FINAN 4300 Problem Set 7

Lending Club should have been valued as a “marketplace company” because it did not hold loans on its balance sheet.

UNCERTAIN

Lending Club looked like a marketplace because it didn’t warehouse loans

and earned fees from connecting borrowers and investors. But its dependence on a

small set of institutional buyers and WebBank made it behave more like a specialty

finance company, exposing it to credit cycles and regulatory risk.

Measured, responsible growth is always the optimal strategy in financial services.

UNCERTAIN

Measured growth protects loan quality and regulatory trust, which matters in financial services.

But in platform markets = speed is rewarded and slow growth can cause higher CAC and lost share

The “optimal” pace depends on = long-term prudence or short-term valuation is prioritized.

A commercial bank that grows rapidly is rewarded by investors in the same way a

fintech like Lending Club would be.

FALSE

Banks growing too quickly = concerns about weak underwriting and higher

default risk,

Fintechs = often rewarded with higher valuations for fast growth, even when risks build.

Prosper posed a greater long-term threat to Lending Club than SoFi.

FALSE

Prosper was an early competitor but was not up to Lending Club’s scale & had underwriting problems. SoFi, which expanded far beyond student loans and eventually secured a bank charter, posed the greater long-term competitive threat.

The defensibility of Lending Club’s model came primarily from its brand recognition after the IPO.

FALSE

Lending Club’s real defensibility came from proprietary loan performance data and diversified acquisition channels.

In lending = brand by itself is too weak to create a moat.

Customer acquisition costs (CAC) rising would eliminate any sustainable advantage Lending Club had

UNCERTAIN

Rising CAC pressures margins and is a serious threat in a commoditized,

rate-sensitive market. But Lending Club had proprietary performance data, funnel

efficiency, and later deposit funding through Radius Bank, which allowed it to

mitigate some of the impact.

Wall Street was unfair in punishing Lending Club for slower growth compared to private

competitors.

UNCERTAIN

Wall Street’s reaction was rational from a short-term perspective: slower

growth looked like lost momentum in a competitive market. But the punishment ignored

the advantages of Lending Club’s discipline in protecting long-term franchise value.

Using WebBank as its issuing bank was regulatory arbitrage rather than legitimate banking activity.

UNCERTAIN

Critics call the WebBank partnership “regulatory arbitrage” since it

exported Utah interest rates and bypassed 50-state licensing. But it was also

legitimate: WebBank is an FDIC-insured institution under regulatory supervision, and

bank–fintech partnerships are widely recognized and lawful

The fact that Lending Club eventually acquired Radius Bank proves that the original

Peer to Peer model failed.

UNCERTAIN

The Radius acquisition showed the pure Peer to Peer model wasn’t stable at scale,

especially after investor confidence faltered. But calling it a failure is too strong:

Lending Club’s marketplace operated successfully for years and continues in hybrid

form. The move reflected evolution, not outright collapse

Fintechs ultimately prove the resilience of traditional banking, rather than

displacing it

TRUE

Many fintechs eventually converge toward bank-like models, using deposit

funding or charters to survive. Lending Club and SoFi both illustrate how fintechs

reinforce the resilience of traditional banking rather than fully displacing it.

The fact that Lending Club and SoFi eventually sought bank charters shows that all successful consumer fintechs must become banks in the end.

UNCERTAIN

Why not True: Some fintechs (e.g., Stripe, Plaid) thrive as infrastructure

providers without pursuing a charter; they remain bank-adjacent but do not rebundle

into banks

Why not False: Consumer-facing fintechs offering lending and deposits

often do evolve into banks because deposit funding is cheaper and regulators demand

stronger oversight. Lending Club’s Radius acquisition and SoFi’s charter illustrate

that trend clearly.

Which factor most weakened Lending Club’s argument that it deserved marketplace-style valuation multiples?

A large share of loan funding came from institutional investors

Specialty finance firms typically trade at lower revenue multiples than marketplace

firms because:

Their earnings depend on spreads and funding costs

Why did Laplanche emphasize “responsible growth” for Lending Club?

To reduce the chance of underwriting errors and regulatory backlash

How does the trade-off between growth speed and investor perception differ for fintechs like Lending Club compared to commercial banks?

Fintechs are rewarded for rapid growth, while banks are punished for it

Which competitor most directly threatened Lending Club’s position in unsecured personal loans during the case period?

Prosper, with a similar P2P model in personal loans

Compared to Prosper, how was SoFi’s strategy meaningfully different from Lending

Club’s?

SoFi began with student loan refinancing for prime borrowers

Which of the following best captures Lending Club’s defensibility advantage compared

to new entrants?

Proprietary loan performance data from years of originations

Why was a rise in customer acquisition costs (CAC) particularly dangerous for Lending

Club?

Rising CAC could compress margins in a commoditized market

What made it difficult for Laplanche to convince Wall Street that Lending Club was a true marketplace platform?

A large portion of loans were funded by institutions rather than retail investors

How did Lending Club’s reliance on WebBank most directly parallel traditional banking

structures?

It illustrated that fintechs needed a regulated charter to export interest rates

Which development best illustrates the “rebundling” trend in fintech?

SoFi moving from student loan refinancing into full-service banking with a charter