Breakingviews: Fintech M&A shows bank disruption stuck in infancy

An upstart online lender buying a bank would have sent shockwaves through the traditional U.S. financial-services industry just three or four years ago. Now such a deal has finally happened, struck by one of the most prominent members of the wannabe interlopers – LendingClub. It did not go down well.

Shareholders initially blew a big raspberry at the company’s $185 million agreed deal for Radius Bancorp: LendingClub shares fell almost 11% on Wednesday morning, even though boss Scott Sanborn reckons the tie-up could add some $80 million a year to pre-tax earnings thanks to benefits like cheaper funding costs. That would provide much-needed relief for a firm that lost money last year. The stock price had mostly recovered by Friday.

That reaction highlights the bitter reality for the fintech industry. After more than a decade of promise, bank disruption is stuck in its infancy – and not progressing quickly. LendingClub, for example, extended some $12 billion in loans in 2019, a record for the firm but a blip for incumbents like JPMorgan or Wells Fargo. Radius, its new partner, is likewise online-only, but with $1.2 billion in deposits the 33-year-old bank is also small fry. Goldman Sachs, by contrast, has grown its deposits in its new consumer business to $60 billion in just over three years.

Plenty of investors are still enthusiastic about new so-called challenger banks and fintech in general, with some $35 billion of venture-capital money finding its way into industry coffers last year, according to research firm CB Insights. That’s down 15% on a record 2018, when Chinese online payment giant Ant Financial’s $14 billion deal skewed the numbers.

Increasingly, though, banks’ own investment arms, like Citi Ventures, are stumping up a lot of that cash, according Moody’s. A recent survey by the rating agency also tallies at $72 billion the amount of money big banks like JPMorgan invest between them each year in technology. That has given them the upper hand, and they don’t look like they’ll lose it any time soon.

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