I recently came across CommonBond, an online student loan platform in the US, co-founded by David Klein. In a recent podcast, David explained how the idea for CommonBond came up when he himself had to get a loan to finance his Master’s Degree at Wharton Business School. When doing so, David discovered a few things: “rates were unnecessarily high”, “the process (of getting student loans, MA) was opaque and unnecessarily complex” and “the service was pretty poor.” Together with two co-founders, David founded CommonBond, which he describes as a “marketplace lending platform which to date has focused specifically on student debts.”

Marketplace lending is effectively the same as peer-to-peer lending; instead of a bank lending you money, it’s another user (this can be a person or a private company) lending you the money. Companies like CommonBond, Lending Club, On Deck and Kabbage all act as a marketplace, providing the technology to connect borrows and lenders.

It was interesting to hear Dave talk about the two main goals that underpin CommonBond’s proposition. Firstly, to lower the cost for graduate students in getting a loan. Secondly, making the experience of getting a loan as easy and speedy as possible. Dave pointed out that the plan behind CommonBond is to eventually expand beyond student loans, supporting borrowers throughout different stages of their life.Currently, the lion’s share of CommonBond’s business comes from refinancing existing loans, but it aims to issue more direct loans to students in the coming months.

In the podcast, Dave talked about marketplaces starting off with a single asset class e.g. mortgages or credit cards, and then branching out into multiple classes. His view is that there’s a shift happening from ‘unbundling banking products’ to ‘re-bundling banking products.’

In that light, it was interesting to learn that CommonBond recently secured so-called “warehouse lines” from established financial institutions like Barclays and Macquarie Capital. The term “warehouse loan” refers to a loan made and would be repaid as it was securitised and bundled into a broader portfolio that is sold in secondary markets like the New York Stock Exchange or London Stock Exchange.

Main learning point: When looking at the CommonBond site and from listening to Dave Klein, it strikes me how CommonBond is really making an effort to make applying for a loan as simple and as intuitive as possible. Klein refers to Nordstom and Zappos. I love how CommonBond aims to disrupt the traditional way of obtaining loans, starting with student loans but looking to roll their approach out to other loan types in the future.

Related links for further learning:

1. http://www.pmifunds.com/defining-marketplace-lending-peer-peer-lending-crowdfunding/
2. http://www.crowdfundinsider.com/2015/09/75152-what-does-the-uk-think-of-the-us-marketplace-lending-sector-they-tell-us-here/
3. http://blog.zopa.com/2015/12/29/zopa-meets-lender-anne-from-kent/
4. https://www.fundingcircle.com/blog/2016/01/2015-a-revolutionary-year-for-marketplace-lending-december-industry-news/
5. http://techcrunch.com/2016/01/05/commonbond-picks-up-275-million-in-new-lending-capacity/
6. https://www.zopa.com/lending/risk-management
7. http://www.forbes.com/sites/maggiemcgrath/2015/02/05/commonbond-boosts-its-student-loan-refi-footprint-with-150-million-investment-from-nelnet/
8. https://en.wikipedia.org/wiki/Secondary_market
9. https://www.shopify.co.uk/blog/15517012-how-nordstrom-made-its-brand-synonymous-with-customer-service-and-how-you-can-too