LendingMatch™: Our Secret Sauce
Portfolio Recommendation Technology
Lending Club takes a portfolio approach to social (a.k.a. people-to-people or peer-to-peer) lending. We use a system that combines the latest search technology with the power of social networking to make loan portfolio recommendations to lenders.
Our system uses a powerful algorithm called LendingMatch™, which finds relationships between private lenders and borrowers based on geography, education, profession, or connectedness within a given social network and then presents lenders with diversified loan portfolios reflecting these relationships as well as the lenders' individual risk preferences. Moreover, LendingMatch™ serves to show borrowers that their personal loans are not being funded by faceless nameless banks, but rather are coming from real people.
LendingMatch™ underscores a founding principle of our company—we believe that bringing lenders and borrowers together in a marketplace that leverages existing communities and relationships will make for a better experience for all participants. Pointing lenders toward compatible borrowers will help ensure that personal loans get funded, while letting borrowers know that members of their community supported their financial needs will increase the overall performance of the loan (as borrowers would be less likely to default).
LendingMatch™ generates portfolio recommendations that spread lenders' money across a number of loans that meet their risk tolerance and maximize their degree of connectedness. The risk tolerance lenders specify for us helps us select loans with varying credit grades (A–G) and corresponding interest rates. The lower risk grades have lower interest rates, and the higher risk grades have higher rates. The risk to the lender is based primarily on default risk—each risk grade has a historical default rate based on 20 years of credit bureau data. We set our interest rates in a way that we believe adequately compensates lenders for taking that risk.
