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Renaud returns, but will Upgrade live up to its name?




By Ryan Weeks on 13th April 2017


Former Lending Club boss Renaud Laplanche returns with new consumer lending proposition.

 

Renaud Laplanche, founder and former CEO of Lending Club, has returned to the online lending sector with the launch of a new platform – the very deliberately named Upgrade. The consumer credit platform, which went live last week, will combine consumer loans with credit monitoring and education tools.

 

After starting operations last August, the new firm closed a Series A round of $60m in March, comprised of $48m in equity and $12m in convertible notes. The round is being touted as the largest Series A in the history of fintech. Rumour has it that the round carried a pre-money valuation of $120m.

 

Investors in the round include Apoletto, Credit Ease, FirstMark Capital, Noah Holdings, Ribbit Capital, Sands Capital Ventures, Silicon Valley Bank, Union Square Ventures, Uprising and Vy Capital.

 

Laplanche was forced to resign as CEO of Lending Club last May, after an internal review found that $3m in loans were mis-sold to the investment bank Jefferies. The loans in question had falsified dates. 

 

It is surely no coincidence that the newly-launched Upgrade is making great play of its compliance management and internal controls. Particularly notable is its use of blockchain protocol to create “time-stamped, immutable transaction records”. Blockchain technology has long been cited as a potentially powerful means of loan verification in online lending, one that might help spur on investor uptake.

 

Upgrade will offer consumer loans of between $2k and $50k. Although we don’t yet know much about the credit monitoring, alerts and educational features, what we do know is that the latter of these will include a simulation tool. This will allow users to weigh the impact of their actions against their credit scores.

 

“We are excited to introduce innovations that help consumers better understand their credit potential, unlock that potential and obtain more affordable credit,” said Laplanche.

 

Rolling up a lender and financial health platform into one is not without precedent. Consumer lender Avant acquired debt consolidation tool ReadyForZero in March 2015 (only to then close it down a year later). But Upgrade may well be unique in attempting to build both sides of the platform from scratch.

 

The new platform’s loans will be exclusively funded by institutional investors, a clear departure from the Lending Club model. Jefferies is advising Upgrade on its capital markets strategy, and is also expected to purchase loans to spur on a securitisation programme.

 

As with the majority of marketplace lenders in the US, the loans themselves will be originated by WebBank. Upgrade will acquire these, retain some on its balance sheets, and sell others on to investors.

 

Clearly the vision for Upgrade is to deliver a superior second iteration of the online lending model. What is also clear is that the management team will have a wealth of experience to draw on from ten years at the helm of the sector’s largest platform. Soul Htite, another co-founder of Lending Club and the CEO of China-based Dianrong, is also involved in Upgrade as a co-founder. Jeff Bogan, who ran the investor group at Lending Club, is another Upgrade co-founder, and its chief finance officer.

 

It’s also fair to assume that Upgrade may hold a technological edge over its fellow online lenders, some of which are now over a decade old, and which are often said to have legacy issues of their own. The adoption of blockchain technology, for example, would likely cause “incumbent” marketplace lenders a real headache.

 

But despite these potential advantages, one wonders whether Upgrade is simply arriving too late to the party. Starting from scratch in a market that now features some truly big beasts is not going to be easy. Recent data from S&P Global Market Intelligence shows that Lending Club has now originated a cumulative total of $25bn in consumer loans, with SoFi not far behind on $15bn.

 

It’s a significant gap for the newly-launched Upgrade to close. But the problem that its forebears originally set out to solve undoubtedly still exists. There was $950bn in credit card receivables outstanding in the first quarter of 2016, versus $996bn today.

 

More importantly, some investors clearly believe that we remain in the early stages of a broad shift towards marketplace models in finance.

 

“We all think that the marketplace lending model can be expanded to new products and ultimately be more helpful to more people,” said Frank Sands, co-founder of Sands Capital Ventures. 

 

Lending Club was a category-defining company under Laplanche, helping to shape what we now think of when we refer to "marketplace lending". Can Upgrade evolve that vision? 

 

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