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The Unstoppable Share Economy--LendingClub Files For $500 Million IPO

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LendingClub--the peer-to-peer lender that let's you play banker by loaning out extra cash like a bank--has just filed for a $500 million IPO.

Morgan Stanley , Citigroup and Goldman Sachs will act as lead underwriters. The public filing (via S-1) showed LendingClub collected $86 million in sales and turned a $ 7 million profit in 2013 (That's up from $30 million in sales and a $7 million loss in 2012). It gave out more than $2 billion worth of loans.

In this current world of anemic interest rates, LendingClub offers savers robst yields of 10% by lending access cash to portfolios of individual borrowers. It's a great deal for borrowers too--many pay interest rates of about 9% vs. the near 20% fees charged by credit cards.

How does LendingClub give customers such a better deal than traditional bank? Smart software algorithms and an online-only model that let's it avoid the high costs that come with running brick and mortar branches. This May I sat down with LendingClub CEO Renaud Laplanche who explained  how the business works:

We operate at 400 to 500 basis points lower than the banks, and have customer satisfaction rates that are multiple times greater than the banks. If you look at the history of tech-driven innovations, there aren’t a lot of examples where the incumbents could compete with the innovator—look at Amazon vs. Borders or Netflix vs. Blockbuster. J.P. Morgan Chase would have to close down 8,000 branches to get down to our costs and even that wouldn’t be sufficient. And it’s not just branches but technology processes and automation… The types of folks who work on our Web applications come from Facebook,  Google , PayPal, Amazon–they don’t come from banks.

With such big yields, some have worried that hedge-funds and sophisticated investors would elbow their way into LendignClub's platform, cherry pick all the best deals and knock the peers out of peer-to-peer. Laplanche told me that's not going to happen.

There are no best loans. If we do our job well —and I believe we do, there is no loan that is better than others. There are loans with different characteristics, that perform differently in different environments... We’ve been building lots of safeguards to ensure there is a great experience for all types of investors, including retail investors. The institutional investors we have at Lending Club are not credit hedge-funds–they’re long-term, patient investors: pension funds, insurance companies, endowments, foundations. And they all have purchase limitations, that way we really know how much capital comes through the platform and we can manage it and make sure retail investors don’t get crowded out.

The upcoming IPO will give retail investors a chance to bet on the peer-to-peer lending movement, continued low-interest rates and that LendingClub's high tech programmers really do have an edge over those mega, brick-and-mortar banks.

Follow me on Twitter @Stevenbertoni