Why LendingClub’s Acquisition Of Radius Bank Is A Smart Deal

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Forbes | Ron Shevlin | Feb 21, 2020

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LendingClub, one of the nation’s first peer-to-peer lenders (oops! I mean, “marketplace” lenders—real ”peer to peer” lending lasted all of about a month), announced it plans to acquire Radius Bank, a relatively small Boston-based bank, unknown to most people outside of the industry (and within, for that matter).

The press release announcing the pending deal contained the usual platitudes from the acquiring CEO:

“This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems. We will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business.”

Despite the buzzword-laden proclamation, this acquisition makes a lot of sense for both parties for reasons that go beyond what many observers have reported on.

The Short-Term Benefits Aren’t About Radius Bank

Much of the discussion about the deal has focused on the obvious and shorter-term benefits of the acquisition, including a more stable source of funding and a $40 million reduction in bank fees and funding costs, both of which will help boost the spread Lending Club earns on the loans it keeps on its balance sheet.

If that was the only impetus for the acquisition, however, LendingClub could have acquired WebBank, the current issuer of loans through LendingClub’s platform.

Or it could have acquired any number of banks with a bank charter, no?

Radius Bank is a Strategic Acquisition

Lending Club went after Radius for a higher purpose: Its APIs and banking-as-a-service business.

See: 

Lending Club’s long-term vision is to become what it calls a “marketplace” bank. In my terminology, that means pursuing a platform strategy: attracting both buyers and sellers (borrowers/savers and lenders/investors) and providing transaction integration and processing capabilities.

Amazon is a great example of a successful platform strategy: It makes money by serving both buyers and sellers, and in fact, there doesn’t seem to be any limit to how much Amazon can make by increasing the services (e.g., AWS) it provides to the merchant side of the coin.

It’s the same with LendingClub.

Yes, LendingClub wants (needs) to expand beyond being just a monoline lending provider. It could have achieved that goal by acquiring any bank willing to sell itself to the company.

With Radius Bank’s APIs—and fintech relationships—LendingClub takes a big step forward towards becoming a multi-line platform, and not just a multi-line bank.

Many banks are falling over themselves trying to partner with fintech companies. In its latest survey, Cornerstone Advisors found that 70% of financial institutions consider fintech partnerships to be an important aspect of their 2020 strategies.

For better or worse, many are focusing their partnership efforts on digital account opening instead of product and service expansion.

LendingClub’s acquisition of Radius leap frogs a lot of those institutions.

See:  Citibank to Save $600 Million in 2020 Through Digital Investments

Through its banking-as-a-service offering, Radius brings relationships and integration with firms like Brex, MaxMyInterest, Aspiration, NerdWallet, Stackin’, FutureFuel, and NorthOne.

Any bank can provide a charter. Not any bank can provide those relationships. And not any bank can bring to the table the APIs that Radius has already developed. With the exception of the largest banks, most banks are playing catch up on the API front.

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