In the United States, almost all marketplace lenders use a partner bank. It adds to the operational efficiency of the marketplace lender by having a partner bank who can steer the platform through the myriad of state and federal lending laws, as well as handle much of the compliance and operational activity. A borrower will apply for a loan on a platform, but behind the scenes the loan is actually being originated by the partner bank. The loan is typically held on the bank’s balance sheet for just a few days before being assigned to the platform. Historically, this has been the extent of the involvement of the bank.
However, Marlette and Cross River Bank today announced a $100 million securitization that is a little different. Marlette Funding operates their personal loan business under the name Best Egg and originated nearly $1 billion worth of loans in just 15 months. As part of the transaction, Cross River Bank and Marlette Funding will share a 12.5% equity tranche with Deutsche Bank acting as the lender. This is the first time a marketplace lender and an FDIC-insured bank have completed a joint transaction. We spoke to Jeffrey Meiler, CEO and Founder of Marlette as well as Paul Ricci their CFO and also exchanged emails with the team at Cross River Bank to learn more about the deal.
A big piece of this is that both Marlette and Cross River Bank both believe in having skin in the game so to speak. Prior to this transaction, for the past couple of months, Marlette had been retaining some of their loans on their own balance sheet. Cross River Bank has been taking around 10% of Marlette’s originations and retaining them on their balance sheet since June of last year. This is duly because CRB believes in the quality of the loans and also feels that it strengthens the true lender status.
This deal will allow Cross River Bank to take a large portion of Marlette loans off of its own balance sheet and move them into this new jointly owned entity. The transaction opens up capacity for Cross River Bank to continue to retain loans from Marlette on their balance sheet, especially as Marlette continues to see accelerating origination growth. The loans included in this transaction are a random cross section of loans dating back to June of 2014. We were told that a securitization transaction similar to this one may occur every 3 to 6 months. They will continue to include Cross River Bank in similar ways, but will also seek other investors and securitizations to fund Best Egg loans.
Jeffrey Meiler, CEO of Marlette Funding stated:
Marlette Funding and CRB remain committed to an innovative approach to marketplace lending and delivering tangible value to consumers in the form of strict adherence to compliance best practices, greater choices in funding solutions, lower costs, improved transparency and faster decision making in underwriting. Marlette benefits from CRB’s credit standards, regulation assurance and payment processing and the two companies work hand in hand for compliance and customer issues.
Gilles Gade, CEO of Cross River Bank, added:
CRB is proud to partner with Marlette Funding and demonstrate our joint commitment to the sector through our risk retention strategy. We believe this strategy will set a new industry standard of best business practices.
It’s clear that both Cross River Bank and Marlette have both made the commitment to retain risk and they believe this is industry best practice. Not everyone agrees with that premise but it is clear that both companies are very committed to it.
While Marlette would not tell us their total originations as of today, we do know they passed $1 billion during the summer, less than 18 months after they launched. They would only tell us that they plan to reach $2 billion faster than it took them to reach $1 billion. This innovative new deal with Cross River Bank will only help them grow even faster.