- 1Caditz-Peck says LendingClub lost deals to far worse products because customers couldn't see the price gap
- 2Typical APR LendingClub charged then was about 22%
- 3Competitors' quoted percentages often weren't comparable to a true APR
Winning on price does not work if customers cannot tell your product is cheaper. That was a key lesson Louis Caditz-Peck, executive director of the Responsible Business Lending Coalition, said he took from his earlier time in LendingClub's small business lending division. He spoke with Ballard Spahr attorney Alan S. Kaplinsky on a podcast.
The strategy and its problem
Caditz-Peck said part of LendingClub's strategy was to offer the lowest-cost financing a small business could get online, while managing risk properly and being about as fast and easy as the quickest options available. The weakness, he said, was that “customers could not tell that our products were lower cost.”
How rates got muddled
He described losing deals repeatedly to competitors with a much worse product because borrowers could not tell the difference. From the open-floor office in San Francisco, he said, he could hear loan officers telling prospects they were pre-approved at the then-average APR of about 22%. Borrowers would answer that a rival was offering 10%.
Officers would then ask what that 10% meant: an APR or an interest rate. Often, Caditz-Peck said, it was just a percentage with no relationship to how a true interest rate is computed. He estimated a quoted 10% might be equivalent to about 40% in some cases, or even 300%. Business owners did not know whom to trust, which he said squelched innovation then and continues to do so.
Source reporting: deBanked.
