California-based LendingClub Corporation, the world's largest online peer-to-peer lending platform is buying Radius Bancorp in Boston, Massachusetts. The move will transform LendingClub into a bank under the supervision of the U.S. Federal Deposit and Insurance Corporation (FDIC).
On Tuesday, LendingClub announced a definitive agreement to acquire Radius Bancorp and its wholly-owned subsidiary, Radius Bank, in a cash and stock transaction valued at $185 million. Radius Bank was recently voted the best online bank in the U.S. It has one physical bank in Massachusetts.
LendingClub said its acquisition of Radius "will create a digitally native marketplace bank at scale with the power to deliver an integrated customer experience, enabling consumers to both pay less when borrowing and earn more when saving."
LendingClub is also the biggest U.S. provider of personal loans, facilitating more than $12.3 billion in loans in 2019. A pioneer in the fintech industry, LendingClub raised $1 billion in what became the largest technology IPO of 2014 in the U.S. The IPO gave the company a valuation of $8.5 billion at the time. The company's market cap as of Tuesday stood at $1.16 billion.
Radius is one of the fastest-growing banks in Massachusetts and is among the state's top 50 banks. It has about $1.4 billion in assets.
Analysts said LendingClub is buying Radius to give it access to a stable and cheaper source of funding. The deal will allow LendingClub to offer new products, diversify its earnings and reduce or eliminate the use of institutional funding sources, according to documents filed with the U.S. Securities and Exchange Commission (SEC).
"This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems and where the success of LendingClub is aligned with the success of our customers" said LendingClub CEO, Scott Sanborn. "By combining with Radius, we will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business."
LendingClub is the latest fintech firm to have entered into such a partnership. Fintech firms need the services of an FDIC regulated financial institution to give them better profit margins and the ability to issue new products like checking accounts.
The transaction is expected to take 12 to 15 months to close. To ease its path towards becoming a regulated bank, LendingClub has asked its largest shareholder (the Chinese multinational investment firm Shanda Group) to trade its 22% stake in LendingClub for non-voting shares.
Financial technology or fintech uses technology to improve banking and finance services. It aims to make financial services more accessible to the general public.
