Analysis Featured

Cross River Bank to Offer Depositor Whitelabels to Online Lenders?

Cross River Bank

Cross River Bank (CRB), with its cutting edge technology and state of the art platform, provides a world-class back-end infrastructure to fintech companies. It is trying to untangle the banking services for the fintech industry by providing services like loan approval, origination, and payments, but with a more simplistic-holistic approach. The company also executes direct lending in the tri-state area with a focus on commercial real estate.

We believe CRB’s next step will be the offering of depositor services to fintechs. This will allow online lenders to offer Certificates of Deposits in the 1%-3% range and lend that capital back out. This new service would allow online lenders to compete with banks on cost of capital, as well. It will revolutionize their business capabilities and will allow for faster growth and more flexibility in the cost of customer acquisition. Additionally, it will make fintechs more competitive with banks.

Of course, we expect regulators will need a long time before getting comfortable with this. In the meantime, we hope they’ll be willing to monitor and observe in order for all participants to understand the best way to regulate such a critical and important step for fintechs.

The Birth of Banking as a Service

Cross River Bank is a pioneer in the “banking-as-a-service” (BaaSniche. What stops other banks from venturing into this vertical is the regulatory environment, and most banks outsource their core processes to third parties. Thus, they lack the expertise to develop a product or platform for the alternative lending industry. CRB took a gamble by spending big on infrastructure, but it is now reaping rich benefits and has the numbers to prove it. Last year, the company notched up $3 billion in loan originations for companies like Affirm and Upstart. All total,  850,000 loan applications were approved. This year, the bank plans to go accept 1.2 million loan applications and cross the $4 billion mark in lending.

Founded in 2008, CRB is headquartered in Fort Lee, New Jersey. The company recently created a stir by securing $28 million VC funding from three well-regarded investors in the startup community (Battery Ventures, Andreessen Horowitz, and Ribbit Capital).

Battery Ventures has a history of making phenomenal investments in highly regulated industries like Insurance and Stock Exchange; it has for the first time ventured into the banking industry by investing in CRB. This gives it additional street cred in the startup community. This funding round will help solidify CRB capital and accelerate the expansion of its asset base. Founder, CEO, and Chairman Gilles Gade worked as CFO at First Meridian Mortgage prior to starting CRB. He was also the co-founder of  Chela Technology Partners.

Partnerships with CRB can be fruitful for both parties as fintech players can take care of the front end (marketing and customer acquisition) of business as CRB, through its API, can tie the back end to the front end in a seamless way. Diversification is the new buzzword in the financial services space as companies venture into new verticals to scale. Lending Club is entering the auto lending space and SoFi is getting into mortgages. This indicates that companies are better off leaving the back end to a specialist like CRB.

The majority of loan originations are unsecured consumer loans, but by lending to a small business lending platform (franchise-focused ApplePie Capital), CRB is trying to nose into the small business lending space. Considering it has the infrastructure and the expertise, it seems to be the next logical step forward, and the space offers a lot of growth potential.

BaaS and Regulation

CRB is FDIC regulated. Considering the uniqueness of its services and products, the bank is in talks with regulators to help them understand its business model but also to assure them that consumer interests are not compromised in any way. FIL-50, which the FDIC is seeking comments on, has been implemented in full by the company despite the proposed legislation being nothing more than an early stage proposal.

Another recent development in the fintech ecosystem is the OCC FinTech Charter. CRB completely backs the vision of the charter, which is to advance the process of banking innovation. CRB wants to be hands-on available to help the OCC learn more about the shortcomings in the industry.

CRB strives to be a bank that provides the services of a regular bank, charges minimal fees, and gives access to cheaper lending capital. Being FDIC-insured is the cherry on the cake. The company has stitched multiple partnerships in the lending and payments space to ensure it has the full bouquet of services for its clients; its collaboration with Ripple for real-time international payments being a case in point. There’s no denying that the BaaS model launched by CRB is quite unique, and over the years it has been able to establish its own niche in the highly competitive financial industry. With the fintech industry evolving under the hawk eye of FDIC and CFPB, it’s quite likely more and more players in the industry will look to outsource the operations and regulatory headache to CRB.


Written with Heena Dhir.

George Popescu
George Popescu


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