Last week, LendingClub announced that it was acquiring Radius Bank. It was exciting news as a large influential fintech player purchased a bank to round out its own balance sheet and provide banking functionality its own customers were asking for.
I’m excited because we have Steve Allocca, president of LendingClub, and Mike Butler, CEO and president of Radius Bank, on the show for an exclusive talk about the reasoning behind the merger and how the combined entity is positioned for growth. We talk about the vision of becoming a marketplace bank at scale, as well as the role of Radius’ banking as a service offering. Lastly, we discuss what each party brings to the table and the rebundling of financial services.
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The following excerpts were edited for clarity.
The acquisition
Steve Allocca: Last week, LendingClub announced the acquisition of Radius Bank, which is the first time a U.S. fintech company acquired a bank. It's about the leading digitally native personal loan company in the U.S. combining with the leading online bank. It's an exciting transaction that we think is going to bring tremendous value to our members.
Talks leading up
Mike Butler: Scott Sanborn and I met as we were discussing a strategic partnership under our banking as a service model. When we get to that discussion, we've already developed a good understanding of a potential partner and a deep level of respect. So, we understood LendingClub from a distance.
The conversation just kind of exploded when we started to think about the opportunities associated with these two companies being more than just partners. That's where the early parts of the business model became really enticing. Over time, we saw a cultural connection between executives on both sides. How we both approach business set the tone so that we could say an acquisition would be something really transformative.
Build versus buy
SA: I have been at LendingClub for two and a half years. One of the things that attracted me was the promise of obtaining a bank charter. It's a natural, obvious evolution of where LendingClub has been. Not having access to deposit funding made this seem logical strategically.
The biggest reason overall is that our customers were demanding it. More than 50,000 people apply to LendingClub every day. The biggest use case is to tackle the high interest, revolving credit card debt that's crushing so many Americans. Our customers have told us that they want ongoing support from LendingClub -- not only shaving down expensive debt but accumulating savings and growing them over time with better rates and lower fees.
We started on a parallel path -- looking at a de novo process and at an acquisition or merger. There aren't that many banks out there that check all the boxes for us. Radius is one of 13 digitally native banks with a national footprint, without legacy branch infrastructure, with a culture of innovation, and one that would be a natural fit with our digital culture. Radius was recognized as the best online bank in the U.S. It just made all the sense in the world to combine these two organizations rather than go the de novo route.
Marketplace banking
MB: When we set out on our own digital transformation, we decided we would make our bank a marketplace for our customers to better their financial health. We want our customers to think about us in a bigger and better way than just a depository product. You can get access to great companies, products and services, like Lemonade.
SA: We're bringing together two sides of a bank's balance sheet at scale. With LendingClub focused on the loan side and Radius focused on the deposit side, the power of the two together is something that gives us a transformational platform. We're building a company that's all about helping customers make better financial decisions that result in improved money management and accumulation and growth in their savings.
Evolved positioning
SA: We are now going to be competing on the deposit side, so, in a way, who we compete with is changing. It's not something we've done before but look very forward to doing. I think we should be angry as Americans. If you go to a top bank, they'll pay you from 1 to 3 basis points on a regular savings account today in a world where the Federal Funds rate is about 175 basis points. This combined platform gives us the ability to offer better options.
The main competition for LendingClub for our core lending products really is the credit card industry -- more than any neobank or traditional banks.
Banking as a service
MB: As we became more skilled in working with fintechs, our platform opened our eyes about the potential to work more with fintechs. The core platform with our direct to consumer and direct to business offering makes us uniquely prepared to partner with other fintechs and offer banking as a service.
So, it's this ability to work with tech companies and understand with an acute awareness of the experience that is necessary to attract and satisfy consumers today that make us perfectly aligned to work in a BaaS environment. We have a long history in a new sector. We worked with LevelUp almost five years ago. Now we work with multiple other partners like Brex and NerdWallet.
If you take a step back to look at what's happening in financial services, we've both said that there will be a rebundling of the services out there. There will be several fintechs that continue to go at it alone. We fully expect to serve that client base with our banking as a service.
SA: It is these APIs that, through BaaS functionality, will give LendingClub's customer base access to other leading fintechs. We want to be all about helping customers make smarter financial decisions. When you think about connecting customers with the type of content a NerdWallet provides, we think it's another way to provide value.
LendingClub customers' willingness for banking
SA: We've done research on this. Customers have been asking us for banking. We found the overwhelming majority of our customers are likely to give us a shot to try banking services. We were very surprised how positive our customers would consider a LendingClub banking product.
Going forward
MB: I think the fun part of this is to come. This isn't a traditional bank to bank transaction where we'll be distracted by changes in location, overlapping systems or potential headcount reduction. This is one plus one equals three. I think Scott, Steve, and I should best prepare ourselves to do what we've been doing and do it really well.