LendingClub said Tuesday (Jan. 19) it has received all the regulatory approvals necessary to close its $185 million acquisition of Radius Bancorp. The stage is now set for the deal to close in early February.
In an interview with Karen Webster, Anuj Nayar, vice president and U.S. financial health officer at LendingClub, said the combination of LendingClub/Radius will create the U.S.’s first publicly traded neobank, with a branchless digital-first approach to financial services that comes right as the pandemic has forced branches to close, and banking across online platforms is gaining critical mass.
Nayar noted that the approval has been well within the expected timeframe.
“We said it was going to be a year to 15 months,” he told Webster.
Timing, as they say, is everything. And the pandemic has done nothing but coalesce LendingClub’s digital strategy to become a full spectrum of consumer and commercial loan products across digital conduits, said Nayar (who added that LendingClub already exists as a “massive powerhouse on the loan side”).
Earnings results have shown that the company can manage through the pandemic (even pre-Radius-acquisition), he said, where demand for borrowing snapped back to 80 percent of previous levels. He told Webster “our customers are not predominantly in the areas that would be most affected by COVID” — and in actuality, those customers have been building up savings and paying off debt.”
But many of those same customers are shifting their focus away from traditional credit, toward buy now, pay later (BNPL) models. And borrowing across LendingClub’s own portfolio has been focused not on credit card consolidation but on home improvement projects.
Post-close of the Radius acquisition, he said, the combined entity will likely first launch a high-yield savings account in which the firm will be able to offer a higher rate on those accounts — several percentage points versus the current yield of tens of basis points offered by traditional financial institutions. In this way, the interest paid by borrowers on loans can be, in part, channeled to paying interest on depositors’ accounts.
Other offerings, he said, may come as the LendingClub checking account stands as a way to market other services that “connect the dots” between a range of LendingClub and Radius offerings — and where the installed base of LendingClub users already stands at 3 million customers. He gave a nod toward “continuous underwriting,” which offers the user who might not have the ability to pay off a credit card within a few months to convert that debt into a loan, and then pay it down over time.
In another example, he said that rewards on debit spend could be used to pay down LendingClub loans. (The company said Tuesday that 77 percent of LendingClub users surveyed said they use their debit card for everyday spend; 79 percent have said they would open a checking account with the company if such rewards programs were offered.)
That cross-functionality and cross selling will be key, he said, in an age where financial services firms will not be able to build businesses at scale based on interchange fees alone.
Larger picture and longer term, he said, the shift to digital banking is accelerating, and so will branch closures, which will likely be a hallmark of 2021.
As the digital banking landscape crystallizes even further, he said, LendingClub sees its more direct competition as the SoFis of the world in which personal finance spans loans, cards and traditional banking activities. But as he told Webster, LendingClub is targeting relatively higher earners who still must juggle daily expenses or medical debt — in other words, the same target audience that stretches back more than decade when the company first launched.
“But now,” with Radius in the operational mix, “we can add savings into the puzzle,” he told Webster.