LendingClub has agreed to buy U.S. digital lender Radius Bank in a cash-and-stock deal valued at $185 million.
The big picture: LendingClub has seen its share price 88 percent over the past five years. It's looking to gain access to a cheaper source of funding and offer a broader suite of banking services in addition to its core lending products.
- The online lender had said it was looking for a bank charter, a process that can take years.
- Varo just received preliminary approval for a national banking charter, a process that's taken years and approximately $100 million, according to the company.
- With a banking license and a deposit base, LendingClub can diversify its revenue stream and enhance resiliency.
Boston-based Radius has more than $1.4 billion in assets and offers checking and savings accounts online.
- Radius has turned a small regional bank into an institution with national presence.
- The bank uses a virtual banking strategy to offer some of the best products out there to its customers, without having to create them themselves, by partnering with fintechs.
- Through building its own products and partnering on others, Radius has pioneered its own innovation strategy as a model for smaller banks.
This deal marks the first time a U.S. fintech company has bought a bank. Many fintechs continue to wait upon national bank charter approval.
- US bank charters are hard to come by, so many fintechs work with a partner bank instead.
- Partner banks can enable a fintech to launch quicker, but fintechs are relegated to becoming a more modern user interface layer for typically older technology.
- For example, when leading European challenger bank N26 launched in the US, it partnered with Axos Bank.
- Without a bank license, firms like LendingClub lack the ability to take in their own deposits, forcing them to rely on less sticky, more erratic, and more expensive forms of capital.
"Unless you're going to build a ground-up digital bank, there's no chance to compete," said Chaim Meir Tessler, general partner at OurCrowd.
"LendingClub has the fintech expertise and it's backing into a bank. But it's a gamble on whether this is a short term solution or whether they can build the full digital infrastructure needed to support tens of millions of customers."