Questions and answers from Lending Club's SEC filing

Lending Club uses this graphic in their recently released SEC filing to help explain how promissary notes will work in their lending platform.

In addition, they answer several questions in the filing which we will reprint here. They can also be found on the SEC's website.

Questions and Answers
Q:
Who is Lending Club?

A:
Lending Club is an Internet-based social lending platform.

Q:
What is the Lending Club platform?

A:
Our platform allows qualified borrower members to obtain unsecured loans with lower interest rates than they could through credit cards or traditional banks. Our platform also provides our lender members with the opportunity to invest in notes that are dependent on borrower member loans with credit characteristics, interest rates and other terms the lender members find attractive. As a part of operating our lending platform, we verify the identity of members, obtain borrower members’ credit profiles from consumer reporting agencies, such as TransUnion, Experian or Equifax and screen borrower members for eligibility to participate in the platform. We also service the member loans on an ongoing basis.

Q:
What are our Member Payment Dependent Notes?

A:
Our lender members may buy Member Payment Dependent Notes issued by Lending Club. In this prospectus, we refer to our Member Payment Dependent Notes as the “Notes.” The proceeds of each series of Notes will be designated by the lender members who purchase the Notes of the series to fund a corresponding member loan originated through our platform to an individual consumer who is one of our borrower members. Each series of Notes will have a stated interest rate, which is the interest rate for the corresponding member loan. The principal and interest payments, if any, you will receive on any Note you purchase will be limited to an amount equal to your pro rata portion of the loan payments, if any, we receive on the corresponding member loan, net of our 1.00% service charge, any unsuccessful payment fees, collection fees and any payments due to Lending Club on account of portions of the corresponding member loan, if any, funded by Lending Club in its capacity as a lender on the platform. The service charge will reduce the effective yield on your Notes below their stated interest rate. The Notes are special, limited obligations of Lending Club only and not the borrower members. The Notes will be unsecured and do not represent an ownership interest in the corresponding member loans.

Q:
Who are our lender members?

A:
Our lender members are individuals and organizations that have the opportunity to buy our Notes. Lender members must register on our website. During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes and a tax withholding statement, and must enter into a note purchase agreement with Lending Club, which will govern all purchases of Notes the lender member makes.

Q:
What are the member loans?

A:
The member loans are unsecured obligations of individual borrower members with a fixed interest rate and three-year maturity. Each member loan is originated through our website, funded by WebBank at closing, and immediately assigned to Lending Club upon closing in exchange for the aggregate purchase price we have received from lender members who have committed to purchase the Notes dependent on payments to be received on such member loan. A member loan will be issued to a borrower member if the loan has received full funding commitments, or if the borrower chooses to accept partial funding of the loan after receiving partial funding commitments.

Q:
Do member lenders loan funds directly to borrower members?

A:
No. Lender members do not make loans directly to our borrower members. Instead, lender members purchase Notes issued by Lending Club, the proceeds of which are designated by the lender members who purchased the Notes for a loan to an individual borrower member originated through the Lending Club platform.

Q:
What member loan amounts are available to borrowers on our platform?

A:
Currently, borrowers may request member loans in amounts ranging from $1,000 to $25,000. We do not loan to borrowers in Idaho, Indiana, Iowa, Maine, Mississippi, North Carolina and North Dakota.

Q:
Who are our borrower members?

A:
Lending Club borrower members are individual consumers who have registered on our platform. All Lending Club borrower members:

• must be U.S. residents;
• must be at least 18 years old;
• must have valid email accounts;
• must satisfy our credit criteria (as described below);
• must have a U.S. social security number; and
• must have an account at a financial institution with a routing transit number.

Q:
Does Lending Club participate in the platform as a lender?

A:
From time to time, Lending Club may participate in the Lending Club platform as a lender. For example, during the time when our site was not open to new lender member commitments, borrower members could still apply for loans, which were funded and held only by Lending Club. Although we have no obligation to do so, we may fund portions of loan requests in the future.

Q:
How does Lending Club verify a borrower member’s identity?

A:
During borrower registration, we verify the identity of members by comparing supplied names, social security numbers, addresses and telephone numbers against the names, social security numbers, addresses and telephone numbers in the records of a consumer reporting agency, as well as other anti-fraud and identity verification databases. We also currently require each new borrower member to supply information about the member’s bank account.

Q:
What are the minimum credit criteria for borrower members?

A:
After we receive a loan request from a borrower member, we evaluate whether the prospective borrower member meets our credit criteria. Our borrower member credit criteria are designed to be consistent with WebBank’s loan underwriting requirements and require prospective borrower members to have:

• a minimum FICO score of 640 (as reported by a consumer reporting agency);
• a debt-to-income ratio (excluding mortgage) below 30%, as calculated by Lending Club based on (i) the borrower member’s debt reported by a consumer reporting agency; and (ii) the income reported by the borrower member, which we verify in approximately 25% of cases; and
• a credit profile (as reported by a consumer reporting agency) without any current delinquencies, recent bankruptcy, collections or open tax liens.

Q:
What are Lending Club loan grades?

A:
For borrower members that qualify, we assign one of 35 loan grades, from A1 through G5, to each loan request, based on the borrower member’s FICO score, debt-to-income ratio (calculated as described above) and requested loan amount. A higher credit score, lower debt-to-income ratio and lower requested loan amount are factors that lead to a loan request being more likely to be designated grade A1. See “About the Loan Platform — How the Lending Club Platform Operates — Interest Rates” for more information.

Q:
How do we set interest rates on member loans?

A:
Our interest rate working group sets the interest rates applicable to our loan grades. After a loan request’s loan grade has been determined, we assign an interest rate to the loan request. Interest rates currently range between 7.37% and 18.86%. We set the interests rates we assign to borrower loan grades in three steps. First, we determine Lending Club base rates. Second, we determine an assumed default rate that attempts to project loan default rates. Third, we use the assumed default rate to calculate an upward adjustment to the base rates, which
we call the “Adjustment for Risk and Volatility.” See “About the Loan Platform — How the Lending Club Platform Operates — Interest Rates.”

Q:
Will Lending Club make payments on a Note if the corresponding member loan for the Note defaults?

A:
No. If the member loan corresponding to your Note defaults and the borrower member does not pay Lending Club, Lending Club will not be obligated to make payments on your Note, and you will not receive any payments on your Note. We have no obligation to make any payments of principal or interest on a Note unless, and then only to the extent that, we receive payments in respect of the corresponding member loan, and after deduction of Lending Club’s service charge and any unsuccessful payment fees, collection fees or payments due to Lending Club on account of the portion of the member loan, if any, funded by Lending Club in its capacity as a lender on the platform. For an explanation of a possible bankruptcy exception to the limited nature of the obligations on the Notes, see “Risk Factors — If we were to become subject to a bankruptcy or similar proceeding.”

Q:
Are the Notes secured by any collateral?

A:
No. The Notes are not secured by any collateral, including the corresponding member loans, and are not guaranteed or insured by any governmental agency or instrumentality or any third party. The Notes are not subject to any credit enhancement.

Q:
How do lenders members receive payments on the Notes?

A:
All payments on the Notes are processed through the Lending Club platform. If and when we make a payment on your Notes, the payment will be deposited in your Lending Club account. You may elect to have available balances in your Lending Club account transferred to your bank account at any time, subject to normal execution times for such transfers.

Q:
Can lender members collect on late payments themselves?

A:
No. Lender members must depend on Lending Club or our third-party collection agents to pursue collection on delinquent member loans. If collection action must be taken in respect of a member loan, we or the collection agency will charge a collection fee of between 7% and 30% of any amounts that are obtained. These fees will correspondingly reduce the amounts of any payments you receive on the Notes.

Q:
What happens if a borrower member repays a member loan early?

A:
We allow borrower members to make extra payments on, or prepay, their member loans in part or entirely at any time without penalty. In the event of a prepayment of the entire remaining unpaid principal amount of a member loan on which your Notes are dependent, you will receive your share of such prepayment, net of our service charge, and interest will stop accruing after the date on which such prepayment is received by us. If a borrower member partially prepays a member loan, we will pay you your share of the prepayment amount we receive, net of our service charge, and we will make available to you a revised schedule of anticipated payments reflecting the lower outstanding principal balance and lower monthly payments of the corresponding member loan.

Q:
How does Lending Club make money from the platform?

A:
We earn revenue from the fees we charge our borrower members and lender members. We charge borrower members origination fees, which currently range from 0.75% to 3.00%. We charge lender members a service charge of 1.00% of all amounts paid by Lending Club to lender members with respect to each Note. To a lesser extent, we earn interest on member loans to the extent that we fund those member loans ourselves.

Q:
How are the Notes being offered?

A:
We are offering the Notes directly to our lender members only through our website for a purchase price of 100% of the principal amount of the Notes. We are not using any underwriters, and there will be no underwriting discounts.

Q:
Will I receive a certificate for my Notes?

A:
No. The Notes are issued only in electronic form. This means that each Note will be stored on our website. You can view your Notes online and print copies for your records, by visiting your secure, password-protected webpage in the “My Account” section of our website.

Q:
How are the Notes treated for United States federal income tax purposes?

A:
Although the matter is not free from doubt, Lending Club intends to treat the Notes as indebtedness of Lending Club for U.S. federal income tax purposes. As a result of such treatment, the Notes will have original issue discount, or OID, for U.S. federal income tax purposes because payments on the Notes are dependent on payments on the corresponding member loan. Further, a holder of a Note will be required to include the OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest being paid on the Note), regardless of such holder’s regular method of accounting. Prospective purchasers of the Notes should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase and ownership of the Notes, including any possible differing treatments of the Notes. See “About the Loan Platform — Certain U.S. Federal Income Tax Considerations.”

Q:
Will the Notes be listed on an exchange?

A:
No. The Notes will not be listed on any securities exchange.

Q:
Will I be able to sell my Notes?

A:
The Notes will not be transferable unless and until we are able to establish a resale platform for Notes. Although we are working to establish a resale platform, there can be no assurance we will be able to do so, or, if we are able to do so, when a resale platform would be available. Therefore, lender members must be prepared to hold their Notes to maturity.

Q:
Are there any risks associated with an investment in Notes?

A:
Yes. The Notes are highly risky and speculative. Please see “Risk Factors.”

Lending Club's Prospectus Summary

Lending Club announced yesterday that it has filed a registration statement with the Securities and Exchange Commission relating to its social lending platform. The full 100+ page registration statment is available on the SEC website. Here is the prospectus summary:

Prospectus Summary

This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including our financial statements and related notes, and the risk factors beginning on page 11, before deciding whether to purchase our Member Payment Dependent Notes.

Overview

Lending Club is an Internet-based social lending platform that enables its borrower members to borrow money and its lender members to purchase Member Payment Dependent Notes, the proceeds of which fund specific loans made to individual borrower members. We operate in the space known as “social lending.”

About the Loan Platform

Through our online platform, we allow qualified borrower members to obtain unsecured loans with lower interest rates than they could through credit cards or traditional banks. We also provide our lender members with the opportunity to indirectly fund specific member loans with credit characteristics, interest rates and other terms the lender members find attractive by purchasing Notes that in turn are dependent for payment on the payments we receive from those borrower member loans. As a part of operating our lending platform, we verify the identity of members, obtain borrower members’ credit profiles from consumer reporting agencies such as TransUnion, Experian or Equifax and screen borrower members for eligibility to participate in the platform. We also service the member loans on an ongoing basis. See “About the Loan Platform.”

The Notes. Our lender members will have the opportunity to buy Notes issued by Lending Club. Lender members will be able to designate the particular member loan that they want the proceeds of each Note they purchase to be used to fund. The holders of Notes of each series will have the right to receive their pro rata portion of principal and interest payments on their Note but only if, and to the extent, that we receive loan payments on the corresponding member loan, net of our service charge.

The Notes will be special, limited obligations of Lending Club only and not obligations of any borrower member. The Notes are unsecured and holders of the Notes do not have a security interest in the corresponding member loans or the proceeds of those corresponding member loans.

Lending Club is obligated to pay principal and interest on each Note in a series only if and to the extent that Lending Club receives payments from the borrower member on the corresponding member loan funded by the proceeds of that series, and such borrower member payments will be shared ratably among all Notes of the series after deduction of Lending Club’s service charge and any unsuccessful payment fees, collection fees or payments due to Lending Club on account of the portion of the corresponding member loan, if any, funded by Lending Club in its capacity as a lender on the platform. If Lending Club were to become subject to a bankruptcy or similar proceeding, the holder of a Note may have a general unsecured claim against Lending Club that is not limited in recovery to such borrower payments, but, as described in more detail below, the matter is not free from doubt. See “Risk Factors — If we were to become subject to a bankruptcy or similar proceeding.”

The Member Loans. All member loans are unsecured obligations of individual borrower members with a fixed interest rate and three-year maturity. Each member loan is originated through our website and funded by WebBank at closing. WebBank is an FDIC-insured, Utah-chartered industrial bank that serves as the lender for all member loans originated through our platform. Immediately upon closing of a member loan, WebBank assigns the member loan to Lending Club without recourse to WebBank in exchange for the aggregate purchase price we have received from lender members who have committed to purchase the Notes dependent on payments to be received on such member loan plus any amounts of the member loan that we have determined to fund ourselves. WebBank has no obligation to purchasers of the Notes. See “About the Loan Platform — How the Lending Club Platform Operates — Purchasers of Notes and Loan Closings.”

LendingMatch™. In making loan purchase commitments under our prior structure (as discussed below), roughly 50% of lender members used Lending Club’s “LendingMatch” system, a proprietary search engine that creates a sample listing of Notes responsive to search criteria based on the lender member’s target weighted average interest rate for the lender member’s portfolio. See “About the Loan Platform — How the Lending Club Platform Operates — LendingMatch.”

About Lending Club

We were incorporated in Delaware in October 2006 under the name SocBank Corporation. We changed our name to LendingClub Corporation in November 2006. Our principal executive offices are located at 440 North Wolfe Road, Sunnyvale, CA 94085, and our telephone number is (408) 524-1540. Our website address is www.lendingclub.com. Information contained on our website is not incorporated by reference into this prospectus.

From the launch of our platform in May 2007 until April 7, 2008, the operation of our platform differed from the structure described in this prospectus, and we did not offer Notes. Instead, our platform allowed lender members to take assignment of member loans directly. Under this system, lender members received the assignment of anonymized individual promissory notes corresponding to their purchase price, subject to our right to service the member loans.

From April 7, 2008 until the date of this prospectus, we did not offer lender members the opportunity to make any purchases on our platform. During this time, we also did not accept new lender member registrations or allow new funding commitments from existing lender members. We continued to service all previously funded member loans, and lender members had the ability to access their accounts, monitor their member loans and withdraw available funds without changes. The borrowing side of our platform was generally unaffected during this period. Borrower members could still apply for member loans, but these member loans were funded and held only by Lending Club.

We have made significant changes to the operation of our lending platform that will become effective as of the date of this prospectus. Our historical financial results and much of the discussion in “About Lending Club” reflects the structure of our lending platform and our operations prior to the date of this prospectus.

Lending Club Files Registration Statement with the SEC

Less than three months after halting lending operations and announcing a quiet period Lending Club has issued a press release announcing a registration statement they filed with the Securities and Exchange Commission. Here's a copy of the press release:

SUNNYVALE, CA - June 20, 2008 – Lending Club announced today that it has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 relating to its social lending platform.

The registration statement seeks to register the offer and sale of up to $600,000,000 in Member Payment Dependent Notes to be issued by Lending Club in a continuous offering following the effective date of the registration statement. The Notes will be issued in series with each series of Notes corresponding to a single consumer loan to a borrower member. Lender members will direct Lending Club to apply the proceeds Lending Club receives from the sale of each series of Notes to fund a particular consumer loan selected by the lender member originated through the Lending Club platform.

A series of Notes will be issued only if and when the corresponding member loan closes and is funded. Lending Club will have an obligation to make payments of principal and interest on the Notes only to the extent that Lending Club receives payments on the corresponding member loan. The terms of the Notes, including interest rate and initial maturity, will correspond to the terms of the corresponding member loans but will reflect a four business day lag on payment dates and maturity to allow the platform to confirm payments received on the corresponding member loan.

Lending Club will offer the Notes only through its website directly to lender members.

A registration statement relating to these securities has been filed with the Securities and Exchange Commission but it has not yet become effective. Copies of the Lending Club registration statement can be accessed on the SEC website. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective.

Fynanz offers huge bonus to lenders

Earlier this year, Lending Club offered an incredible offer to new users who invested more than $5,000 - they would immediately give the lender a 5% bonus. It was very popular and due to the terms of the deal many were able to earn even more than 5%. For example, one lender earned an instant 12% on his investment. Lending Club's offer has expired but there is another chance.

Under a similar program, Fynanz is offering a 5% bonus to lenders under a promotion they call their 'higher education stimulus package.' Fynanz is a new peer to peer lending company with a focus on student loans. We interviewed their CEO earlier this year and covered the launch in March.

In addition to the 5% bonus, Fynanz is rolling out a referral program where new referred lenders receive a $25 lending bonus. Both parties get the $25 bonus. These referal bonuses have been very popular with Prosper, Lending Club and Revolution Money Exchange. For example, one reader talking about RME commented, "Set my account up-no prob this morning. Set one up for my wife too-$25.00 for me--$25.00 for her and I got a $10 refer fee. Easiest $60.00 I ever made." By signing up for Fynanz using a referral link and then signing up your spouse, you have already made $75. To get the initial $25 bonus when signing up you must use a referral link such as this one:

Here is the full announcement from Fynanz:

Fynanz Higher Ed Stimulus Package

At Fynanz, we're concerned about the recent economic challenges that Americans face, and specifically, the impact they're having on students. We strongly believe that the opportunity to advance oneself through education is a core American right. As such, we're excited to provide relief with the Fynanz Higher Ed Stimulus Package.

This stimulus package won't be debated in Congress or delivered to the President for consideration. We're cutting out the bureaucracy by putting students' interests first and releasing this robust package without delay. All members of the Fynanz community should know that this package is making student lending more attractive for lenders - at NO additional cost to borrowers. Here are the details…

1. $25 Lending Bonus*

Fynanz will give registered users (whether they’re a lender or a borrower) a $25 Lending Bonus when they refer a friend who lends to at least to one borrower. Additionally, referred friends will receive a $25 Lending Bonus as well. So, spread the word – Every lender you refer earns you a Lending Bonus. Every lender you refer gets a Lending Bonus.

First become a verified Lender or Borrower. Then come back to this page to get your unique link.

2. Get 3% Lending Bonus!

Education is the most important investment a person can make. Your support encourages students to make that investment and we want to help you extend as much support as you can.

That's why we're giving lenders a Lending Bonus. When you lend $3,000 or more in the Fynanz Student Loan Marketplace, you'll receive a 3% Lending Bonus*.

PS: You don't have to do anything special. Just become a lender and lend. We're keeping track.

3. Get 5% Lending Bonus

And when you refer 5 friends that lend at least $50 each, we'll increase the 3% Lending Bonus by 2% retroactively*. That's a 5% Lending Bonus – our way of saying thank you for helping students and growing the community!

Yes! As per #1 above you also get an additional $125 Lending Bonus for referring 5 lenders...

*The Fine Print

• Only registered lenders who have lent to at least one borrower in the Fynanz marketplace, and borrowers who have borrowed through the Fynanz marketplace are eligible to receive the Lending Bonus.
• Lending Bonus is non-transferrable, not redeemable for cash and can only be used to bid on loans listed in the Fynanz Student Loan Marketplace. Lending Bonus will appear in your account as a separate line item. Fynanz will compute the Lending Bonus due to you at the end of each month.
• Winning bids must be placed by September 15, 2008 to be eligible for Lending Bonus calculation. Lending Bonus must be used to bid on loans prior to December 31, 2008.
  Lending Bonus is earned on the aggregate amount you lend across all the loans you make, provided you have lent at least $3,000 in loans between April 15, 2008 and September 15, 2008 up to a maximum of $50,000 in aggregate loans.
• To get the additional 2% Lending Bonus you must refer 5 or more new lenders to Fynanz, and each must lend a minimum of $50. The additional 2% Lending Bonus will be credited retroactively to the full amount you lent from April 15, 2008 to September 15, 2008.

The first month after opening there was only one open loan request but there are now 17 students looking for help. When Fynanz launched in March their CEO told us, "We expect the momentum to pick up in early May and grow steadily through August and September," Chaman said. Fynanz is enticing new lenders in preparation for a surge in loans over the next couple of months.

Sign up for Fynanz using this link and receive a $25 bonus.

P2P lending company for sale

As reported by Rateladder, there is an unknown company that has offered their newly developed p2p lending site for sale. They posted the following announcement on p2ptechforsale.com:

We are from a company that is looking to sell all rights to our proprietary P2P lending technology. Our company has been quietly in development for the past year, though have made the very difficult decision to halt launch plans for reasons internal to our team. We hold extremely high hopes for the future of P2P lending globally, and believe very strongly in the value it provides borrowers and lenders.

We have developed a complete P2P lending web application that will provide any aspiring P2P company with technology to support rapid deployment in any geographical market. We built it from the ground up, and went through extensive internal testing and went so far as to conduct closed testing with users.

...The front end is fully branded, and a sale can be made to include branding, or packaged as a white-labeled solution. Available intellectual property includes company name, logos, taglines, and a number of top-level domain names.

Over the past few months there have been several individuals and teams that have tried to build, buy and sell p2p lending sites.

• Freelance projects - I've seen at least five different listings on freelance websites over the past couple months where people are looking for help to build a prosper clone. Here is another one posted a couple weeks ago.
• Loanio - Loanio has been in development for over a year. We first reported on them back in July 2007. Some have speculated the current site for sale is Loanio. I admit that was my first thought too. According to my recent email conversations with CEO Michael Solomon the technology is in final testing. The regulatory challenges of launching a p2p lending company are a very difficult barrier to entry (see Lending Club and IOU Central). According to p2ptechforsale, those selling the site "are not lawyers by trade." The founder and CEO of Loanio is, however, a lawyer. He has a Law Degree from Brooklyn Law School. Loanio is scheduled to present at FinovateStartup tomorrow.
• IOU Central - IOU Central launched in Canada earlier this year after purchasing a P2P lending startup from Denmark called Fairrates. Fairrates was built in 10 months by Arkadiusz Hajduk and opened in April 2007. They have since run into regulatory challenges and have halted lending.
• CommunityLend - Also from Canada, CommunityLend has built a platform, team and is reportedly ready to launch.
• SocialLendingGroup - Social Lending Group has a functioning website and tried to sell it in February but could not find someone willing to pay the $2,000 reserve.

Update: I have been contacted by Loanio, IOU Central and CommunityLend. None of these platforms are for sale.

VaultStreet streamlines financial document management

Matt and I originally planned on attending FinovateStartup in San Francisco on Tuesday. Unfortunately due to work commitments, we had to cancel our plane tickets and reservations at the last minute. Several of the CEO’s and founders who will present at Finovate have agreed to participate in email interviews and we will post these over the next few days. First up is Carter Kirkwood, CEO of VaultStreet.

At the first glance of his bio, it seems like lawyer Carter Kirkwood is the unlikely founder of a technology company. He was an intellectual property transaction attorney, where he specialized in representing e-commerce and software businesses that developed, licensed, or acquired technology. On the VaultStreet blog he confesses, “I am not a technologist.” He is, however, the target consumer. Like most of us, he has several checking accounts and spends way too much time with snail mail, paper statements, printing and filing. Or at least he used to. His solution to the filing problem is VaultStreet, an online document management system. These are Kirkwood's responses to our questions about VaultStreet:

Can you tell us a little about your background, the company and what inspired you to create VaultStreet?

My inspiration for founding VaultStreet is fairly simple – I HATE FILING. Yet I have to keep various records in case I ever get audited by the IRS, need proof of ownership for an insurance claim, or apply for a loan (like a mortgage). My observation was that my online broker, bank, employer, insurance provider and utilities all had my information stored on their computers, yet I always received everything on paper. Now I had been using Quicken for over 10 years (and used the data download feature) but that did not solve my problem (which was that I wanted to stop wasting weekends filing away paper or searching for it when I needed it).

My background is as an intellectual property lawyer and most of my clients were in the IT space. So I probably have a heightened sensitivity to the interaction between legal concepts (like privacy, ownership, and evidence) and technology. Over time it became clear to me that what was needed was a virtual “record keeping” system that could protect the user’s privacy from end-to-end (i.e. from the bank to the consumer to the tax preparer or financial planner) while at the same time providing chain of custody evidence which would show that the e-document had not been altered since it was originally created by the bank (or other institution). Finding a way to solve this problem turned out to be more difficult than I originally imagined and eventually required solving a series of sub problems in a manner that was backwards as compared to existing solutions (this is what we have filed the patents on).

Since those early days, we have learned a lot from our customers and have discovered that what they initially value most about our system is its ability to automatically collect and organize their financial documents for them in a single location while protecting their privacy. Fortunately, we built that functionality in to the system from the very beginning.




What are the major advantages of storing all financial documents in one location?

Consumers have a hard time remembering all of their different user names and passwords. Plus it takes a lot of time to navigate across 4-6 institutions to collect documents from multiple locations. Then you must save each individual document on your computer with a unique name and organize the document set. It takes up valuable time that could be better spent with family and friends. VaultStreet offer consumers the convenience and time savings of having all documents automatically collected and organized into a single location, which also prepares them to respond quickly to financial events such as loan applications. Collecting documents into VaultStreet’s online repository also offers protection in the event of disaster, such as a fire or flood.

For institutions, VaultStreet offers a real way to reduce the operational and administrative costs of mailing documents to account holders while increasing customer service to these same account holders at banks, brokerages and utility companies. Institutions can use VaultStreet to collect, organize and authenticate the source of financial documents for their customers. It’s a great value-added service with the potential to build customer loyalty.

Who are the primary users of VaultStreet?

Consumers/taxpayers are the initial primary users, but we have had strong interest from accountants, financial planners, tax preparers, and mortgage brokers.

You currently provide secure document storage for five brokerages and about ten banks and utilities companies. Will you continue to increase the number of institutions you cover?

Absolutely. This is a top priority.

Many of our readers hold peer to peer lending accounts. Do you plan on adding the ability to store documents from Prosper, Zopa and Lending Club?

We would be very interested in talking with those companies about how to work together to not only store documents from them but also to facilitate the process of asset and income verification that often occurs when consumers apply for loans.

Security is obviously a major concern. How will you ensure that sensitive documents will remain secure?

We have designed the system from the very beginning to be very secure. We not only work at VaultStreet but we are also users of VaultStreet, so we take the issue of security very seriously. To learn more about our security, we have posted information at http://www.vaultstreet.com/content/how-it-works/security_overview.php. Our CTO is available to address specific questions related to security.

What have been your biggest challenges as you launch a new company?

Early on, when the company was more of an idea and less of a product, it was a challenge to get people to understand what we did (but I think that is probably true for most transformational technologies). Now the biggest challenge is keeping up with all of the business development opportunities. We have been pleasantly surprised at how many banks, brokerages, and insurance companies have contacted us saying that they have been waiting for this kind of service.

Is there anything else you would like to add?

I want to extend a personal invitation to you and others to register with the service. Registration is available on the home page. To learn more, go to www.VaultStreet.com.

Fynanz and Simple Tuition featured by Boston Globe

The Boston Globe takes a sharp look at the student loan industry and especially the peer to peer market in today's article Student loan confusion opens market niche.

In addition to Fynanz and Virgin Money, the Boston Globe talks to Kevin Walker, co-founder and chief executive of Simple Tuition, an online service that helps students compare various loan options. Simple Tuition is one of the companies we hope to talk to at FinovateStartup on the 29th.

Here's an excerpt from the Boston Globe article:

So-called peer-to-peer lending companies are also sailing into the student loan fray. Waltham-based Virgin Money (part of Richard Branson's empire) offers to formalize loans between students and their family members for $299. Fynanz Inc., a younger New York start-up, recently began doing the same thing in Massachusetts, though Fynanz allows strangers (perhaps alumni of a school) to make loans to students and earn interest - anywhere from 6 to 10 percent, depending on the borrower's credit score.

But online peer-to-peer lending is still new, and Fynanz has completed one loan since its launch in March. "We don't expect this to be mainstream anytime soon, but I do expect some of the smarter, more involved students to see this as an option," says chief executive Chirag Chaman, an alumnus of Worcester's Clark University.

"It could help a small number of students, but I don't think it's going to solve a national credit crunch," Tony Erwin says of peer-to-peer lending. Erwin is Northeastern University's director of financial aid services. "It's a fine idea, but it's not the fix," he adds.

As long as students and parents are searching for a fix, that creates openings for start-ups.

"It's a really disruptive time in the market," says Stein. "But I really view chaos in a marketplace as a great opportunity."

Related:
Fynanz seeks to fill void in student lending
Fynanz off to a slow start
Fynanz becomes the first P2P student loan marketplace
Interview with founder Chirag Chaman

American Banker: Fynanz Seeks to Fill Void in Student Lending

American Banker has featured the new p2p student loan lender Fynanz in a recent article (login required). Here are the highlights:


...The New York company began facilitating private educational loans in two states last month and now offers them in seven states that it says account for a quarter of U.S. student loan volume.

Chirag Chaman, Fynanz's founder, said it is entering the market at the ideal time, in part because student loans are being tarred with a brush better applied to other categories of credit.

"My feeling on this is there was never a problem with the student loan asset class," Mr. Chaman said in an interview Wednesday. "The problem was somewhere else. I personally still believe that if you have good underwriting criteria, the student loan is one of the safest unsecured assets out there."...

There are some differences between his company and other P-to-P loan facilitators, which typically try to attract lenders with attractive returns. Unlike Prosper and Lending Club, which make it clear to lenders that the loans are not guaranteed, Fynanz shares some of the risk by offering to guarantee some or all the principal for every loan originated through its site.

"We have some skin in the game," he said...

Like standard student loans, Fynanz loans are not typically wiped out if the borrower files for bankruptcy protection, Mr. Chaman said...

Bobbie Britting, a senior analyst with the consumer lending practice at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said there is a void in the student loan market.

"In general, the student loan industry has just been hit hard as a repercussion of the mortgage market and the tightening up and elimination of the asset-backed securities market," she said. "There's no liquidity there, and what we've seen in the last several months is a number of lenders laying off, a number of lenders suspending operations, going out of business."

This upheaval presents an opportunity for Fynanz, because even though the regular supply for student loans is drying up, people continue to go to school and there is still plenty of demand, Ms. Britting said.

"It's going to fill a void, because there are lenders closing their doors on a regular basis, and students still want to go to school," she said. "And as Americans, we want them to go to school. We want an educated society."

...

According to Mr. Chaman, in its first month Fynanz generated just over $5,000 of loans and has $25,000 in the pipeline that will be approved. Students have applied for just over $100,000 of loans, but that figure includes repeat applications for those who were not approved the first time around, he said.

There is no shortage on the supply side. Lenders have made about $350,000 available to lend. "There's enough cash to lend," he said. "The borrowers haven't come in yet."
What is striking about that imbalance in supply and demand is that Fynanz has done almost no marketing to lenders. "Once more students start to come in, we see the lender side showing up," Mr. Chaman said.

...

"You can do it now," he said. "We obviously have put aside a very small amount of cash to buy back loans. Six months ago it was a lot larger when we had a tie-up with a financial institution," which he would not name. He expects to develop another relationship eventually.

Fynanz encourages students to apply for smaller loans than they would through traditional channels, Mr. Chaman said, and to come back over the course of the year as their funds run low.

This not only makes their applications more appealing to lenders, but it also helps combat the inherent seasonality of student loans, he said.

Fynanz began offering loans in mid-March in New York and Florida. It has since expanded to include Massachusetts, New Jersey, Ohio, Georgia, and North Carolina. It plans to go nationwide, Mr. Chaman said.


It is good to know that Fynanz has another $25,000 worth of loan requests in the pipeline. Just yesterday I mentioned that there is currently only one loan available to bid on.

Fynanz says that lenders have made about $350,000 available to lend. I wonder how this figure is calculated. With two days left for bidding, Fynanz's first loan is about 50% funded. I'm sure that Fynanz won't let this request go unfunded. If they need to I bet they cover the rest of the loan.

It's good to know that the loans are protected from bankruptcy and that Fynanz is starting to expand to other states.

Related:
Fynanz off to a slow start
Fynanz becomes the first P2P student loan marketplace
Interview with founder Chirag Chaman

Prosper Days 2008 Videos

Hundreds of borrowers, lenders and Prosper employees converged on San Fransisco in February for Prosper Days 2008. Prosper has now released video from the conference. Thanks to Prosperous Land for the tip.

Prosper Days 2008: Prosper 101 - Session for those who are new to Prosper or need a refresher course. Bryan and Tim give a Prosper history lesson, site tour and how-to demonstration.




Prosper Days 2008: Chris Larson's Keynote - Chris Larsen, CEO and Co-Founder, Prosper Marketplace Inc. Introduction by Marilyn Paguirigan.




Prosper Days 2008: Borrower Experiences - This session presents an opportunity for all members to gain a better understanding of the overall experience and process from a Borrower.




Prosper Days 2008: Leveraging Social Capital - In this session, panelists share their thoughts on social capital and what role it can play in improving borrower credit performance and lender returns.




Prosper Days 2008: Managing Large Portfolios - In this session, one of Prosper's larger lenders will discuss some best practices for creating a large portfolio with attractive returns. In addition, the session highlights a third party technology solution for building and managing a large portfolio.




Prosper Days 2008: Earning A Risk Adjusted Return - This session covers how to earn a risk adjusted return by understanding the relationship between risk and pricing.





Prosper Days 2008: Collection Practices - This session reviews the current status of Prosper’s collection process, including the results of several recent initiatives, and discuss the road map for future enhancements.




Prosper Days 2008: Prosper API Workshop - The API session provides a discussion with a number of users of the Prosper API including demos and commentary on how to put the API to work for better bidding, building applications, and even creating a new business built on Prosper data. The session is for advanced users, both programmers and non-programmers alike.




Prosper Days 2008: Advanced API Applications - Advanced applications information that goes beyond the API Workshop topics.




Blogger Panel: P2P Lending 2.0 Trends - A diverse group of banking, microfinance, P2P lending and social networking experts shed light on trends impacting Prosper, financial services and personal finance.




Prosper Days 2008: Town Hall Lunch - Town Hall Lunch with Chris Larsen, John Witchel and Bob Kagle.

Fynanz off to a slow start

Dano34, an international student attending Queens College in New York, may soon become the first person to obtain a peer to peer student loan through Fynanz. Fynanz opened their doors to borrowers and lenders one month ago.

In this initial launch phase, borrowing is restricted to students with a primary residence in New York or Florida but Fynanz will gradually open to more states. Although the borrower's primary residence must be New York or Florida, the school borrowers attend can be in any state.

Fynanz purposely launched during a student loan "off season" to ensure they have the technology right and all their systems are tested. "We expect the momentum to pick up in early May and grow steadily through August and September," founder Chirag Chaman said.

So far there is only one open loan request. Dano34 is requesting $2,750 to help pay tuition and purchase a used laptop. His brother, Maverick, is co-signing the loan and has put $150 of his own money into the loan. So far, 14 lenders have funded 54% of the loan.

Fynanz has the difficult challenge of attracting sufficient critical mass to make their loan platform viable - lenders won't sign up if there are no borrowers and borrowers won't sign up if there are no lenders.

In addition, Fynanz has the challenge of explaining their new platform to skeptical students and administrators. Ana Bak, a student and opinion editor for Texas Christian University's newspaper the TCU Daily Skiff recently called p2p lending sites "less credible." Here's an excerpt from her editorial, Person-to-Person lending practices risky.

"...there are faults within the P2P program. The assistant director of scholarships and financial aid said taking a loan with this system would be risky as it is untested.

.... First, the lenders may be giving out loans with less information about the recipients. Second, these type of programs, because they are new, may not be as trustworthy as more established lending companies.

It makes the lending system seem weak and, ultimately, less credible."

Ana Bak does not mention any specific peer to peer loan company. Prosper, the oldest online p2p marketplace, has been around for over two years and made over $133 million in loans. If that is too new for Texas Christian University then Fynanz has a huge uphill battle.