digital bank Archives - Lend Academy

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

January 19, 2021 By Peter Renton 1 Comment

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.

LendingClub Bank Acquisition Approved by OCC as Investor Platform Closes Down

LendingClub is on their way to establishing their digital bank with OCC approval of the Radius Bank acquisition as we all learn on the same day the individual investor platform shuts down

January 4, 2021 By Peter Renton 2 Comments

The last day of the year is normally pretty quiet as far as news goes but LendingClub had two major developments on December 31, 2020.

First, as announced in October, the retail investor platform for LendingClub closed down. The last day to invest in new notes was December 27 and the retail platform officially closed on December 31. It was a sad day for me as I have been investing since 2009 and this marked my initial foray into fintech. The reason for the shutdown is because of the acquisition of Radius Bank. Which brings me to my second piece of news from December 31.

We learned that the OCC approved LendingClub’s acquisition of Radius Bank on December 31, although the seven page approval was officially dated December 30. The news sent LendingClub’s stock soaring 26% on the last trading day of the year (it did lose some of that ground in trading today). Needless to say, this is a big deal. It means the leading bank regulator has given the green light for the merger, an essential step for the acquisition to complete. Now, LendingClub still needs to get approval from the Federal Reserve to become a bank holding company but if and when that happens LendingClub Bank, National Association will be the new name for Radius Bank. So, it was a good end of the year for LendingClub.

Now, as for LendingClub individual investors we are starting to see a cash build up in our accounts. We have not heard anything yet on the Founder Savings account that was promised when they announced the shutdown. This will be a high yield savings account that can sweep the cash from the LendingClub account on a weekly basis. I reached out to LendingClub today for more information on this and they said there is no update yet.

I still remain optimistic that LendingClub will eventually offer range of good investor options but as each day goes by now with no news on any new products they risk losing whatever investor goodwill they have generated over the years.

LendingClub Continues Quest to Reimagine Banking with Radius Bank Acquisition

LendingClub will be the first fintech in the United States to acquire a bank

February 19, 2020 By Ryan Lichtenwald 5 Comments

Yesterday LendingClub announced as part of their Q4 2019 earnings call that they are acquiring a bank, something no other US fintech has done. The move may not be all that surprising given LendingClub has long shared their vision of becoming a full service financial institution, but their path is unique.

What’s interesting about this announcement is LendingClub didn’t pursue just any bank, they are buying the leading digital only bank Radius Bank. Radius Bank is frequently listed among the top digital bank offerings on various comparison sites for consumers (for a deep dive on Radius listen to Peter’s recent podcast interview with CEO Mike Butler). For example, Bankrate named them best online bank of 2020 thanks to their mobile app, unlimited ATM fee rebates and competitive interest rates. The bank currently has around $1.4 billion in assets.

CEO of LendingClub Scott Sanborn spoke about why they chose Radius and why they are pursuing acquiring a bank now. Sanborn noted that Radius has an ethos and culture of bringing tech into banking. It will be a marriage of two digital innovators bringing together both sides of the balance sheet, asset generation from LendingClub’s perspective and the online deposit gathering from Radius. Radius as noted earlier is a digital only bank with no legacy branch network but has a national footprint. LendingClub has been executing on their plans which has put them on a path to sustainable profit, a critical metric for approval of this acquisition.

LendingClub is paying $185 million in cash and stock for Radius Bank, a transaction that they believe will pay for itself in two years. Sanborn shared that when surveyed 90% of LendingClub customers said they would consider opening up a LendingClub bank account. While not a guarantee of success, it demonstrates the rapport LendingClub has with its customers. The deposit base will be a new funding source for LendingClub and they will no longer be beholden to their current bank partners which will reduce costs. In addition, they will no longer need their warehouse line. LendingClub also plans to balance sheet some higher interest rate loans in order to generate additional interest income. One of the benefits to new and existing investors will be the comfort of an established regulatory structure. It is expected that the transaction will officially close in 12 to 15 months.

Moving on to LendingClub’s Q4 2019 results, the company achieved GAAP profitability by a small margin though fell just short of expectations for revenue. LendingClub is still seeing strong consumer demand but credit tightening across the market will likely slow the personal loan market growth. They also see the economy growing more slowly with increased recession concerns.

Looking forward LendingClub is focused on profitable growth and investing in their infrastructure as they prepare for the bank charter.

Conclusion

LendingClub caught many by surprise with this announcement particularly when it came to the bank they were acquiring. They were well positioned to buy a bank with significant cash reserves but many did not expect it to be a big brand like Radius Bank. This was apparent during the Q & A section of call where many analysts expressed enthusiasm for the transaction. Clearly LendingClub thought this was the best route to take in their quest to reimagine banking so it’s going to be interesting to see how this plays out over the next two years.