This is the story of Lending Club, a FinTech company that in just two days reached a floating value of over 1.4 billion dollars closing on Friday with a value of 24.69 dollars per share. This is 65% higher than the initial offer of 15 dollars per share. At these levels the overall value of the company is about 9 billion dollars, double what it was valued at during the last private investment round held just a few months ago.
Lending Club is a FinTech company that was created in 2006, and specializes in P2P lending. It is, in short, an online credit marketplace platform for individual and small business loans that are financed by other individuals (and non-financial institutions). Last semester, the volume of its overall intermediated financing surpassed a total of 6.2 billion dollars, and is growing at over double its rate of 2013.
Last year it closed out with 98 million in revenues, generated by commissions it takes as intermediary on the platform (usually equivalent to 5% of the total value that was financed, interest rates are about 14%, which may seem high but not for the American market and for the target it is aimed at – near subprimes, primarily credit card refinancing).
A FinTech closes out the year with a bang, reaffirming what has already occurred throughout the sector in 2014: a record in investments by venture capitalists that has reached 2.8 billion dollars, double that which was invested just two years ago.
The entire sector is, in fact, exploding, pushed by the digital wave that is beginning to upturn the world of financial services, thus attracting increasing numbers of investors. Let’s take the example of Lending Club: the 24.69 dollars per share are equivalent to an earning of over 91 times for the investors of the first round of funding seven years ago, Norwest Venture Partners and Canaan Partners, when the company was quoted at 27 cents per share. But even for the venture capitalists of the third round in 2010 earnings are notable, having entered at 39 cents per share (63 times the invested amount in 4 years…). In the last round this past summer, Blackrock also entered with capital.
This will definitely cause further acceleration in 2015. There is already a potential line of other actors in this sector, starting with Prosper, and continuing with Funding Circle, On Deck, Swift Capital, etc. Just the P2P lending sector alone has a huge market in front of it: individual personal debt in America amounts to 1 trillion dollars.
But the list of FinTechs is long. Recently, a study by KPMG Australia, AWI, and the Financial Service Council identified the 50 most promising FinTech startups worldwide. And it will not only be the investors entering in with capital. Even banks and financial institutions, at least those that are alert, have understood this and are beginning to take action. Starting with the acquisition of Simple by BBVA, and continuing with, for example, investments by Blackrock in Lending Club, or by Schroders in Nutmeg, or by Santander and MasterCard in Monetise, and Visa in Square (back in 2011). The race has just begun and even Europe is very active, primarily London.
In Italy, some timid initiatives are beginning to appear, but Italian FinTech, though definitely interesting (just look at the realities that have come out of the competition CheBanca! GrandPrix), can be prey for foreign capital, like, for example, Prestiamoci, the main Italian P2P lending platform that was recently bought by Norwegian Trustbuddy.
Digital innovation is causing a crack in banking, a future of strong verticalization of players and specialized sectors, from payments to financial advisory, from lending to banking for SME’s, that will serve digital providers with scoring, ranking and analysis systems, investment engines, interoperable platforms with real time payments. All it takes is a look at the 50 top companies, but we will discuss this next time.