Marlette Funding, the fintech behind the Best Egg personal lender, just hired away rival LendingClub's head of institutional sales. Now, it's dusting off old plans to launch a credit card.
- Marlette Funding, the fintech behind the Best Egg personal lending platform, just hired away rival LendingClub's head of institutional sales, Andrew Deringer, to be its first chief capital officer.
- As CCO, Deringer be tasked with attracting more institutional investors as Marlette launches new consumer products like credit cards.
- "In the context of this fintech space, we're heavy on the fin side," said said Jeffrey Meiler, founder and chief executive of Marlette Funding. Much of Meiler's team came from Barclays' credit card business, where he was for eight years.
- "One of the things that I really liked about Marlette was how it was run like a credit organization," Deringer said. "Like a financial institution simply using technology to deliver products and services."
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Marlette Funding, the fintech behind the Best Egg personal lending platform, just hired away LendingClub's head of institutional sales.
Andrew Deringer will take on the newly created role of chief capital officer at Marlette. And the online lender has ambitious plans - execs told us that it wants to roll out structured products made up of loans to offer to the investor side of the equation, as well as a credit card to offer to borrowers.
If some of that sounds familiar, it's because rival LendingClub has had a heavy focus recently on bulking up structured products to lure more big investors to its own loan marketplace.
Lending Club has launched a trading platform to appeal to institutional investors, and said in its third-quarter earnings that it hopes to return to profitability (on an adjusted basis, at least) for the second half of this year. LendingClub's current chief capital officer, Valerie Kay, spent 20 years at Morgan Stanley where, among other roles, she headed up the group that structured mortgage-backed securities and other products as the financial crisis hit.
Deringer had been at LendingClub during some tough times for the company and the broader peer-to-peer lending industry. In 2016, the institutional investor side of its lending platform was spooked following the departure of LendingClub's chief executive and a Justice Department investigation into altered loans.
"They lost initially all their bank partners after Mother's Day. By October of 2016, they're all back," said Jeffrey Meiler, founder and CEO of Marlette Funding. Meiler himself approached Deringer, who helped LendingClub win back those partners, for the Marlette job.
Marlette's C-suite is packed with financial services veterans. Meiler, Jason Swift (chief operating officer), and Bobby Riotterbeck (chief marketing officer) all spent time in the Barclays credit card business. Marlette's finance chief, Mark Elbaum, was CFO of Bank of America's Merrill Lynch wealth management business.
"In the context of this fintech space, we're heavy on the fin side," said Meiler.
Before he joined LendingClub, Deringer was an investment banker at Morgan Stanley. He said that he was drawn more to the credit side of Marlette than the tech aspect.
"One of the things that I really liked about Marlette was how it was run like a credit organization," Deringer told us. "Like a financial institution simply using technology to deliver products and services."
Reviving plans for new products
As CCO, Deringer be tasked with attracting more institutional investors to fund Meiler's ambitions to launch new consumer products, including a credit card.
"We have focused on prime unsecured personal loans. In the next five years we see a business that is a broader platform that has other products that need to be funded," said Meiler. The next few years could involve M&A or raising equity, Meiler said.
In early 2017, Marlette shelved its ambitions to launch a credit card after it cut around 20% of its staff. At the time, Marlette was growing fast, but hadn't turned a profit.
The third quarter this year marked Marlette's 10th consecutive quarter of profitability, and it's issued $10 billion loans to date, Meiler said. Now, the lender has revived its plans to offer consumers more than unsecured personal loans.
"We spent an enormous amount of time over the first five years getting to know our customer base," said Sabrina Basht, chief strategy officer at Marlette. She said the company would be introducing a secured product "in fairly short order" and bring a credit card to market towards the end of the year. Marlette is also exploring products to help customers save money and improve their credit.
"When you expand products that you offer to customers, you need different sources of capital," said Deringer. "You start to think about expanding the risk appetite of our investor base to the non-bank capital out there that's searching for yield, which allows you to go further on the risk spectrum as well."
In that respect, Marlette is exploring offering multiple tranches of its pool of loans to meet different investors' risk appetites, Meiler said.
"We don't aspire to be the Baskin-Robbins of the industry with 42 different flavors, but we're talking about two or three different pools to bring to the marketplace," said Meiler.
The investor side is where Deringer will leverage his LendingClub experience, Meiler said. Since banks may have lower risk appetites than other institutional investors, Deringer sees an opportunity to offer more than one way to invest.
"You don't have to divide the segment in a bunch of different pieces, but I think that there's definitely an opportunity to divide it up into more than one," Deringer said.
Trouble for peer-to-peer lending
Whereas peer-to-peer lenders like LendingClub and Prosper see themselves as marketplaces bringing investors and borrowers together, Marlette says it does not view itself that way. To be sure, there are still two sides to the Marlette platform: the investor side that provides cash and the borrower side that needs it.
"For them, job one was balancing the supply and demand for loans," Meiler said. For the P2P players, one method to balance borrower supply with investor demand would be to cut rates or soften underwriting standards, he said.
But for Marlette, credit performance and hitting a target loss coverage ratio (the relationship between interest rates and losses) were the priorities, Meiler said.
"That consistent credit performance attracted investors and enabled better economics than our competitors," he said. "We started, just philosophically, in a different place that led to a different result."
"You have to operate in the credit space in a very different way. You can't just grow for growth's sake," said Deringer. "Otherwise, you start to sacrifice credit and your P&L is going to suffer and your investor returns are going to suffer."
Peer-to-peer lending sprang up during the financial crisis, offering consumers alternatives to costly credit card debt. But the industry went through a bit of a crisis in 2016.
LendingClub was in the middle of its C-suite shake up and a DoJ investigation that it settled in 2018. Prosper Marketplace was under investigation from the SEC, looking into whether it misrepresented returns to investors. It settled without admitting wrongdoing in April.
Prosper is now seeking a buyer, Business Insider has reported.
"Over time, I don't think you will hear as often competitors talking about themselves as a marketplace," said Meiler.
To be sure, Marlette will still roll out new products on the investor side of the platform. This year, it launched a similar securitized product to LendingClub's CLUB certificates called MAPT. And LendingClub still considers itself a marketplace, its CCO Kay told Business Insider, even if it's growing more with institutional rather than consumer investors.