SAN FRANCISCO–LendingClub, one of the original fintechs to offer personal loans online, is buying a bank in order to give it access to a stable and cheaper source of funding.
LendingClub is paying $185 million in cash and stock for Radius Bancorp, according to documents viewed by CNBC, which was first to report the acquisition. Radius, a Boston-based online bank with about $1.4 billion in assets, is among a cohort of small lenders that have partnered with fintech firms who need the services of an FDIC-regulated institution, CNBC reported.
According to CNBC, the move marks the first time a U.S. fintech company has acquired a bank.
“Fintech firms from Robinhood to Square have applied for ways to become banks as doing so would give them better profit margins and the ability to issue new products like checking accounts,” noted CNBC. “Last week, mobile bank Varo Money got FDIC approval for a national bank charter, which would allow it to accept consumer deposits.”
What Banking Charter Will Do
The deal will allow San Francisco-based LendingClub to offer new products to its clients, diversify its earnings and reduce or eliminate the use of institutional funding sources, according to the documents, CNBC said.
“What a bank charter does for LendingClub is it allows us to take what is the leading digital loan provider online and combine it with a leading digital deposit gatherer,” Scott Sanborn, CEO of LendingClub, said on CNBC. “It totally changes the earnings profile of this business.”
Sanborn said that the deal will help save $40 million a year in bank fees and funding costs and will allow the company to earn a spread on loans kept on its balance sheet, which is a core way banks earn money.
The transaction is expected to take 12 to 15 months to close and will reach breakeven for the acquirer two years after that, according to LendingClub, CNBC added.