Posted by Lending Club :: June 19, 2007 @ 7:31 am

Several of you are wondering, besides the “how it works” page that you can read on this site, “How does it really work?” We continue getting more attention from an increasing variety of places: read this article that came up yesterday - if you can. We are also getting more questions about our matching technology LendingMatch™.

We believe Lending Club very much resembles a marketplace. The closest analogy would probably be a “stock exchange”, except that members trade loans rather than stocks. As in a stock exchange, we believe that technology is critical in making the exchange run more efficiently and help match supply and demand.

The main difference we see, however, is that peer-to-peer lending is not only about numbers, about supply and demand. It is about people helping other people achieve their financial objectives. On both sides (lenders and borrowers), real people benefit from the exchange by obtaining better rates than they would from a bank.

Recognizing this specificity, we have built a technology called LendingMatch™ that not only matches supply with demand but also takes into account personal attributes such as the connections that exist among all of us. As a lender requests a loan portfolio recommendation, LendingMatch™ generates a portfolio of 20-30 portions of loans that matches the lender’s risk tolerance and desired return (based on a borrower’s credit score, debt-to-income ratio, etc.). The algorithm also favors borrowers who are connected to that lender through Facebook groups and networks. Lenders can decide to invest in their own geographical network, school network or other community they feel connected to.

Very soon we will be having some more technical postings here. Watch out for a few posts from our CTO Joaquin Delgado coming up in the next couple of weeks.