After Gangbuster Quarter, Digital Bank LendingClub Shares Rise Significantly

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Loan Club (NYSE: LC) yesterday released strong quarterly results that far exceeded earnings estimates. Earnings per share (EPS) rose to $ 0.26 when estimates expected less than half. Following the news, stocks have risen significantly and in pre-market, LendingClub shares are currently trading up about 30%, topping $ 40. A year ago, LendingClub was trading under $ 5. While today’s gain is no guarantee of tomorrow’s share price, things are looking up for Fintech which once struggled to survive and had to carry out a stock split to maintain its shares on the NYSE.

Much of the improvement in investor sentiment revolves around fintech’s transition from an online-to-consumer lender to a full-stack digital bank. Earlier this year, LendingClub completed the acquisition of Department bank thus positioning the company to be able to offer a broader portfolio of services to its users.

It should be noted that LendingClub is a national chartered bank – unlike many “neobanks” which provide banking-type services by partnering with other chartered banks. This means that LendingClub has eliminated the bank – the middleman.

Combine this with the fact that LendingClub now has access to cheap capital through consumer deposits, which means its business can lend more for less, giving it a competitive advantage over other lenders while still benefiting from its benefits. “Billions” of data points from years of online lending. In its earnings call, LendingClub said its data is helping it reduce loan delinquencies at a lower cost. 80% of loans issued are now fully automated. And that’s minus the costly bank branches and people required to staff those physical locations.

Another big advantage for LendingClub Bank is the fact that there are only a handful of nationally chartered digital banks. Most of the digital competitors are neobanks that still have to deal with the costly middleman. The recent transition to the Biden administration has led to a regulatory environment that is much less conducive to innovation. Some experts believe that there will no longer be digital banks approved by the Office of the Comptroller of the Currency (OCC) for at least four years.

LendingClub Bank is in a good position and is expected to continue to generate profits over the coming year. But what must the digital bank do to keep moving forward?

First, he needs to grow his accounts and deposits faster. Wall Street will want to see the number of “members” go from 3.8 million to just over. During the last quarter, LendingClub added only 100,000 new members. Expect LendingClub internet and cable TV ads as they seem to increase that number.

Second, LendingClub needs to add new features and functionality. As an agile Fintech, LendingClub can do this faster than its physical competitors. When calling for results, LendingClub executives were vague about upcoming services focusing more on helping people manage their money and boosting auto loans and other lending verticals. LendingClub has the possibility to do much more In the coming months. Management simply needs to decide whether to pursue the modern digital banking features that consumers, especially younger ones, expect from a forward-looking financial services company.

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