Goldman Sachs’s online bank got 20,000 new customers in the last 3-months by offering online savings accounts at 1.05% while its interest rate on a 5-year CD is 1.85%.
While many articles call for online lenders becoming banks or becoming part of banks, the need for depositor sticky capital can be obtained in many ways. I am not certain that the bank regulation vs the cost of capital is the optimal trade-off. There are other sources of capital, which behave like depositor capital and can be accessed without a banking license. Take for example self-directed IRA capital.
Beyond payments, robo-advisors, lending, p2p insurance and blockchain, a fairly new and fairly ignored part of fintech covers depositor technology. We have read this week about N26, a German fintech, with investors like Peter Thiel. N26 provides savings, investment, credit and insurance products from partners. N26 said their brand new German banking license will let it offer new services, including the ability for consumers to split expenses like restaurant bills directly from their phones, and that it plans to generate more revenue from credit card transactions and commissions from partners. Perhaps there is a way to innovate in consumer deposit with fintech without becoming a bank. Perhaps in a similar way how lenders partner with banks like Web Bank or Cross River Bank.
Elsewhere this past week we saw Blackstone, the world’s largest alternative investment manager, break their AUM record. This clearly shows that there is interest from investors in alternative investments as long as the manager is credible, transparent and has an impeccable reputation. There is no lack of money.
Separately we also saw this week Amazon entering into a marketing agreement with Wells Fargo for student loans. I expect this modus operandi to be the template Internet companies ( Google, Amazon, Apple….) will use to test the fintech waters. This approach allows internet companies, like JP Morgan did with OnDeck, to test the waters, with very few resources and without risking their franchise reputation.
And last but not least, this past week we saw the reports of quite a few fundraisers in alt lending, from Common Bond’s $300mil to PayJoy’s $17.5mil via India’s Deal4Loans $15mil. We saw the news that Jefferies is back in the market with Lending Club’s securitization. And the news from PeerIQ that the spreads are coming down because the investors are once again very aggressively seeking alt-lender’s ABS products for their yield. To me this shows clearly that all indicators are well into the green and the entire marketplace market sentiment is back to realism if not even back to optimism. This move was expected and it was just a matter of time.