In a deal that highlights the rising influence of Silicon Valley on finance, Regions Financial, which operate bank branches across 16 states, plans to partner with lending start-up Fundation to provide online loans to small businesses.
The partnership, due to be announced Monday, will give the publicly traded Regions, valued at $11 billion, a new online banking presence. It will give Fundation access to Regions’ small-business customers in a deal that could double the start-up’s revenue.
“We expect it will at least double (loan) originations and revenue” as a result of the partnership, CEO Sam Graziano told USA TODAY. He declined to provide revenue numbers for the privately held company, which is backed by private equity firm Garrison Investment Group.
The union comes as banks of all sizes — including Wall Street behemoth Goldman Sachs — look for ways to compete with the rise of online lenders — an increasingly crowded field that now includes LendingClub, OnDeck, Fundation and FundingCircle.
Online lenders present a threat to traditional banking because they face less cost and regulation. They can also provide loan guarantees faster than brick-and-mortar lenders.
Goldman Sachs predicts that the emerging financial technology industry, dubbed fintech, threatens to grab $4.7 trillion in revenue and $470 billion in profits from traditional Wall Street firms. That includes not just lending, but also payment transactions and even investment advice.
It’s not just talk, either. Goldman CEO Lloyd Blankfein in May told staff that the behemoth investment bank is working on its own online lending product for consumers. “The firm has identified digitally led banking services to consumers and small businesses as an area of opportunity,” Blankfein’s letter said.
For Regions, the quest to find an online partner started last year after it conducted a survey of customers and found close to 20% “were using online alternatives other than Regions,” said Joe DiNicolantonio, head of Regions business banking unit.
After talking with dozens of start-ups, Regions settled on Fundation, which underwrites its own loans, as opposed to LendingClub, which matches borrowers to lenders.
Small-business customers who go to the new co-branded website will fill out a single loan application. The site, powered by Fundation, will then direct borrowers to either Fundation or Regions, depending on their needs.
Customers seeking what is known as a fixed-rate installment loan, which is repaid over time with a set schedule of payments, will have their loans underwritten by Fundation up to $1 million. Borrowers seeking installment loans valued at more than $1 million, or other types of loan, such as a line of credit, will have their loans underwritten by Regions.
Fundation’s Graziano said he expects to win similar partnerships with other banks. “We lend on a national basis so I could very well see us being a partner to another regional bank in the Northeast or Midwest,” Graziano said.
Source: USA Today
Fundation combines the benefits of a bank loan with the ease and efficiency of an online lender. We offer conventional loans with competitive rates to businesses with varying credit profiles. Our technology allows us to deliver capital in as few as 3 business days through streamlining the collection and evaluation of customer information and conducting the majority of the lending process electronically. As a direct lender, we use our own capital to originate and hold the loans we make, so that we can focus on building relationships with our customers. Our dedicated customer relationship model enables us to understand each unique borrower’s business. This level of service, coupled with our best-in-class products, is why many of our customers come back to us repeatedly for more capital.