Fintechs that want to become banks should brace for \u201ca learning curve\u201d as they ramp up governance, risk and compliance infrastructure, said LendingClub CEO Scott Sanborn.<\/p>\n\n\n\n
LendingClub bought a bank<\/a> at a time \u2013 2021 \u2013 when a fintech obtaining a bank charter was \u201cextraordinarily difficult,\u201d said CEO Scott Sanborn.<\/p>\n\n\n\n Fast-forward five years, to a regulatory environment amenable to chartering, and Sanborn now faces more fintech competitors who\u2019ve received or are applying for charters. <\/p>\n\n\n\n \u201cIt\u2019s cool to be a bank now,\u201d said the CEO of the $11.9 billion-asset lender, which is changing its name to Happen Bank this summer. \u201cI think everyone sees that.\u201d<\/p>\n\n\n\n With regulators open to novel chartering, fintechs like Affirm<\/a> and PayPal<\/a> are applying for industrial loan company charters. Or they\u2019re seeking to buy banks, like subprime lenders Enova<\/a> and OppFi<\/a> have moved to do. International players such as Revolut, Bunq and Nubank have all sought charters from the Office of the Comptroller of the Currency. And the CEO of fintech Chime<\/a> recently said it\u2019s \u201cit\u2019s more of a when, not if\u201d the company applies for its own bank charter.<\/p>\n\n\n\n While competition is good for consumers and leads to innovation, \u201cI think we\u2019ll see a decent amount of people skinning their knees,\u201d Sanborn predicted. <\/p>\n\n\n\n A charter carries a \u201cvery different level of regulatory expectation and operational discipline,\u201d Sanborn said, and fintechs pursuing that route should brace for \u201ca learning curve\u201d as they build out necessary governance, risk and compliance infrastructure and adapt to standards expected of a regulated bank. <\/p>\n\n\n\n The San Francisco-based firm arguably experienced its own stumble five years ago, when it agreed to pay $18 million to settle Federal Trade Commission<\/a> charges that it deceived customers about hidden fees. The company, though, disagreed<\/a> with the FTC\u2019s allegations. <\/p>\n\n\n\n Sanborn also noted rivals come and go, pointing to Goldman Sachs\u2019 Marcus<\/a> and Sumitomo Mitsui Banking Corp.\u2019s Jenius Bank as one-time competitors for LendingClub. Jenius Bank has said it\u2019s winding down<\/a>, with Axos Financial<\/a> acquiring its deposits; Marcus has been pared down to an online platform only offering high-yield savings and certificates of deposit.<\/p>\n\n\n\n In \u201cunsecured consumer, if you try to build your models by looking at bureau data, you\u2019re going to get a bunch of unfortunate surprises,\u201d Sanborn said, noting that behavioral signals and rigorous modeling are built into the company\u2019s underwriting approach. <\/p>\n\n\n\n \u201cWe feel good about our ability to compete, because we\u2019re very clear on who our customer is,\u201d Sanborn said. That\u2019s the \u201cmotivated middle: high-FICO, above average income, digitally savvy consumers actively managing their financial lives,\u201d the bank has said.<\/p>\n\n\n\n \u201cWe\u2019re not trying to be everything to everybody,\u201d Sanborn said. \u201cWe\u2019re really targeting this customer that we know is trying to move their finances forward.\u201d<\/p>\n\n\n\n