From the S-1:
Our Competitive Strengths
We believe the following strengths differentiate us from our competitors and provide us with competitive advantages in realizing the potential of our market opportunity:
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| Leading Online Marketplace. We are the world’s largest online marketplace connecting borrowers and investors, based on over $6 billion in loan originations through September 30, 2014, of which approximately $1.8 billion were invested in through notes issued pursuant to the Note Registration Statement, $2.5 billion were invested in through certificates issued by the Trust and $1.7 billion were invested in through whole loan sales. We have built a trusted brand with a track record of delivering exceptional satisfaction and value to both borrowers and investors. We believe that our brand, reputation and scale allow us to attract top talent, quickly develop and deploy new products, attract marketplace participants and leverage a lower cost structure to benefit borrowers and investors.
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| Robust Network Effects. Our online marketplace exhibits network effects that are driven by the number of participants and investments enabled through our marketplace. More participation leads to greater potential to match borrowers with investors. Additionally, increased participation also results in the generation of substantial data that is used to improve the effectiveness of our credit decisioning and scoring models, enhancing our performance record and generating increasing trust in our marketplace. As trust increases, we believe investors will continue to demonstrate a willingness to accept lower risk premiums that will allow us to offer lower interest rates and attract additional high-quality borrowers, thereby reinforcing our track record and fueling a virtuous cycle for our business. We believe that these network effects reinforce our market leadership position.
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| High Borrower and Investor Satisfaction. Our online marketplace is designed to eliminate the customary pain points a borrower encounters while applying for a loan and provides investors access to a new asset class with attractive risk-adjusted returns. Borrowers have validated our approach with an aggregate NPS in the 70s since we began surveying borrowers in January 2013, which places us at the upper end of customer satisfaction ratings for traditional financial services companies. Additionally, investors are confident transacting on our marketplace, as evidenced by high reinvestment rates.
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| Technology Platform. Our technology platform powers our online marketplace and enables us to deliver innovative solutions to borrowers and investors. Our technology platform automates our operations and, we believe, provides a significant time and cost advantage over traditional banks that run on legacy systems that are inflexible and slow to evolve.
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| Sophisticated Risk Assessment. We use proprietary algorithms that leverage behavioral data, transactional data and employment information to supplement traditional risk assessment tools, such as FICO scores. We have built our technology platform to automate the application of these proprietary algorithms to each individual borrower’s application profile at scale. This approach allows us to evaluate and segment each potential borrower’s risk profile and price it accordingly. In contrast, traditional lenders aggregate borrowers into large pools of risk profiles, which for some borrowers results in higher interest rates despite a more favorable credit profile.
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| Efficient and Attractive Financial Model. Our trusted brand, scale and network effect drives significant borrowing and investing activity on our marketplace. We generate revenue from transaction fees from our
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| marketplace’s role in matching borrowers with investors to enable loan originations, servicing fees from investors and management fees for investment funds and other managed accounts. We do not assume credit risk or use our own capital to invest in loans facilitated by our marketplace, except in limited circumstances and in amounts that are not material. Our technology platform significantly reduces the need for physical infrastructure and lowers our costs, which provides us with significant operating leverage.
| Our Strategy for Growth
Our historical growth rates reflect a deliberate strategy of balancing loan originations in a manner that allowed us to build and develop the various enterprise functions to support our scale, including customer support, operations, risk controls, compliance and technology. Borrower and investor demand will continue to inform our business and loan product decisions, but we will not compromise the long-term viability of our marketplace to pursue excessive near-term growth rates that we believe would result in borrower or investor experiences below our standards.
Key elements of our growth strategy include:
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| Execute in Our Core Markets. According to the Board of Governors of the Federal Reserve System, as of September 2014, the balance of outstanding consumer credit in the United States totaled $3.3 trillion. This amount included $882 billion of revolving consumer credit, which many consumers are seeking to refinance. We estimate that in September 2014 approximately $390 billion in outstanding consumer credit would meet our marketplace’s standard program credit policy based on proprietary models. We believe we have opportunities for substantial future growth in our core market.
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| Broaden Our Loan Product Offerings. We believe that the introduction of new products will increase our ability to attract new and repeat borrowers by providing them with more options and increased financial flexibility over time. For example, in 2010, we broadened our personal loan offering through our standard program to include five-year terms, in 2011, we increased the size of our maximum loan amount to $35,000 and, in 2014, we introduced small business loans and began offering education and patient finance loans as a result of our acquisition of Springstone. We intend to continue to enhance our marketplace’s existing loan products and add new loan products to attract a greater number and broader variety of consumers and small business owners.
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| Widen the Spectrum of Borrowers Served. We have a diverse set of investors, some of which seek to invest in loans that are different from the loans currently offered through our standard program loans, such as loans with longer maturities, lower returns, shorter credit history or higher risk. Given the lack of performance data on many of these custom loan types, we only make them available through limited private transactions to qualified investors to allow us to gather data to assess the future viability of these loans. Because our technology can efficiently assess risk across a wide range of borrower classes and assign interest rates tailored to each individual borrower, we plan to extend our marketplace to widen the spectrum of borrowers to meet this investor demand over time.
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| Increase Supply of Capital Available to Borrowers. We have attracted a diverse set of investors having a wide range of investment strategies and thresholds for risk, yield and maturity, including retail investors, high-net-worth individuals and family offices, bank and finance companies, and institutional investors, such as insurance companies, hedge funds, foundations, pension plans and university endowments, to participate through our marketplace. As confidence in our marketplace’s performance increases, we are able to attract additional investors with different risk thresholds. We plan to leverage this increasing confidence to increase our depth and breadth within these categories, capture a larger proportion of total investable capital by introducing new products, offer our products in additional states and expand the channels through which our marketplace is available.
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| Grow Our Ecosystem. To continue to grow our marketplace, we need to create a vibrant ecosystem to further drive innovation and deepen supply and demand on our marketplace. We plan to foster existing
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| relationships and develop new relationships with complementary partners to our marketplace and platform in order to create, or help create, new tools, products and referral sources for investors and borrowers.
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| Continue to Invest in Our Innovative Technology Platform. We have made, and will continue to make, significant investments in our proprietary technologies, algorithms and data sources to increase the precision, speed and scale at which we can make capital and investments available to the market. We believe that these investments will enable us to connect an increasing number of borrowers and investors, continue to identify new borrowers, detect and prevent fraud and maintain the security of our marketplace.
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| Enter New Geographies. Since launching our marketplace in 2007, we have focused on developing an online marketplace and growing our business in the United States. While we believe our largest near-term growth opportunity is domestic, over time we intend to expand our marketplace to address similar banking system inefficiencies, market dislocations, investor needs and borrower dissatisfaction globally.
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