Transforming the banking system into an online marketplace

2014

Remember life before the Internet?

Circa 1970 businesses !captured value through…

Vertical integration

Scale

Brand

Poor value exchange

Limited choice

Limited information

For the consumer this meant…

The technology revolution delivered major efficiency gainsCost of a 10

minute phone call1970 Today

90x$4.50

$0.05

Size of a computer (cubic feet)

1970 Today

100x~20

~0.2

TV channels "available

1970 Today

40x

5

200

Note: Phone calls are domestic, 1970s call was LA-NYC!Sources: Federal Communications Commission “Trends in the U.S. International Telecommunications Industry” August 1998, AT&T website April 2014, Xfinity website April 2014, “The Evolution of TV Viewing” by John Carey of Fordham University 2002, PCWorld “Timeline: 50 Years of Hard Drives” September 2006

Banking has not experienced the same improvements

No efficiency gains since 1900Net US revenues of financial intermediaries as % intermediated assets (i.e. unit cost of intermediation)

Note: Quality Adjusted!Sources: Liberum “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation”, Philippon Thomas, March 2014, http://bit.ly/1gRuAEB

Early 1970s Today

Consumer value capture is even lower today

0%!

4%!

8%!

12%!

16%!

~8%~13%

Borrower Rate

Savings Rate

Note: 1970 borrower rate is commercial bank interest rate on 24 month personal loan Feb 1972; Today borrower rate is commercial bank interest rate on credit cards assessed interest Feb 2014; 1970 savings rate is average 3 month secondary market CD rate Feb 1971-1973; Today savings rate is 3 month CD rate in the secondary market as of April 2014 Sources: Federalreserve.gov G.19 and H.15 reports, bankrate.com April 2014

The banking industry became more concentrated

~ 20% ~50%

Early 1970s Today

Top 10 banks share of deposits

Note: Today marketshare is based on 2013 data!Sources: SNL Financial 2014, Federal Reserve Bank of Richmond Economic Quarterly Volume 92/4 Fall 2006

There is limited differentiationPREMIUM MULTI-SPECIALIST WINNERS

VALUEFAILING

Strong

Weak

Quality

StrongWeak Value

Trader Joes

Costco

Whole Foods

Grocerystores

USAA

Wells FargoCapital One

Credit UnionsCiti Bank

BOA

TD"Bank Banks

Note: N ~3,000!Source: Oliver Wyman consumer survey

Banks even look the same

Wells Fargo Bank"San Francisco!

Today

Union Trust Company San Francisco!Early 1900s

Source: artandarchitecture-sf.com

4. Sharing!economy

3. Many to many!marketplaces2. Marketplaces

OMG. The Internet.

1. Online storefronts

% US Adults"

buying online:~20%"

(2000)

~70%"

(2014)

Improved efficiency, more information, expanded choice

Note: Measure is % of US Adults who report ever purchasing a product online; Data is averaged across sources for 2014!Sources: PEW Internet Research Project, E-Marketer, Walker Sands Communications

10%

20%

30%

40%

50%

60%

70%

200520062007200820092010201120122013

A few examples in financial services

20

40

60

80

100

120

140

1975 1995 1998 2004 2010 2014

Internet enables lower cost Aggregated information, easy transact

$ per trade "(Charles Schwab)

% UK car insurance originations"from online aggregators

1. Online Storefront 2. Marketplaces

Sources: Oliver Wyman, Wired, CNN

Walmart can’t sell you a broken laser pointer…but I can

Revenue ($bn)3. Many to Many Marketplaces"!

- more choice"- lower cost"- efficient pricing

Source: Ebay financials

The rise of sharing

Views

About 32,000,000 results

1m"(2004)

1,200m"(2013)

Users

20k"(2007)

500m"(2013)

Tweets per day

Uploaded hours per minute

0.6"(2006)

100"(2013)

Sources: Oliver Wyman, Facebook, Twitter, Youtube press releases, Video is from YouTube

Slower start for sharing of financial information, but growing fast now

1,010300

80120

102

20092012

Users (M)

Source: Facebook Paypal Mint press releases

0

10

20

30

40

50

60

70

80

90

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

A shift in the national psycheGoogle search index “happiness” (US only)

Search for happiness "and fulfillment rises "

in importance

Backlash against "consumerism and "banking industry

Building businesses out of passions and hobbies

Note: Monthly average of weekly index data pulled April 2014!Source: Google trend

Things that matter. Pass 'em on.

“Helping our generation !understand what’s !

happening in the world.”

Christopher Altek!& Jake Horowitz

Eli Pariser &!Peter Koechley

And the sharing economy was born

4. Sharing Economy

Higher utilization of my existing assets Sharing with each other

Leading sharing economy marketplaces are highly valued

8 highest valued US VC-backed private companies Total equity funding Latest valuation

Part of the sharing economySource: Wall Street Journal “Billion-Dollar Startup Club” January 2014 http://graphics.wsj.com/billion-dollar-club/

The convergence of Internet trends & banking gave birth to marketplace lending

Source: McKinsey & Company

Operating expenses as % of outstanding loan balance

Internet enabled low cost model1. Online storefronts

Traditional Bank Lender Lending Club

The convergence of Internet trends & banking gave birth to marketplace lending

One place for transparent information and transaction made easy

2. Marketplaces

The convergence of Internet trends & banking gave birth to marketplace lending

Lower intermediation costs, more choices3. Many to many marketplaces

All Loans originated and issued by WebBank, a FDIC insured Utah state bank. � 1. Servicing fee is average for 60-month loans.

Principal + Interest

Funding

Investors Borrowers

The convergence of Internet trends & banking gave birth to marketplace lending

Higher utilization of existing assets4. Sharing economy

~13%

Borrowers Rate

Investors Rate

0%!

4%!

8%!

12%!

16%!

~5%

Traditional Bank Lenders Lending Club

Note: Average Lending Club Interest Rate for 36-month loans in Q1 2014.; Lending Club Investor Rate is Median Adjusted Net Annualized Return for investors with 100+ notes, note concentration of <2.5% of portfolio value, and portfolio age of 12-18 months; !Traditional Bank Lender borrower rate is commercial bank interest rate on credit cards assessed interest Feb 2014; Traditional Bank Lender savings rate is 3 month CD rate in the secondary market as of April 2014 Sources: Lending Club, Federalreserve.gov G.19 and H.15 reports, bankrate.com April 2014

Marketplace lending is becoming increasingly diverse

Consumer

Pay Day

Purchase Finance

Education Financing

Real Estate

Merchant CashAdvance

SMB Credit

Source: Foundation Capital 2014

And a global phenomenon$

$2.4bn

$1.4bn

$1.9bn

Sources: Liberum “P2P Lending: Opportunity & how to invest” March 2014

Experiencing rapid growth

Lending Club Prosper Funding Circle Zopa Ratesetter

CAGR: 130%

Loan Originations ($B

illions)

Sources: Liberum “P2P Lending: Opportunity & how to invest” March 2014

Lending Club leading the way

$791,348,200

($ Millions)

Annual Run Rate:"$3,165,392,800"

!Year over year Q1:"

124%

Benefiting from lower operating costs

Lending Club in 2015

Traditional bank lender

Lending Club’s cost advantage

Opex / total balance outstanding, Basis points

135 is steady state, ~40 is excess mktg in 2015 to fund growth

40 Marketing 175 135

IT 29

Other 28

G&A 20

Origination 19

CS / collection Billing / fraud

FDIC

Branch

Total opex 310 270 40 695

100

35

30

30

100

170

10

220

0

220

425

35

0

10

130

10

80

39

Source: McKinsey & Company

While improving customer experience

Borrower"Net Promoter Score1

Average NPS Scores

Lending Club

Credit Unions

Community Banks

Regional Banks

Credit Cards

National Banks

79insurance

online services retail

technology

telco

travel/hospitality banking

Industry averages

1. As of April 2014 for borrowers that were approved for loans!Sources: Bain, Lending Club

And bringing transparency

Becoming more useful to more people

Tuition financing

Patient financing

Small business loans

More useful to more people

More useful to more people

More useful to more people

More useful to more people

Partnering with the banks to transform banking

Bank Partner HappyBank Customers

Other Investors

Large Customer Base"Low cost of capital

Great Customer Experience Low operating cost+ =

And today we are pleased to announce