By buying Boston-based Radius Bank, personal loan provider LendingClub will be able to offer its current customers banking services.

About six or eight months ago, Mike Butler, president and CEO of Boston-based Radius Bank, met with Scott Sanborn the CEO of San Francisco-based LendingClub. They talked about the future of the banking industry, Butler said, including changes to the landscape brought about by financial technology firms. 

These types of conversations could lead to a bank deciding to acquire a fintech, but that’s not what happened here. Instead, fintech firm LendingClub announced on Feb. 18 that it would acquire the digital-only Radius Bank in a deal valued at $185 million. 

“It’s an outstanding combination of companies that all of us saw over the last couple months,” Butler said. “It’s an exciting opportunity to bring together very different but similar experiences to create a client-focused organization.” 

And by combining with a bank, LendingClub will get what many fintechs want, but have a hard time acquiring: a bank charter.  

A National Not-a-National Bank 

LendingClub, a peer-to-peer lending company where borrowers take out unsecured personal loans and investors provide capital, had previously announced plans to pursue a bank charter, either as a de novo through the U.S. Office of the Comptroller of the Currency or via an acquisition. 

Fintech firms face regulatory hurdles in pursuing charters. Leslie Parrish, a senior banking analyst with Aite Group, said it made sense for LendingClub to acquire Radius Bank, giving the firm a quicker, less expensive path to a charter. 

But that path almost wasn’t available.  

Founded in 1987 by carpenters’ unions and originally called First Trade Union Bank, Radius changed its name in 2014. The bank was mostly sold to private equity funds in 2016 due to Dodd-Frank–related concerns. 

Radius Bank in 2018 filed for a state charter with the Massachusetts Division of Banks to replace its federal savings association charter with the OCC. Application documents show that the move was largely pursued because Radius did not satisfy the qualified thrift lender test, which separates federal savings associations from national banks. 

Radius withdrew its state application in February last year, and the OCC in May 2019 issued a final rule allowing banks with assets less than $20 billion on Dec. 31, 2017, to operate as a covered savings association, providing Radius with national powers without needing to change its charter. 

Lending Club Solves Strategic Challenge 

Last week’s deal gives LendingClub and Radius access to more services for their existing clients. 

The plan, pending regulatory approvals, is for Radius and LendingClub to continue operating as separate entitiesbut with each firm’s clients able to access the other’s services. 

LendingClub President Steve Allocca said in a joint interview with Radius’ Butler that LendingClub’s customers have for years requested banking services, especially deposit accounts. The merger will create for them a financial health platform fueled by a bank, he said.  

Parrish said the merger would offer LendingClub a way to offer more services for both borrowers and investors. 

“It’s an interesting mix of customers that LendingClub is dealing with: borrowers who aren’t ready to be investors and investors who probably aren’t in need of LendingClub’s credit products,” Parrish said. “It’s a dead end for both of them, and this is really a way to offer products that offer a comprehensive approach to servicing both those groups.” 

She added that consumer advocates could look at this transaction to make sure the products do help LendingClub’s customers transition from using loan products to building savings. 

Parrish expects this to be the first of some similar mergers, though not necessarily many. She said LendingClub’s need to offer a larger suite of products and the ability of two companies with similar outlooks to integrate relatively quickly distinguish this transaction from others that could be out there. 

Parts of Radius to Stay in Seaport 

Allocca said that Radius Bank’s culture of innovation was a key factor motivating the combination.  

“We looked across the pros and cons, and this combination with Radius clearly came to the front of the pack,” Allocca said. “This became a much preferable path to any alternatives.” 

For its part, Butler expects Radius to keep expanding its digital services. 

“We expect [fintech partnerships] to thrive, and it’s an opportunity to grow at even a faster pace,” he said. “This unique and very successful partnership with fintech is something we want to grow more rapidly than we even have.” 

Unlike with typical bank mergers, Radius Bank and LendingClub do not have overlapping processes and are not looking for cost savings through synergies, Butler said.  

Diane McLauglin

“We’re bringing together two sides of a bank balance sheet at scale,” Allocca added. 

Radius’ culture and history of forming partnerships with fintechs will positions the bank well for combining with an organization like LendingClub, Butler said. 

“Because we have embraced [fintechs], we have become acutely aware of how they operate,” Butler said. “It’s one of the things that has drawn LendingClub to Radius Bank.” 

Butler expects key parts of the combined company to continue to operate out of Radius’ Seaport office, noting a recent trend where California fintechs have established an East Coast presence to gain access to the talent pool here. 

Allocca added that LendingClub has about 85 employees in Westborough after acquiring Springstone Financial’s patient solutions business in 2014, and any strengthening of its Greater Boston presence will be helpful to LendingClub’s existing staff.