NEW YORK (Reuters) - LendingClub Corp on Tuesday agreed to buy U.S. digital lender Radius Bank in a cash-and-stock deal valued at $185 million, as it looks to gain access to a cheaper source of funding and offer a broader suite of banking services.
The San Francisco-based online lender, which had previously disclosed it was looking to secure a national bank charter, said the acquisition will enable it to diversify its revenue stream and enhance resiliency.
Boston-based Radius has more than $1.4 billion in assets and offers checking and savings accounts online.
“It’s a no-brainer,” LendingCorp Chief Executive Scott Sanborn said in an interview. “Adding the capabilities of a bank charter to the LendingClub mix really changes the game both in terms of what we can do for our customers and what we can do for shareholders.”
The deal, which marks the first time a U.S. fintech company has bought a bank, requires approval by U.S. federal banking regulators, but LendingClub believes the process will be faster than applying for a new bank charter, executives said.
The company has been in discussions with regulators for over a year and expects the approval process to take 12 to 15 months, Sanborn said on a call with analysts.
LendingClub is known as a pioneer of so-called peer-to-peer lending, a model that connects consumers looking for loans online with individuals or institutional investors such as banks.
Unlike banks, which tend to have lower-cost and more stable deposits, online lenders rely on market funding that can be harder to come by in times of stress and is more expensive.
LendingClub said the deal will allow it to save $40 million a year in bank fees and funding costs.
Like many of its peers, over the past few years LendingClub has faced questions from investors on its ability to grow fast while keeping the quality of its loans in check. Its shares have fallen more than 88% over the past five years.
The acquisition comes as other fintech companies, such as payments processor Square Inc, seek to secure national bank licenses, a lengthy and cumbersome process. Online banking startup Varo Money, last week said it had secured approval from the Federal Deposit Insurance Corporation, the latest step in a multi-year endeavor.
LendingClub’s deal will enable the firm to offer checking accounts, making it the latest fintech to enter online banking. The company believes it will be better positioned than competitors as it already has an established consumer lending franchise, Sanborn said.
Separately, the online lender reported a better-than-expected fourth-quarter profit helped by higher loan originations.
LendingClub forecast 2020 revenue of $790 million to $820 million, below analysts’ average estimate of $869.6 million. The company said it expects to post adjusted net income of $17 million to $37 million for the year, the mid-point of which is below expectations of $34.5 million.
LendingClub shares were down 1.4% in after-hours trade.
Reporting by Anna Irrera in New York and Abhishek Manikandan in Bengaluru; Editing by Shailesh Kuber and Christopher Cushing
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