Companies in the BancAlliance, a network of more than 200 community banks, can now offer their customers two of Silicon Valley’s latest commodities.
Digital lender Fundation Group LLC on March 1 announced a partnership with BancAlliance that would allow the consortium’s members access to a Fundation software platform, continuing a trend of increasing partnershipsbetween banks and digital lenders. It is the second major partnership for BancAlliance, which last year launched a joint venture with LendingClub Corp. BancAlliance also offers a commercial loan program led by an affiliated asset manager, Alliance Partners, that sources and underwrites opportunities for member banks.
LendingClub’s and Fundation’s product offerings are discrete and separate, with LendingClub offering consumer loans and Fundation focused on small business loans. Both partnerships are “co-branded” meaning the consumer will see a product pitch from the bank with phrasing such as “powered by” the digital lender.
A key difference between LendingClub’s and Fundation’s partnerships with BancAlliance is scope.
“The biggest difference is the LendingClub partnership is utilizing much more of the LendingClub consumer lending model, whereas in this case Fundation is acting more as a software vendor,” said Adam Hoehn, a director for BancAlliance.
However, Fundation is not purely a software provider. The company expects banks will also offer Fundation loans. For example, a customer could access the platform, enter the relevant details for a desired loan and receive offers from both the bank and Fundation.
CEO Sam Graziano said the platforms will be highly customizable among banks, so they could decide to not offer Fundation loans at all. Fundation loans are highly focused, targeting small business loans of less than $1 million that are not backed by collateral.
When talking about Fundation’s role, Graziano mentions software vending first and nonbank financing second. And because when the company does fund loans it does so with its own balance sheet, he rejects the label of marketplace lender.
“Our strategy is to be the leading partner to the banking system,” he said. “We’re going to do that through customized, bespoke relationships with large banks and then we’re going to do it for [smaller banks with] a more uniform, systematic approach like we’re doing here with BancAlliance.”
The company last year announced a partnership with Regions Financial Corp., and Graziano said the company would gladly custom design a new platform for any similarly sized banks. However, developing such custom sites for smaller community banks can be tough from a cost perspective, he said. The platforms available to BancAlliance members will be customizable for which products banks present but consistent enough that Fundation does not need to develop a new platform for each bank.
Eventually, Graziano said the BancAlliance platforms will offer new products over time, starting with other areas of need for small businesses such as loans guaranteed by the Small Business Administration. He said the platform would only offer one company per product offering.
“This is not going to be a competitive marketplace,” Graziano said. “Any lender that gets added will need to meet a very high bar of their ability to be a material vendor of the banking system, and that’s a very different bar than just participating in the nonbank finance market broadly.”
Even if banks do not wish to offer Fundation products or any other third-party products, the platform collects and delivers data in a way that reduces underwriting costs, Graziano and BancAlliance’s Hoehn said.
With the LendingClub partnership, BancAlliance members exclusively offer access to the LendingClub product, as opposed to offering other products, Hoehn said. Each community bank has initial access to invest in the loans their customers seek on the platform, but the loan is still originated by LendingClub’s model.
LendingClub CEO Renaud Laplanche said the Fundation partnership was a welcome development and would not represent a competitive pressure since it had a different focus. While the BancAlliance-Fundation partnership just launched — meaning banks have yet to sign up — the joint venture with LendingClub was announced in February 2015. Neither Laplanche nor Hoehn were willing to offer numbers of banks who have signed up for the LendingClub partnership, but they said traction has been strong.
“We have new banks signing up every quarter. I’d say it’s been a very successful partnership,” Laplanche said, highlighting the marketing efficiency of using both LendingClub’s brand and the bank’s brand, similar to the Fundation partnership. “The LendingClub brand is all about innovation, being consumer friendly and portable. But it’s new and a lot of people are not familiar with it. On the flipside, the bank’s brand is very reassuring and familiar, so I think the combination of these two is very powerful.”
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