Fintech company LendingClub has struck a deal to buy Radius Bank, a Massachusetts-based virtual bank.
In 2014, LendingClub had the largest initial public offering in the U.S. for a tech-based company. Then, it had an $8.5 billion valuation. However, in 2016, the company ousted then-CEO Renaud Laplanche for loan practice irregularities and the controversy negatively impacted its stock.
Some say the fintech wants to reinvent the company as a bank and make a comeback. Sources say JPMorgan Chase served as an advisor for the acquisition.
The pioneer fintech, LendingClub, was one of the first to make online personal loans available to consumers.
As part of the $185 million cash and stock deal for Radius Bancorp, LendingClub will have access to an FDIC-regulated bank with nearly $1.4 billion in assets. The San Francisco-based fintech will be able to eliminate or reduce the need for other institutional funding sources while offering new products to its consumers.
CEO Scott Sanborn 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. It totally changes the earnings profile of this business.”
Sanborn added that the deal between the two financial institutions will save $40 million per year in funding costs and bank fees. LendingClub will also be able to earn revenue on loans appearing on its balance sheet, which is how banks earn a major portion of revenue.
The deal will probably take 12 to 15 months before being completed. According to LendingClub, it will take two years for LendingClub to reach its breakeven point after that.
LendingClub has requested that Shanda, an Asian investment firm and LendingClub’s largest shareholder, trade in its 22 percent stake for nonvoting shares. The move will help clear the path for LendingClub to receive approval as a regulated bank.
Other fintech companies such as Square and Robinhood have attempted to become banks because it would offer more lucrative profit margins while allowing them to offer products like checking accounts.
But, LendingClub is the first U.S. fintech to acquire a bank. Varo Money, a mobile banking fintech, received FDIC approval for a national bank charter last week, a move that will allow it to accept deposits from its consumers.