LATE last year we ran a piece on the bank-shaped hole in Europe, the huge funding gap left by retreating banks that needs to be filled by non-bank lenders. The article committed a couple of sins of omission*, among them a failure to mention Lending Club in the section on peer-to-peer lenders.



Lending Club is American, not European, although its chief executive and founder, Renaud Laplanche, is French by birth. But it is the world's largest peer-to-peer lending platform, and its growth helps to explain why expectations for the potential of this new lending channel are high.



Lending Club was launched in 2007 after Mr Laplanche took a closer-than-normal look at his credit-card bill and saw that the interest charge on unpaid balances was north of 18%. That seemed extortionate, especially given the meagre rates of interest he got on his bank deposits. "A very wide spread is always a signal of opportunity to an entrepreneur," says Mr Laplanche, who had already set up and sold off a software firm before starting this venture.

Like other peer-to-peer platforms, Lending Club brings that spread down by using technology to match up borrowers and investors without incurring the costs of legacy IT systems and branch networks that weigh down the banks. The firm concentrates on creditworthy, "prime" consumer borrowers, and the average rate that they pay on loans is 14%, well inside credit-card charges. Allowing for a default rate of 4%, and Lending Club's fees, the returns to investors are 9-10%, which isn't too shabby given where interest rates are.

Mr Laplanche's goal is to maintain its recent record of doubling the amount of lending being done via the site every 9-12 months. The site surpassed $1 billion in loans taken out since launch in December; this month it will do $100m in business. That puts it well ahead of rivals, and gives it the sort of heft that starts to generate network effects. A bigger marketplace attracts more borrowers and investors. It also increases liquidity: there is a nascent secondary market for Lending Club loans.



Institutional investors are taking notice. The largest single investor on the site has put in $60m. Family offices and credit funds are among those to have invested; Lending Club even has a bank on the books. Mr Laplanche says he was recently approached by a sovereign-wealth fund that wanted to put $250m onto the platform to fund loans. (He asked them to spread the investment over a two-year period, so that it did not account for too big a proportion of the site's origination capacity.) It helps that the firm's board of directors features heavy hitters like John Mack, once of Morgan Stanley, and Larry Summers, once of the Treasury. This is a long way from the garage start-up.



One reason for its success is that the firm sells itself not on the availability of credit but on its affordability. Mr Laplanche is targeting prime consumer borrowers—the sort that can get credit anyway—and positioning Lending Club as a cost-effective alternative to other sources of finance. That keeps default rates low. Going into subprime categories of borrower would mean too much risk for Lending Club's retail investors, he says.



There is a lesson here for others. A lot of the buzz around peer to peer in Europe comes from the fact that it is seen as a solution for borrowers who have been turned away by the banks. The success of Lending Club shows that the sector has staying power: like Prosper, an older but smaller American rival, and Zopa, a British firm launched in 2005, Lending Club has survived and grown through the financial crisis. But it also suggests that peer-to-peer lending may not be as much help to the marginal borrower as some hope.





* Another will be rectified next week. I blame the author of the original piece.