Investment bankers take the mound, lawyers are up to bat, regulators prepare to call the game, while the managers from two typically different teams (fintechs and banks respectively) wait in eagerly in the dugout to see the result of this scrimmage.
The surface level economics of this transaction are not surprising; LendingClub’s emphasis on acquiring a smaller bank with an award-winning digital platform, a digital operating environment without legacy branches and a fully chartered bank in good standing.
The balance sheet enhancements of new products from Radius’s offerings to bring deposit resiliency to offset existing costs of capital will be economically attractive and logical to provide more of a full service offering to LendingClub customers. But the real news here is not the surface level economics. It’s the insinuation around the ‘reimagine banking’ concept which has kept fintechs and banks on different teams all these years.
It’s not a coincidence that this hasn’t happened yet. The rules and boundaries of highly regulated businesses typically create havens for certain companies to deliver their portion of the value chain- with clear demarcation of compliance. It’s a main factor imposing a governor on new product development velocity in banking.
The trillion-dollar question banks and prominent non-bank e-commerce providers broach as they approach partnerships is: “who owns the customer?” Answering that requires an in-depth and defendable definition which will need to emerge and will continually evolve based on what’s delivered so that compliance and non-compliance ramifications can apply.
The box score should also reveal insights into other pertinent questions:
- Does having the customer under one roof create more or less risk?
- How will LendingClub throttle its new product development under this new ownership structure where legacy banking regulatory hurdles apply?
- Will there be more velocity to deliver ‘reimagined banking’ products under this arrangement?
- Will this acquisition propel LendingClub ahead of the accelerating Open Banking momentum globally with the intent of lowering barriers for partnerships?
In banking, these questions are significant and underpin a lot of the in-flight and under development strategies that significantly impact future direction based on a bank’s asset size. Technology strategies are interwoven and influence major fundamental infrastructure decisions including core banking system modernization, channel modernization, the role of CRM and how to position data in a manner to delight consumer and commercial banking customers alike.
The industry as a whole is aligned on needs to modernize and deliver more customer value over time to reward loyalty amid rate consolidation pressure as banks broaden their footprints. This tact, however, that LendingClub is pursuing is indeed new and notable.
It’s time to play ball and find out. The real winners in this match will be the ‘scouts’ who get to watch and learn how this unfolds so that the next round of athletes will demonstrate the skills required to persist in the game.