LendingClub CEO Says Responsible Spending Deserves Rewards as Credit Dependency Soars

“We’re saying that if rewards are important to you, that’s great, so let’s reward you for good behavior,” Sanborn told PYMNTS CEO Karen Webster as the company launched its new LevelUp Checking service Wednesday (June 18).

The Affluent Debt Trap

The reliance on credit is not confined to lower-income brackets. LendingClub’s target customer for LevelUp Checking illustrates this: individuals with a high FICO score, typically around 725, and a high individual income of about $125,000 to $130,000.

While these figures are higher than the average American income, Sanborn explained,  “These consumers often have enough money to afford things but lack the immediate cash to pay for them outright.”

Consequently, they are more likely to carry larger-than-average car loans, student loans, mortgages and substantial credit card debt.

As Webster said, “If you’re looking to improve cash flow, you’re looking for every possible strategy you can find.” That includes side hustles, and refinancing debt through personal loans.

Essential Spending Crisis

Consumers have turned to credit for everyday purchases. According to PYMNTS Intelligence, among those who used credit for essential expenses, 44% purchased essential groceries, and 28% covered essential out-of-pocket healthcare costs. Conversely, 33% who used credit for nonessential goods purchased nonessential groceries, and 9.3% covered nonessential out-of-pocket healthcare costs.

Sanborn said there’s also been a move away from private label cards toward general-purpose cards, and a preference for using credit for everyday expenses rather than big-ticket elective items. This trend is underscored by record-high levels of credit card debt, priced at equally high rates, creating “wood to chop” for companies like LendingClub that can offer relief.

Sanborn cautioned against the prevailing trend of incurring debt for points, especially when the cost of debt far outweighs the value of accumulated rewards.

Rewarding Debit Over Credit

The new LevelUp Checking product gives members 1% cash back for everyday spending with a LevelUp debit card on grocery and gas, among other key categories. Members who have LendingClub personal loans can also receive 2% cash back for making on-time loan payments from the LevelUp accounts. Additional features include early paycheck access and lower interest rates if they deposit at least $250 a month into these accounts.

The message to LendingClub customers, Sanborn said, “Make sure that you’re able to cover your core expenses with money you have.”

The goal of the LevelUp Checking product is to help reward members (who have established those direct deposit relationships with LendingClub) for responsible financial habits through the use of debit rather than credit. 

Strategic Pivot Built on Strong Foundation

Sanborn said that LendingClub, one of the original FinTechs that went public in 2015, made a strategic pivot in 2020 when it moved beyond its core lending business and acquired Radius, the digital-only bank. Since then, deposits at the firm have soared, and in just the latest quarter, loan originations for the core business grew 21% to top $2 billion.

In the wake of the Radius acquisition, Sanborn said, “We set up the [loan] originations, started to build the deposit products,” and then in the midst of the pandemic, inflation and interest rates became volatile.

“We had to pivot,” he told Webster. “We were really focused on launching our structured certificate program and streamlining our origination costs and our servicing costs. … This year we’re really pivoting back to growth and … leaning in across all the product lines.”

LevelUp Checking accounts will also integrate with DebtIQ, a feature accelerated by LendingClub’s acquisition of Tally. This allows customers to pay all their credit card debt from a single interface, eliminating the need to log into multiple bank accounts.

This DebtIQ experience is in employee beta and is envisioned as a key part of products that work “best together,” in Sanborn’s estimation, helping customers manage their credit card obligations and set payment strategies from their LendingClub checking account.

The integrated nature of the product portfolio creates a flywheel effect, Sanborn pointed out, as LevelUp Savings users engage with LendingClub almost twice as often as customers with standard high-yield savings accounts. He expects the same, if not more, engagement with the LevelUp Checking product, which he views as part of a broader ecosystem play.

Bullish Despite Economic Headwinds

Despite a macroeconomic environment that Sanborn described as “unprecedented” and “volatile,” LendingClub remains bullish on its growth prospects. While lower interest rates would be beneficial, stable rates are manageable for LendingClub to keep executing on its goals.

Unemployment has remained “reasonably stable,” well below LendingClub’s benchmark of a 5.3% rate, and the company is “appropriately reserved” for potential shifts. And according to Sanborn the firm is focused on “turning back [the] marketing that we turned off” to ramp up customer acquisition.

Looking ahead, in an age where neobanks like Chime have come public with $2 billion in revenues and multiples of that top line in market cap, Sanborn contended that investors should find LendingClub’s comprehensive and digitally focused approach equally compelling, as it cements its status as an “all-digital, customer-focused bank.”

As he told Webster, “Our ability to put money in people’s pockets and save them money continues to be a resilient need for consumers.”