A US fintech firm just bought a bank. Now what?
If you hadn’t heard of LendingClub before today, you’re probably going to become very familiar with it in the next few months.
On Tuesday, the peer-to-peer lender agreed to acquire Radius Bank in a deal worth $185 million.
Prior to the deal, LendingClub had hinted that it wanted to acquire a national bank charter. That would’ve been a hard road to travel. Just last week, Varo Money announced it had finally received FDIC approval for its full-service banking charter after a three-year process. By acquiring Radius, LendingClub hopes to achieve a similar result in less than half the time.
So what can we take away from the deal, and what does it mean for US fintechs going forward? Here are just a few thoughts…
This isn’t a new development...
While the press has trumpeted that this deal marks the first time a US fintech has bought a bank, there’s nothing particularly novel about this purchase. Green Dot Corporation made a similar move nine years ago, buying Bonneville Bancorp so it could issue and manage prepaid debit cards.
Even if relatively few companies have gone as far as LendingClub or Green Dot, it doesn’t mean the move isn’t in the cards. By now, everyone and their brother believes Square is preparing to acquire its way to a banking licence. The only question is when.
...But it was a good deal
Sometimes you look at an acquisition and wonder why the hell someone paid so much to get so little in return.
This is not one of those times.
[LendingClub] is actually getting so much more out of this deal than just a banking licence
In fact, everyone comes out of this deal looking good. LendingClub has effectively closed their loop with this move. Now they can offer loans and hold their own deposits, putting them lightyears ahead of other fintech lenders. Radius, meanwhile, has been bought for a fair price by a company that’s relatively simpatico.
Consider it another way: if everything goes as planned, both Varo and LendingClub will have digital banking licences. Varo will have spent $104 million and three years to get theirs, while LendingClub will have given up $185 million and up to 15 months for a similar result. That’s a pretty good deal, especially when you consider...
It’s not just about the charter
The takeaway from this deal isn’t that LendingClub spent $185 million just to be able to handle its own deposits. In fact, the company is actually getting so much more out of this deal than just a banking licence.
Consider what Radius Bank has done over the past decade. Since CEO Mike Butler joined the company in 2008, it’s grown from a small, branch-reliant community bank to a virtual bank that has $1.4 billion in assets and customers in all 50 states.
LendingClub was never just getting a charter. It’s getting a highly agile digital bank, too
Today, Radius is a case study in how smaller organisations can differentiate themselves by going all-in on digital. It’s also been a valuable partner for US fintechs, providing BaaS offerings to companies such as Brex.
So yes, LendingClub paid $80 million more than Varo did for their charter. But LendingClub was never just getting a charter. It’s getting a highly agile digital bank, too.
Not every fintech can do this
Both LendingClub and Radius Bank came into this deal with considerable experience. The former has been around for nearly 15 years and helped pioneer peer-to-peer loans in the US. The latter started in 1987 as a trade union bank. Each is well-established in the industry, and regulators are bound to take note of that.
Even still, this will be an elongated process. Both companies will need to jump through a host of regulatory hoops to make the deal work.
That’s why this deal should be seen as a very specific set of circumstances rather than a model that every fintech can follow. Nobody involved here is a start-up. It’s doubtful that any new company would be able to amass the regulatory goodwill necessary to pull off this kind of acquisition.
Ultimately, getting a full-service banking charter will probably still be a long, costly and drawn-out affair. But that doesn’t take away from the fact that this is a very good deal for those involved.