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LendingClub Receives Final Approval for its Acquisition of Radius Bank

LendingClub Bank will soon become a reality as the government issues final approval for the Radius Bank acquisition

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That was quick. After receiving preliminary approval from the OCC on December 30, LendingClub announced today that they have now been fully approved to acquire Radius Bank. The deal is expected to close on or around February 1.

Here is a statement from CEO of LendingClub, Scott Sanborn, about the approval:

This is a transformative acquisition for the company and a watershed moment for the industry as we become the only full-spectrum fintech marketplace bank in the U.S. The customer benefits of this acquisition are even clearer now that COVID has accelerated Americans’ move to digital banking. As the only full-spectrum fintech marketplace bank, LendingClub will be able to use our technology and data-driven platform to provide new products and services to our millions of members that will help them both pay less when borrowing and earn more when saving. By combining with Radius, we will create a category-defining experience that will also dramatically enhance the resilience and earnings trajectory of our business.

So, LendingClub Bank will soon be born. It is an exciting moment for the company as they become the first fintech lender to buy a digital bank. While we have seen plenty of fintechs looking to become banks by applying for a license, LendingClub has blazed a new trail in their approach. And with less than 12 months from the announcement of the acquisition to approval it seems to be a speedier process. LendingClub has been working with banks for years and I know they put in serious compliance work after the 2016 fiasco so that probably held them in good stead with this application process.

Now, LendingClub paid $185 million for Radius Bank but they also get a fully operational digital bank that gels with their existing operation. And like most digital bank offerings in 2020 Radius Bank has seen strong growth. When they announced the acquisition last February they shared that Radius had $1.4 billion in assets and in today’s press release that number has grown to $2.4 billion.

One loser in this new arrangement is WebBank. They have originated nearly all of the $60 billion in LendingClub loans to date and soon after the deal closes they will be removed from the process as LendingClub Bank originates the loans. This will be less confusing for consumers and will save LendingClub serious money.

Along with the press release there is also a more detailed blog post about the acquisition that is worth a read. There is mention of the Founders Savings Account, this is the high yield savings account that will be offered to existing LendingClub investors. Unfortunately, there are no details on this account yet but we do know it is coming soon after the acquisition is completed. I am most interested to see what else LendingClub does for retail investors. A high yield savings account, while moderately appealing, is not innovative. I am hopeful we will see some groundbreaking products on this side of the business.

For their borrowers LendingClub will now be able to offer a full suite of financial products beyond the personal loan. They do have over three million borrowers and 79% said they would be likely to open a checking account if LendingClub offered rewards linked to helping them pay off their personal loans. That is another area where we could see real innovation.

LendingClub has made a big push towards financial health in recent years and it is mentioned several times in the blog post announcing the acquisition. So, we can expect this to be a good deal for consumers as the combined company rolls out new initiatives. I am very interested to see what new products LendingClub will deliver. I hope and expect this will include multiple new offerings for individual investors. Let’s stay tuned on that.

It’s Official: American Express is Acquiring Kabbage

Another blockbuster fintech transaction is in the works as American Express announces it is acquiring Kabbage for an undisclosed sum

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Kabbage CEO Rob Frohwein speaking at LendIt Fintech USA in 2019

The great fintech consolidation of 2020 continues. While we knew this deal might be coming, as it was leaked last week, today they made it official. Kabbage is being acquired by American Express for an undisclosed sum, although last week the rumor was that it would be “up to $850 million.”

In a letter the founders of Kabbage, Rob Frohwein and Kathryn Petralia, shared today they had this to say about the deal:

Although this is our first time sitting in the seat of the entrepreneurs selling their “baby,” we are certain it’s not uncommon to have a bittersweet feeling. On the one hand, we are entrepreneurs through and through and relish the daily fight that is required to push a company forward (not to mention through a pandemic). On the other hand, we are not joining just any company, but a company we have long admired that shares our vision to strengthen small businesses.

Importantly, we’re integrating with an incredible team. We’ve known Anna Marrs, the spectacular and authentic leader of the Global Commercial Services division of American Express, long before we started this particular conversation. The same goes for Steve Squeri, the CEO of American Express, who is not just a widely respected CEO but a genuinely nice, down to earth guy. We are joining an illustrious company of exceptional people and that is what makes us so excited about this transaction.

Kabbage has expanded beyond lending in recent years with the launch of Kabbage Payments, Kabbage Insights and just last month Kabbage Checking. They now have a chance to integrate these offerings into the vast Amex empire.

Interestingly, according to the press release AmEx will acquire the technology, people and data of Kabbage, but not its loan book. Given the state of small business today and the uncertainty over the potential outcome of the loans AmEx is taking that potential downside risk off the table.

Anna Marrs, President of Global Commercial Services at American Express, said this in an official statement: [Read more…]

Enova Acquires OnDeck for $90 Million

Enova, best known for short term consumer loans, is acquiring OnDeck, one the leading online small business lenders, in a $90 million cash and stock deal

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In a deal that will rock the fintech space Enova announced this afternoon that they are acquiring OnDeck for $90 million. OnDeck has been struggling since the onset of the pandemic, to say the least, as small businesses across the country face unprecedented stress.

OnDeck reported in their Q1 earnings call in April that 45% of their loan book was in some stage of delinquency as they reported a $59 million net loss. They reported Q2 earnings earlier this afternoon and they somehow managed to eke out a $2.2 million profit on originations that were down 89% from the prior quarter, as they suspended new lending.

OnDeck CEO Noah Breslow was on the Enova earnings call this afternoon and he made the comment that the nadir for their loan book was in April and things have improved considerably since then as they economy has opened up. They have reduced their provision for credit losses as the future started to look better.

Anyway, back to Enova. They are a publicly traded company, primarily focused on consumer loans, that was spun out from Cash America in 2014. Incidentally, one of their brands, short term lender CashNetUSA, was actually started by Al Goldstein (co-founder of Avant) back in 2004, he sold to Cash America two years later. Another brand is NetCredit which is more of a near prime consumer lender (I interviewed the head of NetCredit on the podcast back in 2018).

While Enova has been focused on consumer lending with a range of products they have started making inroads in small business lending. They have two small business brands: Headway Capital and The Business Backer. While they started Headway Capital in-house Enova actually acquired Business Backer in 2015 so they have some history with acquisitions. Combined, the small business lending operations at Enova make up just 15% of their loan book. After the acquisition of OnDeck that number will rise to 60%. That gives you some idea of how big a deal this is for Enova.

While Enova has scaled back lending considerably since the start of pandemic they are in a strong position financially. In their Q2 financials released this afternoon they show a net profit of $48 million for Q2 on revenue of $259 million despite the slowdown and they have $321 million of cash on hand.

According to the press release announcing the acquisition the $90 million transaction values OnDeck at $1.38 per share which is a 90% premium on the closing price of $0.73 from July 27. The deal includes $8 million in cash and each share of OnDeck will be worth 0.092 shares of Enova. The transaction has been unanimously approved by both boards and is expected to close later this year.

My Take

[Read more…]

SoFi to Acquire Galileo Financial Technologies in $1.2 Billion Deal

The $1.2 billion deal will allow SoFi to access new customers and potentially impact SoFi's competitors in the market.

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This morning, SoFi announced they have agreed to acquire Galileo Financial Technologies for $1.2 billion in cash and stock. It is interesting timing given almost all of the news as of late has centered around the coronavirus crisis as many companies focus on staying afloat.

Galileo allows companies to offer financial services to both consumers and businesses such as checking and savings accounts, direct deposits, ACH transfers and bill payments. SoFi is already a customer of Galileo, which powers SoFi Money among other offerings.

According to the press release, Galileo processed over $53 billion of annualized payments volume in March 2020, up from $26 billion in September 2019. It seems like this is a customer acquisition play for SoFi as they look to provide their full suite of financial services products to more customers. Interestingly, the acquisition may also allow SoFi to access international markets through current Galileo partners.

Clay Wilkes, CEO of Galileo provided the below statement as part of the press release:

“SoFi has built a very strong diversified financial services company focusing on a full suite of financial services. These are products that many of our leading fintech clients are asking for. Distributing products through our enterprise class API is the vision behind this combination. I think it’s very powerful…We’re excited to work with SoFi to build on the services that have made Galileo the leading supplier of infrastructure services to leading financial, technology, and fintech companies. With the help of SoFi, we intend to continue to grow with and support all of our existing clients and the product roadmaps that they have defined.”

Galileo will operate as a standalone business collaborating with SoFi and Clay Wilkes will continue to serve as CEO. Wilkes has been founder and CEO of Galileo Financial Technologies since June 2000. The deal is still pending regulatory approval and conditions of closing.

Conclusion

It is great to see one of the leaders in fintech today demonstrate their strong financial situation by making a significant acquisition. This deal has likely been in the works for some time but given the current environment it is still notable that the acquisition is moving forward. It is also going to be interesting to see how this plays out given many of SoFi’s competitors are currently leveraging Galileo. American Banker notes that current customers of Galileo include Chime, Robinhood, Transferwise and Varo Money.

Intuit to Acquire Credit Karma for $7 Billion

The latest fintech mega deal has the maker of TurboTax, Mint and Quickbooks acquiring Credit Karma for a reported $7 billion

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We start out the week with yet another blockbuster fintech acquisition. The Wall Street Journal reported late Saturday that Intuit, the maker of Quickbooks, TurboTax and Mint, is close to a deal to acquire Credit Karma for a reported $7 billion. The deal could be announced as soon as today when Intuit reports earnings after the closing bell. [Update: the deal is now official, here is the press release].

Under the deal Credit Karma would become an independent unit inside Intuit with CEO and co-founder, Ken Lin, remaining in charge. Credit Karma was last valued at around $4 billion two years ago and publicly traded Intuit is valued at around $77 billion. The $7 billion deal is expected to be a combination of cash and stock.

What This Deal Could Mean for Intuit and Credit Karma

Intuit has very strong offerings with Quickbooks for business and TurboTax for consumers. While the personal finance tool Mint was groundbreaking a decade ago it has been left to stagnate since Intuit acquired it back in 2009. There have been precious few new innovations in the past decade. This product also operates in a similar way to Credit Karma in that it makes money by recommending products such as credit cards and personal loans. But Credit Karma has done a far better job of this than Mint has ever done so Intuit clearly sees a lot of upside here. [Read more…]

Visa to Buy Plaid in $5.3 Billion Deal

This groundbreaking deal values Plaid at double the valuation of their last round.

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Fintech companies continue to attract interest from traditional financial institutions and now we have a significant acquisition to start off 2020. Yesterday, we learned that Visa is planning to buy Plaid for $5.3 billion. Plaid is unique in the fintech market today, providing the rails for connections between financial institutions. Many consumers in the US have leveraged their service, but they wouldn’t know it because it all happens behind the scenes. Because Plaid has been successful in making these connections possible, they are the defacto choice for many financial institutions. As of now it seems like this large niche that Plaid has carved out is a winner take all proposition.

Chief Executive of Visa Al Kelly noted on an investor call that the acquisition will help Visa expand access to other fintech firms and also accelerate their movement outside of cards. While Plaid has already become a successful fintech company on their own, the credibility of the Visa name is likely to help them reach even more customers. Plaid last raised a round in 2018 at a $2.65 billion valuation. It may sound like a lot to pay for a company, but Visa’s market cap currently stands at around $420 billion. Interestingly, both Visa and Mastercard had participated in a $250 million round. Other investors in previous rounds included Andreessen Horowitz, Kleiner Perkins, Index Ventures, Norwest Venture Partners, Coatue Management, Goldman Sachs, NEA, American Express, Citigroup and Spark Capital.

Writing on the Plaid blog yesterday, CEO Zach Perret said that Visa was the one to approach them and he also explains how the acquisition will work:

We were very impressed by the Visa team from the minute they approached us. They share our vision for the future of financial services and have deep respect for the developer community we support. They want us to operate as an independent business unit so we can keep doing what we do best. We’ll be able to lean on their brand, resources, and international footprint if doing so can benefit our customers, our partners, and the markets we serve.

This deal is welcome news for the fintech community and it is going to be fascinating to watch where Visa takes Plaid from here. And what does this mean for broader fintech? Will this be the year that traditional finance makes fintech acquisitions a priority? The answers will be forthcoming as we see how the rest of 2020 shapes up.

Credible Sells Majority Stake to Fox Corporation for $265 Million

Lending marketplace, Credible Labs, has reached a deal to sell 67% of the company to media giant Fox Corporation

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There is some big news out of Australia today. Credible Labs, based in San Francisco but listed on the Australian Stock Exchange, has reached an agreement with Fox Corporation (yes, that Fox) to sell 67% of the company for $265 million. This values the company at $397 million which is a 31% premium over the stock’s closing price on May 28, the day before receiving the offer from Fox. Fox Corp. will also provide $75 million in growth capital over the next two years.

Founder and CEO Stephen Dash (you can listen to my 2016 interview with him here) is an Australian who moved to San Francisco in 2012 to start Credible. He will remain head of the newly formed Fox subsidiary and will exchange shares equal to 33% of Credible’s outstanding common stock into units of this subsidiary.

I sent Dash a message last night but he did not respond by the time of publication. However, he did say this in the press release:

Fox Corporation’s record of innovation and focus on audience engagement will further enhance Credible’s position as a leading consumer finance marketplace in the United States, creating opportunities for organic growth and the expansion of the Credible platform. Credible’s industry-leading user experience, combined with FOX, will provide greater impact and scale for consumers.

New York-based Fox Corporation is actually a newly created media company controlled by the Murdoch family. It was formed out of the Disney acquisition of 21st Century Fox and it began trading on Nasdaq earlier this year. It includes Fox’s television properties such as Fox News, Fox Business Network and Fox Sports.

Here is what Fox CEO Lachlan Murdoch said about the acquisition: [Read more…]

It’s Official: Kabbage To Acquire Orchard

The tech focused small business lender, Kabbage, has announcement the acquisition of Orchard, the leading loan analytics provider in the online lending space

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It was the worst kept secret in fintech. There were rumors flying around during LendIt Fintech earlier this month and then Bloomberg published this story a couple of weeks ago about the pending deal. Well, today it became official. In a press release this morning it was confirmed that Kabbage, the leading tech-focused small business lender, will acquire Orchard.

I met Matt Burton, the CEO and Co-founder of Orchard, at the very first P2P lending meetup in New York in early 2013. This was before Orchard even existed but right away it was clear that we both shared a true passion for the burgeoning online lending space. I invited Matt and his fellow co-founder, Angela Ceresnie, to speak at the very first LendIt in June of that year. I still remember their presentation on institutional investing and how they were building tools to make the investing process easier. Orchard was officially founded in August 2013 and since then they have gone on to become the leading connector of capital between loan originators and institutional investors.

It was back in February when I first heard rumors that Orchard was for sale. I was a bit surprised because they had closed a $15 million Series C just a few months before. They had also recently released their new Deals platform to facilitate both primary and secondary market loan transactions. But from what I have heard, and the Bloomberg article seems to confirm this, their new platform has failed to get the traction they had hoped.

So, what will become of Matt Burton and his team? Some clues are provided in the press release:

Orchard’s CEO and co-founder, Matt Burton, as well as Chief Analytics Officer and co-founder, David Snitkof, will both join Kabbage in leadership roles upon the closing, helping oversee technology integrations and future innovations. In total, Kabbage will add more than twenty Orchard employees who are predominantly focused on advanced analytics, data science and engineering to its New York City office.

[Read more…]

LendingPoint Expands Into Point of Sale Lending by Acquiring LoanHero

Online near prime lender LendingPoint to boost expansion into point-of-sale with acquisition of LoanHero.

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It’s not often we report on acquisitions in fintech. From my perspective this is because the industry is still relatively young despite some of the interesting innovation happening. A vast majority of traditional financial services companies are still figuring out their strategy to infuse tech into their businesses. More often, we see the successful companies continuing to raise rounds of financing. Today’s acquisition announcement though didn’t come from a traditional financial services firm, it was a fintech acquiring another fintech.

LendingPoint is a balance sheet lender serving the near prime segment. They have been around since 2015 and in a relatively short time they have established themselves as one of the leading players. They now have acquired LoanHero, a company operating in the point of sale space. LoanHero first came on our radar when they were selected as a finalist for PitchIt at LendIt in 2015.

Last year when we checked in with a number of PitchIt finalists, we learned that the company was in talks with national and regional banks which would be the key to scaling the business. According to the press release, LoanHero signed with hundreds of merchants across medical, dental, and home improvement. With the acquisition LendingPoint plans to accelerate their expansion into point-of-need and point-of-sale financing.

Tom Burnside, co-founder and CEO of LendingPoint stated:

LoanHero’s merchant platform is the perfect complement to our consumer portfolio. The combination of the two companies doubles our origination channels and current customer base and triples the number of consumers we can serve, with credit and payment solutions for folks with credit scores from 450 all the way to 850. We’ve been so impressed by the energy and talent of the LoanHero team, and we look forward to working with them to dramatically improve access to credit for a large and underserved segment of consumers and merchants, whenever they need it.

Combined the companies have issued almost 70,000 loans totaling $500 million.

Conclusion

The point of sale space is fascinating and is a vertical that has led to some very interesting businesses. One concern for many online lenders is high customer acquisition costs and in point of sale finance that challenge can be mitigated since acquisition of customers is primarily through partnerships with merchants. It’s going to be interesting to see where LendingPoint goes from here as they expand their product offerings.

Marketplace Lending Predictions for 2016

I stare into my crystal ball and provide predictions for the year ahead as well as review my predictions from one year ago.

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Crystal ball - 2016 predictions

Happy New Year everyone. Here is my annual predictions post where I review my previous years predictions and make some new ones for the new year.

Review of my 2015 Predictions

  1. Lending Club will issue $10 billion in new loans and Prosper $4.1 billion
    I was a bit optimistic on my loan volume predictions. While both companies had a great 2015 Prosper came in at $3.7 billion for the year, below my $4.1 billion projection. We won’t know Lending Club‘s final numbers until their next earnings call in a few weeks but we do know that they did $5.8 billion through Q3. So, if they keep a similar growth rate to previous quarters I would expect around $2.5 billion in Q4 for $8.3 billion in total loans for the year. Still a great year but below the aggressive numbers I projected.
  2. Prosper will remain a private company
    I got this one right. Prosper remained a private company with not even a whisper of an IPO for them in 2015.
  3. There will be two new marketplace lenders completing an IPO
    This one I got completely wrong. Given the state of the IPO market today compared with 12 months ago it is not surprising that no other U.S. based marketplace lending went public in 2015.
  4. A new platform will launch targeting non-accredited investors
    I was only partially right on this one. While several new platforms contacted me throughout the year with their intention to launch for retail investors the only offerings that actually launched in 2015 were from existing real estate platforms Groundfloor and Fundrise.
  5. A midsize bank starts their own marketplace lending platform
    This was an interesting one. While I also did not get this one right there was more talk about the banks role and response to our industry in 2015 than ever before. We did see news break in June about the intention of Goldman Sachs to create their own platform but nothing has materialized on that front yet. I think I was just a year early on this (see prediction #4 below).

I also predicted that Lending Club would make two acquisitions and I was dead wrong on that as well. Lending Club is biding their time on acquisitions but clearly they will grow their borrower base at some point through acquisitions. I am confident that the predictions I got wrong will all come true in the near future, some in 2016 as you can see below.

My 2016 P2P Lending Predictions

Now on to this year. I am going to see if I can improve on my somewhat dismal performance from 2015. Here are several predictions I feel confident making for 2016. [Read more…]

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