Fintech-Bank Hybrid: A New Front For The Finance Industry

Ritika Sharma
Ritika Kumari Sharma is an Economics Honors graduate from the University of Calcutta. She is completely into finance and believes that cryptocurrencies are the future. She is an enthusiast learner about the cryptocurrency and blockchain technology.
  • Financial-tech LendingClub has made a ground-breaking announcement of acquiring “Radius” – Best Online Bank 2020( recently named by Bankrate).
  • LC has to pay Shanda, its Chinese shareholder investment company $50.2 million, in exchange for converting its shares into non-voting stocks.
  • The deal will supposedly close in 12-15 months, majorly due to the added scrutiny from the regulators.

As 2019 comes to an end, financial-tech LendingClub has made a ground-breaking announcement of acquiring “Radius” – Best Online Bank 2020( recently named by Bankrate). On the outside, it may not seem like a huge deal, but it has the potential of changing the finance industry map forever.

For the first time, a fintech will be acquiring a traditional bank. Fintechs are a recent addition to this industry, and they came into practice challenging the banking industry. But soon, these fintech’s raveled due to regulatory roadblocks, gripping credits, and innovation in the way legacy banks worked.

Although, if fintech’s can amalgamate their https://www.thecoinrepublic.com/2020/02/23/fintech-bank-hybrid-a-new-front-for-the-finance-industry/modern ways and agile platforms with the regulatory compliance and access to enormous deposits of the banking industry, it will no doubt be an invincible hybrid.

How will this MergerMerger help LeadingClub and Radius?

LeadingClub will be paying Radius $185 million – 75%in cash and 25% via stocks. However, to get a clean chit from regulators, LC has to pay Shanda, its Chinese shareholder investment company $50.2 million, in exchange for converting its shares into non-voting stocks.

Through this deal with Radius, LC will save nearly $25 million per year, which it usually pays to Wedbank(Utah) as rent for working as a pass-through organization to make its loans across the country.

Adding to this, LC will lower its funding costs by $15 million a year as Radius’s lower-cost deposits will replace LC’s present warehouse lines. This will lower LC’s debt from 4% to 1.8%.

LC uses its warehouse to procure loans on its platform before selling them directly or in securitizations(loans converted to securities) to institutions, banks, or individuals. Previously, LC only held a meager amount of loans in its balance sheet and mostly resold loans on its platform.

With Radius’s deposits, LC will hold onto more of its own loans(almost 10%) in its balance sheets. This could result in a profit of $40 million per $1billion recorded in balance sheets. All in all, it will add to $80 million in profit annually for LC alone since its paying only $235 million, including Shaden payoff.

Further, LC will acquire Radius at 1.72 times book value and 28.6 times earnings and will bring in Radius’ roughly $1 billion in various consumer and commercial loans. The radius will enable LeadingClub to reap all the benefits and allow both companies to rise with the added benefits each brings to the table.

The deal will supposedly close in 12-15 months, majorly due to the added scrutiny from the regulators. However, if this Merger succeeds, it will lead to a new type of financial institution where fintech’s leading customer acquisition and data-driven foundation could be combined with the gigantic deposits owned by banks.

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