black ink on the bottom line in what is usually the the company’s weakest quarter.

“This is a first for LendingClub,” he said. He also noted that the costs associated with his purchase of Radius, a significant acquisition, are now entirely in the rearview mirror.

LendingClub enters 2022 against a backdrop of general anxiety and volatility within financial services – where the pandemic continues to be anything but predictable, and the only certainty is that interest rates will rise.

Along the way, he said, LendingClub will focus on its biggest customer.

Going forward, he said, LendingClub’s primary driver and focus will be on core categories, but where is a significant opportunity to grow the auto refinance business and what it has called the business of “purchase financing” – putting credit card debt on installment plans that cost less even than traditional card refinancing.

“It’s something we’ve introduced into the [Radius] bank in the fourth quarter and expect to grow at an outsized pace this year,” he told Webster. “And then towards the end of the year, that’s when we’ll be talking about moving the bank to the cloud, integrating that data, and building that mobile experience. .”

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NEW PYMNTS DATA: 70% OF BNPL USERS USE BANK PAYMENT OPTIONS, IF AVAILABLE

On: Seventy percent of BNPL users say they would prefer to use the installment plans offered by their banks – if only they were made available. PYMNTS’ Banking On Buy Now, Pay Later: Installment Payments and the Untapped Opportunity of FIssurveyed over 2,200 US consumers to better understand how consumers view banks as BNPL providers in a sea of ​​BNPL pure-players.

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