From Forbes, December 17, 2019:
If you want a
glimpse of the future of banking, don’t look to Silicon Valley or
Manhattan’s financial district. Instead, drive across the George
Washington Bridge to Fort Lee, New Jersey. If you glance left as you
come over the traffic-clogged expanse and make your way onto Interstate
95, you’ll see a red granite office building. On its 14th floor,
overlooking America’s busiest toll plaza, is the headquarters of a tiny
FDIC-insured bank named Cross River.
Cross River is not a typical community bank. There are no tellers
here, or ATMs or safe deposit boxes. Instead there are 175 bank staffers
and traders stuffed elbow to jowl into about 23,000 square feet,
peering into hundreds of computer monitors—often stacked three per desk.
There are startup touches—a kitchenette stocked with LaCroix sparkling
water, gourmet coffee and a game room.
Cross River is on a
lending tear. It is underwriting loans at the rate of more than $1
billion a month—some $30 billion worth in just nine years. But unlike in
banks of yesteryear, virtually all Cross River’s lending officers
aren’t human beings. They are apps. Cross River’s loans originate mostly
from 15 or so buzzy venture-capital-backed financial technology
startups, so-called fintechs, that go by names like Affirm, Best Egg, Upgrade,
Upstart and LendingUSA. The fintechs provide the customers; Cross River
provides the licenses and infrastructure. It holds 10% to 20% of each
loan it issues, and the massive volume of fintech loans has propelled
Cross River to $2 billion in assets, up from $100 million a decade ago.
“We’re in the moving business, not the storage business,” booms chief
executive Gilles Gade, 53, an immigrant from France, balding
and wearing clear-framed glasses and a navy Hugo Boss sweater. “We move
assets. We originate [them], we package them, and we sell them.”
Gade
is being modest about Cross River’s role in the fintech revolution.
State-chartered banks like his have the regulatory and compliance
framework in place and the lending licenses necessary to originate
loans. Most fintechs do not and thus rely on banks for funding. It’s the
industry’s dirty little secret. Once you get beyond the slick iPhone
apps and inflated tales of big-data mining and AI-generated lending
decisions, you realize that many fintechs are nothing more than
aggressive lending outfits for little-known FDIC-insured banks.
Since 2010, Silicon Valley venture firms and others have invested some
$175 billion to disrupt the financial system, according to Accenture.
This has inevitably resulted in astronomical valuations for many
privately held fintechs. But just as WeWork’s prospectus laid bare the
fact that the company was little more than an overpriced lessor of real
estate, a glance under the hood of many fintechs reveals similar
sleights of hand....
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MUCH MORE
