As the sun sets on 2020 and we look back at this past year nearly everything is viewed through the lens of the pandemic. Many fintech companies did surprisingly well while others, particularly in the lending space, struggled. When we look at the year as a whole we see that it was M&A activity that consistently showed up in the news, some related to the pandemic, some not. But the biggest story 0f the year, in my opinion, was how fintech came to the aid of millions of small businesses in the PPP. Here are my top fintech news stories of 2020 (with my usual focus on lending and digital banking):
Rob Frohwein, CEO and Co-Founder of Kabbage, said it best on the LendIt keynote stage this year: “Kabbage was built for the PPP”. So, it was was for many fintech lenders in the small business space. Tasked with having to develop new systems for the Paycheck Protection Program in a matter of days, rather than months, the fintech industry responded and helped provide a huge number of small businesses with the loans they needed, saving millions of jobs in the process. It was not just Kabbage, we had Cross River Bank and Square as well as the loans marketplaces like Lendio leading the way.
Credit Karma has almost singlehandedly increased the awareness of credit scores for tens of millions of Americans over the last decade. Intuit realized the value in the incredibly rich dataset that Credit Karma has created and wanted that, and the huge customer base, for themselves. And they were willing to pay to the tune of $7.1 billion. In the end this deal closed for $8.1 billion earlier this month with Credit Karma having to divest their fledgling tax preparation business, it was sold to Square for $50 million. For more on this deal read this interesting piece in Fortune.
The other blockbuster fintech deal this year, that was announced in January, is the planned Visa acquisition of Plaid. This deal has not closed yet. In fact, the U.S. government has sued to block the deal citing Visa’s monopoly in online debit transactions. With Plaid so integral today in most fintech firms, if the deal does end up going through, it will give Visa a reach into fintech they could not easily achieve on their own. Plaid has become the industry standard for connecting financial data in this country but this deal would give them instant global reach.
Varo is a trailblazer. They have become the first fintech to receive a national bank charter as we covered their approval by the FDIC in February. In July Varo also received approval from the OCC completing a three year process with banking regulators. Varo had been operating in partnership with other banks until this landmark approval and now are able to offer debit cards and FDIC-insured bank accounts themselves.
LendingClub has taken a different approach on their move into digital banking. They announced in February their intention to acquire Radius Bank, a leading digital-only bank, for $185 million in cash and stock. LendingClub has been hit hard by the pandemic as far as loan originations go but they have continued to say in their earnings calls that this acquisition remains on track. It is a major priority for the company as they look to move beyond consumer lending.
Directly related to LendingClub’s acquisition of Radius Bank was their decision, announced in October, that they would be closing down their retail investor platform. LendingClub began as a peer to peer lending platform and had built their business in the initial few years on the backs of individual investors. So, many people, myself included, were disappointed that this was going away (they officially closed their platform on December 27). This post generated a lot of interest and was the fastest to 10,000 views in Lend Academy history (of more than 2,000 articles).
OnDeck was hit by the pandemic harder than many lenders. We learned on their Q1 earnings call in April that 45% of their loan book was in some stage of delinquency. In Q2 originations were down 89% from the prior quarter and they had suspended new lending. At the same time it was known in the industry that they were shopping themselves around for a sale and it was Enova that stepped up to the plate acquiring OnDeck for $90 million in cash and stock. While Enova was known for its consumer lending operation they had also been active in small business lending. But with this acquisition they will have 60% of their loan book in small business loans.
While Kabbage had diversified beyond small business lending they were still very much impacted by the pandemic. As a private company we did not have insight into their loan book but they did briefly stop lending and went all in on the PPP. Having never issued an SBA loan before Kabbage became one of the leading PPP lenders in the country with around 227,000 loans made. Terms of the deal were not disclosed but rumors had the price at up to $850 million and Banking Dive called it their deal of the year.
This year wasn’t all about acquisitions. Upstart braved the public markets with a successful listing earlier this month. They started off with a bang, pricing their shares at $20 but closing their first day at $29.47. The stock price kept going up to almost $50 before settling back to $38.87 as of this writing. While we know from experience that a successful start does not necessarily mean long term success clearly the markets are not looking at other lenders like LendingClub, GreenSky or Elevate for comparison. Upstart emphasized their artificial intelligence-enabled lending platform and their lending as a service model for mid-sized banks.
It is difficult to overstate how big a deal the decision in Colorado was for the marketplace lending community. Colorado had sued Marlette Funding and Avant as well as Cross River Bank and WebBank alleging violations of the state’s Uniform Consumer Credit Code by charging interest rates in excess of those allowed under Colorado law. The state announced a settlement with all parties in August affirming the marketplace lending model and there is a great deal of hope this will expand to other states.
I think we are all keen to close the door on 2020 but we as we can see here it wasn’t all negative news this year. The fintech space made some serious progress led by the digital banking space. Many fintech companies are moving towards becoming banks as that space continues to heat up. Now 2021 beckons and it will be a heck of a ride as fintech only becomes more important to all of financial services.