With OCC approval of Radius Bank, LendingClub is one step closer to becoming a marketplace bank

Last week, the Office of the Comptroller of the Currency approved LendingClub’s merger with Radius Bank. The lender awaits pending confirmation from the Federal Reserve to receive bank holding validation. Once approved, Radius Bank will be launched as a national bank and renamed as LendingClub Bank.

The combined Radius and LendingClub entity is being positioned as a “marketplace bank”. 

A marketplace bank “pursu[es] a platform strategy by attracting both buyers and sellers and providing transaction integration and processing capabilities,” according to bank analyst, Ron Shevlin, writing in Forbes. Radius Bank’s APIs and integrations will enable LendingClub to function as a “multi-line platform.” 

In February of last year, LendingClub announced its agreement to purchase Radius Bank for $185 million in efforts to diversify its revenue channels and to create a permanent avenue for loan funding. The deal has created waves in the financial services industry by stamping LendingClub with the distinction of being the first online lender to acquire a bank. 

“Once the acquisition closes, LendingClub will become the only full spectrum fintech marketplace bank at scale and the first public U.S. neobank. The combined entity will be the only bank in the country with a marketplace already built in,” said LendingClub’s financial health officer, Anuj Nayar. 

With the acquisition of Radius, LendingClub aims to increase its earnings by attracting prospective and current customers with new products and resources.

LendingClub’s new marketplace bank will support consumer and commercial loans in addition to deposit products. Their digital-first capabilities with limited legacy bank infrastructure will allow them to innovate faster with a lower-cost operating model.

“Our combined entity will generate higher revenue at a lower cost than traditional banks, which often have to support large operating infrastructures, enabling us to pass even more value on to members,” said Nayar. “Since we’re not trapped by legacy systems and practices, we’ll be able to innovate and move quickly to meet emerging customer needs.This is something both LendingClub and Radius already proved during our responses to the economic effects caused by COVID this year.” 

Around 43 percent of LendingClub’s existing and prospective members said that they would consider switching their bank account to LendingClub if its benefits would help them pay down their debt sooner, according to Nayar.

“As the only full-spectrum fintech marketplace bank, we will be able to provide new products and services to our members that will help them both pay less when borrowing and earn more when saving,” he said. 

“We know that consumers are ready and eager for a new kind of financial relationship. LendingClub’s borrowers are credit worthy and high income, make significant use of credit and are looking for ways to improve their outcomes that drive them toward realizing financial health.”

Founded in 2006, LendingClub pioneered an online marketplace lending model providing consumers with access to credit. In 2016, the company was wrought by significant losses due to a highly publicized governance scandal.

By 2019, the fintech made major strides in the personal loan industry by generating $1 billion of loans per month. The company has reportedly facilitated more than $60 billion in loans to date with around 3 million members. LendingClub’s deal with Radius aims to shift the lender’s focus to deposits and savings by implementing the company’s strategy of converting itself into a marketplace bank. 

“Our marketplace bank will build on the success of both businesses with revenue derived from both the marketplace building on our existing business model and the bank that can better serve its members with higher deposit rates and lower fees.” said Nayar. 

Fintech consultant and analyst Chris Skinner believes that LendingClub’s strategic push for a banking license through Radius is significant to its technological capabilities. “Lending Club acquired Radius because their strategy as a fintech start-up failed. That’s not a recipe for success we will see repeated regularly,” he said. 

“Having said that, in the U.S markets, the use of a community bank license as a technology build makes sense for many. Just look at CBW Bank in Kansas that has partnered with many firms using a banking license from a small town in Kansas. That’s all down to a former Google engineer. I think you may see more of that.”

According to LendingClub’s Nayar, even if LendingClub’s competitors follow its lead by applying for a bank charter, they will still face difficulties emulating its trajectory without its loan acquisition and servicing infrastructure and with more than $1.6 billion of deposits that the combined organization will have. 

Regardless, Skinner believes that competitors will follow LendingClub’s footsteps in acquiring community bank licenses. 

“LendingClub has been struggling the last few years, but their brethren like SoFi and Funding Circle will be watching. Eventually, I would personally think many fintech firms will become banks by buying banking licenses through acquiring community banks,” said Skinner.

“That’s the path in America. The question then is, what do you do with it? Do you want to be a bank or an innovator? What these firms should really be doing is creating new financial products and offers, not just acquiring and becoming the same old boring old banks, using the internet.”