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A primer on change in the banking industry

of the Currency gave them preliminary de novo national
bank approval. This would make it the first digital bank to
have a national bank charter.

In February 2020, LendingClub Corp. agreed to buy
Radius Bancorp. This is the first time a U.S. fintech has
formally agreed to acquire a bank. Radius has $1.4 billion
in assets, making it a community bank. LendingClub has
provided $12.3 billion in loans. Its CEO stated, "[T]his is a
transformational transaction that allows us to reimagine
banking in a way that is free from legacy practices and
systems. …We create a category-defining experience for
our members that will dramatically enhance the resilience
and earnings trajectory of our business."

The banking world is changing. Private equity is focused
on the payments system in a big way. According to Bain,
buyouts involving payment companies from 2006 to
2019 have generated a gross pooled multiple of invested
capital of 2.7 X, outpacing tech, financial services and
the fintech sector. "The marriage of digital technology
By Brandes Elitch and connectivity is breaking down barriers to entry,
Banking and Payments Consultant and changing business models, as companies seek to
bend a massive, inflexible system to the evolving needs
've heard a number of negative comments about of consumers and businesses," Bain analysts wrote.
banks recently: Big banks are saddled with outdated "Payments is an arcane, complicated business … merchant
tech and a risk-averse culture. Banks are set up to acquiring generates steady streams of fee revenue, but the
I prevent change and are hunting out change and business has become commoditized over time."
trying to kill it. It feels like a dying industry. Banks focus
on mortgages, loans and credit cards – balance sheet prod- Private equity has played a major role in helping to build
ucts. There's a disconnect between large lenders and their scale layers, often by carving out acquiring divisions from
customers. Bankers are not incentivized to think about the large banks, Bain noted, adding that the selling point is
customer in the right way. to offer SMBs a full range of tools and services that work
in unison, so they don't have to stitch together unrelated
In addition to the challenges expressed above, challenger products from different vendors, each requiring an
banks and digital-only banks are focusing on the U.S. investment in training and maintenance.
small and midsize business (SMB) market. Fiserv's recent Encumbered sales, boarding processes
2020 Commerce and Fintech Outlook provides insight.
Even though SMBs account for almost half (45 percent) I once worked in corporate cash management for one of
of economic activity in the country, they feel "under the largest banks in the country. The bank focused on
appreciated and neglected" by their banks, according to large firms located in their target market (California)
the study. And only about a third of all SMBs surveyed via a network of about twenty Regional Commercial
believe their bank understands their business. Banking Offices (RCBOs). Each had a seasoned, highly
compensated outside salesperson who knew every target
The 61 percent of SMBs in the study that use mobile market company in that region and conducted rigorous
banking report higher satisfaction than those that do not. ongoing calling. The keystone was the bank's focus on a
This has created an opportunity for banks that do not particular vertical (for example, agriculture, real estate)
need brick-and-mortar branches to target startups and and the high legal lending limit.
entrepreneurs.

Crumbling barriers When my salespeople, who supported half the RCBOs and
all the branches in half the state, would bring a lead, the
Recently, a local startup called Varo Money, which aspires response always puzzled me. It was, "We don't know how
to be a full-service bank, received final approval from the to make money on a million dollar loan. It has to be bigger
FDIC to obtain deposit insurance. In 2018, the Comptroller than that." I suspect this attitude hasn't changed, which

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