Making A Sizzling Leap Into Digital Banking

To be the bank, buy the bank.

Earlier this week, a FinTech took the leap into the full spectrum of financial services, perhaps paving the way for future mashups.

Upon releasing its latest earnings, LendingClub, known up until now for its personal loans delivered through its online platform, said it had struck a deal to buy Radius Bancorp.  The $185 cash and stock deal would bring an online bank with $1.4 billion in assets under LendingClub’s umbrella.

It’s a landmark deal, in a way, because it marks the first time a U.S. FinTech has bought a bank, and it shows how digital-first firms can broaden their scale and reach with cross-pollination across financial offerings.

The LendingClub announcement follows the news that mobile bank Varo received approval from U.S. regulators to secure a national bank charter, in turn clearing the runway for the entity to accept consumer deposits.

LendingClub management said on the conference call that buying Radius provides access to capital beyond the traditional institutional investors that have helped fund the loans. The move also gives LendingClub the ability to diversify its offerings into what may be a slowing macro environment, thus protecting earnings power.

Drilling down a bit, the company has also said that the deal shaves $40 million in annual funding and fee costs, which boosts margins.

As noted by CEO Scott Sanborn on the conference call, the combined company will have “two sides of the bank balance sheet, at scale.”

The deal will take 12 to 15 months to close, but along the way, we can expect the blurring of the lines between FinTechs and traditional FIs (with a digital bent, of course) to continue.

Sizzle

eCommerce sales: Walmart’s latest quarter may have been a mixed bag, but one bright spot was eCommerce, where digital sales gained 35 percent for the quarter. Double-digit growth in eCommerce is expected to continue, as the retailer sees 30 percent gains in the current fiscal year.

Home sales: In a sign that U.S. consumers (and credit, in the form of mortgages) remain willing to spend, homebuilders report their healthiest January in years. Home sales were up 34 percent in the month, the best showing since 2012.

Commercial contactless cards: These continue to gain traction, as evidenced by a report from HSBC, which shows that in the U.K., the value of contactless commercial card payments (both debit and credit) jumped 24 percent in 2019.

Fizzle

Data breaches: MGM has admitted to a 2019 hack, where 10.6 million guests’ data was compromised. Elsewhere, the U.S. Defense Information Systems Agency (DISA) said that its network was likely “compromised,” according to reports this past week.

Supply chain disruption: The spreading impact of the Coronavirus is causing production hiccups and stumbles – enough to make Apple cut its forecast, while Samsung may see headwinds to smartphone production in Vietnam.

Continued slide of department stores: Macy’s has seen its credit rating downgraded to junk by S&P Global Ratings. The cut comes after the retailer announced a $1.5 billion cost-cutting plan to help offset the impact of slowing/declining foot traffic, which has bedeviled the department store space for years.