The company, which will take LC as its ticker symbol, has generated some concern that it will create economic risks, but there's a significant gap between this skepticism and the way the company is viewed in Silicon Valley. The Silicon Valley view seems more accurate.
The positive take on Lending Club is that it's a pioneer in an exciting new business known as as peer-to-peer lending. It has created a marketplace that connects people looking to lend with people seeking loans who don't necessarily satisfy traditional borrowing requirements.
By doing this, Lending Club promises to make a stodgy lending market more efficient. The biggest attraction for borrowers is that interest rates in Lending Club's marketplace are much lower than those on traditional credit cards. So these loans are much more affordable, and consumers can continue spending. That's good for the U.S.!
For lenders, this is a market that didn't exist before. It provides them the promise of safe returns in the aggregate from a pool of borrowers.
New marketplace created. Borrowers and lenders satisfied. Lending Club a successful middle man. Everyone happy.
Now let's look at the skeptics' take on Lending Club.
These loans for the most part are being made to consumers who want to refinance existing credit card debt. They might not be served by traditional lenders because they tend to be lower-income people.
No less than Sheila Bair, former chairperson of the Federal Deposit Insurance Corp., has complained that Lending Club relies on a scoring algorithm for borrowers but doesn't require income verification.
Right about now you may be having a flashback to the last decade, when lenders were offering mortgages that didn't require proof of income. In many cases, those loans caused borrowers to take on more risk than they could handle. Investors and Wall Street firms that held securities backed by those mortgages were exposed to huge risks when the housing bubble burst.
So the Lending Club skeptics will tell you that we are repeating history.
The folks I've spoken with in Silicon Valley say Lending Club is different. This is an example of the Internet helping to make a traditional business more efficient by introducing more choice. It's true that people seeking to refinance credit cards often are low-income, and it's true that Lending Club doesn't require income verification, but the net effect of Lending Club transactions is that consumers are paying less interest, not more, every month.
Who is really being hurt by Lending Club? Answer: the credit card companies that are losing 25% a year or more in interest, and the payday lenders who charge even higher rates.
On the systemic risk side, it's possible that if the economy went south again, people might not repay their Lending Club loans. However, the risk is not centralized among big Wall Street banks and investors. It's also not amplified by derivatives and leverage. Problems with Lending Club defaults won't threaten our entire financial system the way the bursting of the housing bubble did.
There are multiple technology companies that have revolutionized the world in the last 20 years: Yahoo! (YHOO) , Google (GOOGL) , eBay, PayPal, Tencent and Alibaba (BABA) . I think Lending Club has a chance to be on that list over time. The financial bigwigs on Lending Club's board, including former Morgan Stanley (MS) Chairman and CEO John Mack, Mary Meeker of Kleiner Perkins Caufield & Byers and former Treasury Secretary Larry Summers, certainly don't hurt its chances.
There will be lots of other P2P IPOs if this one succeeds, but Lending Club is the grand-daddy of the space with the chance to be the biggest success.
At the time of publication, the author had no positions in stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.