This week, the financial services industry went wild over news of LendingClub’s acquisition of Radius Bank and for good reason. This is the first time that a U.S. fintech company has acquired a regulated U.S. bank.
If the regulators approve the acquisition, it could take anywhere from 12 to 15 months. It could very well pave a path for more M&A activity between fintechs and financial intuitions over the next few years. The $18.5M deal would also position LendingClub as a full-fledged bank. It will greatly reduce funding costs and bank fess to the tune of $40M.
Smart Partnerships Now Smarter Deals
LendingClub’s acquisition of Radius Bank was a strategic move going far beyond a few cost-savings, according to experts. What LendingClub needed to achieve its long-term goal of becoming a “marketplace” bank was access to Radius’ APIs and other fintech relationships. This has always been a pain point for fintech startups to begin with.
If you look closely at the two industries – fintech and banking – you can spot a number of strategic partnerships between the two over the year. Most notably, Alloy Labs Alliance and CU Ledger, JPMorgan and Plaid, HSBC and Avant, and Citigroup and Thinknum, to name a few.
For years, smart partnerships were the only way that fintech companies could scale and save. However, acquiring Radius Bank was a strategic move that goes far beyond a few cost-savings, according to experts. It’s simply a smarter deal overall, especially for LendingClub. The well-establish fintech company wants to achieve its long-term goal of becoming a “marketplace” bank. In order to do so, it needs access to Radius Bank’s APIs and other fintech relationships.
As Quartz noted, competition is fierce among fintech companies. As fintech grows so does the need for more access to low cost deposits, customers, and products. The best way to do so is to become a bank. LendingClub just proved it is possible.
Paving the path for more M&A activity of its kind
Naturally, there are a lot of challenges with an M&A deal such as this. If LendingClub can overcome the regulatory hurdles, there is still the question of attracting the right customer base with the right communications strategy. As any PR professional knows, messaging and go-to-market strategies can change rapidly. This especially happens as businesses scale and start adding new product lines and offerings. Going from fintech to “marketplace” bank will require a new approach entirely in order to cross sell new products. All of this becomes increasingly more difficult when adding the costs and constraints of running a regulated entity.
Right now, this acquisition becomes a wait-and-see game. If LendingClub pulls this off, it may very well create a domino effect where more and more fintech companies and banks collide.
