What are you trying to accomplish with your new product?

We have pretty ambitious goals. We want to transform the banking system into a marketplace that is more competitive, more consumer-friendly, more transparent. We’re only going to be more relevant to more people if we address more use cases and expand the population we are addressing. Over time we want to offer all types of credit products including auto loans, student loans and mortgages. This is our first foray into that.

The reason we wanted small business loans to be our first new product is based on unsatisfied market needs. What we’ve seen is since 2008, commercial lending has been decreasing. Over the last couple years, the larger commercial loan market has picked up again. If you look at smaller commercial loans, that market has continued to shrink since 2008. It’s not for lack of demand. There are a lot of business owners who don’t have the capital to grow their businesses.

Is there a lot of competition in this space?

The segment we are thinking of addressing is not all that crowded. If you look at the merchant cash advance, very often their starting interest rates is 20% and it goes up from there into the 40s to the 60s…Our rates are going to start at 5.9%. Really, we will be more of an alternative to a banking loan for smaller businesses not getting attention from the banks. It’s not that their credit is bad. It’s really hard for the banks to make a small business commercial loan work, considering the bank’s operating cost and structure. It’s very expensive for a bank to underwrite a service, and it’s not always worth it.

 Will you be targeting the same investors as Lending Club has so far?

Over time, we will. For the first year, we will only make these loans available to a portion of our investor base. Initially we won’t have a track record. We want to build up our track record for the first year before we make these loans available to retail investors.

On the current Lending Club platform, are you seeing the right balance in demand for loans vs. demand to invest?

I am hoping you’ve seen the benefits of the changes we have made in the last few months. I think we had gotten into a time last summer when the appetite of investors increased faster than we had anticipated, and so we had too much of a supply of capital. We had to recalibrate a little bit. In particular, we put some purchase limitations in place for the large institutional investors to make sure we don’t get a disproportionate share of institutional investors. Now we have a much better balance. 

One thing that has been true about your platform from the beginning is that you have focused on borrowers who have a strong credit history. Do you have any plans to broaden that in the future?

No, I think the plan is to continue to stay a mainstream consumer play. We’ll expand the population for which our loans are attractive over time on both sides. We want to start offering lower interest rate loans over time. Today we start at 6.78%. We think with some of our investors now who really understand the predictability of the platform, there’d be more interest for a loan grade at a 5.9%. We’d have a product that works better for a 750 or an 800 FICO score. And we’ll probably expand a little bit in the near-prime category with people who will be in our target market in the future.

 You’re not looking to expand into the subprime market?

No.

It’s been reported that LendingClub will look to go public in 2014. Is that likely?

That’s still a possibility. There’s a pretty high likelihood.

Anything else?

One thing that’s fairly new is the involvement of banks as part of the institutional lenders. One category of institutional lenders is really the banks that are investing more and more on the platforms. It makes a lot of sense from the standpoint of Lending Club establishing a low-cost marketplace and replacing the traditional banking system with the low cost market place. On the flip side, the banks have a pretty low cost of capital. When you put together the low cost of capital of the banks and the low cost and great service of Lending Club, having banks relinquish the customer relationships and becoming investors on the platform is a good way to transform the banking system but associate the banks with that transformation is good.