This blog post is a little off topic.  That is, it is not so much “back to basics” as it is “back to the future.”

I have written about fintech here.  Fintech has certainly given our regulators a headache.  That is, how are fintech companies regulated—licensed and examined?  Regulators are working out these details.  But, now that a fintech on-line lender has proposed to acquire a bank, we are about to see a whole new level of worrisome issues.

The basics are:

  • LendingClub is one of the first online personal finance companies.  At one time, its market value was $8.5 Billion—that’s with a “B”—making it the largest U.S. tech IPO in 2014.   Now, it has settled down to being valued at approximately $1.1 Billion. That is still a sizable amount for a company making no profit and paying no dividend!
  • Other fintech companies have attempted to form banks, but to my knowledge, they have been unsuccessful to date.
  • By acquiring a bank, LendingClub asserts that it can drive down its cost of funds by eliminating millions of dollars of bank fees and funding costs.
  • LendingClub is paying $185 Million in cash and stock for Radius Bancorp, a Boston-based online bank with approximately $1.4 Billion in assets.

LendingClub insists that this step will allow it to increase its online presence by offering new products while reducing its costs of borrowing.  Maybe this is the wave of the future, or maybe the emperor is not wearing any clothes. It will be interesting to see if this approach pays off for the tech savvy owners.

Meanwhile, even as new brick & mortar offices seem to no longer be on the rise to compete with your company, keep a watchful eye out for the online lenders who may be sneaking into your backyard without much notice.

Please note: This is the ninety-seventh blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.