Page 130 - Forbes - USA (December 2019)

→ If you want a glimpse of up from $100 million a decade ago.

“We’re in the moving business, not the stor-
the future of banking, don’t age business,” booms chief executive Gilles Gade,
53, an immigrant from France, balding and wear-
ing clear-framed glasses and a navy Hugo Boss
look to Silicon Valley or sweater. “We move assets. We originate [them],

we package them, and we sell them.”
Manhattan’s financial district. in the fintech revolution. State-chartered banks
128 Gade is being modest about Cross River’s role

like his have the regulatory and compliance
N
O Instead, drive across the George Washington Bridge to Fort framework in place and the lending licenses necessary to orig-
I Lee, New Jersey. If you glance left as you come over the traffic- inate loans. Most fintechs do not and thus rely on banks for

A T
G clogged expanse and make your way onto Interstate 95, you’ll funding. It’s the industry’s dirty little secret. Once you get be-
I see a red granite office building. On its 14th floor, overlooking yond the slick iPhone apps and inflated tales of big-data mining

T
S

E America’s busiest toll plaza, is the headquarters of a tiny FDIC- and AI-generated lending decisions, you realize that many fin-
V insured bank named Cross River. techs are nothing more than aggressive lending outfits for little-

N
I Cross River is not a typical community bank. There are no known FDIC-insured banks.

E

H tellers here, or ATMs or safe deposit boxes. Instead there are Since 2010, Silicon Valley venture firms and others have in-
T
175 bank staffers and traders stuffed elbow to jowl into about vested some $175 billion to disrupt the financial system, ac-

23,000 square feet, peering into hundreds of computer moni- cording to Accenture. This has inevitably resulted in astronom-
tors—often stacked three per desk. There are startup touches—a ical valuations for many privately held fintechs. But just as We-

kitchenette stocked with LaCroix sparkling water, gourmet cof- Work’s prospectus laid bare the fact that the company was little
fee and a game room. more than an overpriced lessor of real estate, a glance under the
Cross River is on a lending tear. It is underwriting loans at the hood of many fintechs reveals similar sleights of hand.

rate of more than $1 billion a month—some $30 billion worth Take out a $2,000 zero-interest, 39-month installment loan

in just nine years. But unlike in banks of yesteryear, virtually from Affirm to buy a Peloton bike this Christmas and it is likely

all Cross River’s lending officers aren’t human beings. They are that Cross River is actually making the loan. Cross River holds
apps. Cross River’s loans originate mostly from 15 or so buzzy onto such loans for a few days, then typically transfers them to
venture-capital-backed financial technology startups, so-called the fintech, which will sell the debt to hedge funds and bond

fintechs, that go by names like Affirm, Best Egg, Upgrade, Up- buyers, or securitize it into bundles of thousands of such loans.

start and LendingUSA. The fintechs provide the customers; On the stock market, banks tend to trade for a fraction of the

Cross River provides the licenses and infrastructure. It holds multiple technology stocks do. That’s why fintechs are eager to

10% to 20% of each loan it issues, and the massive volume of position themselves as tech firms, not financial firms. The VCs
fintech loans has propelled Cross River to $2 billion in assets, are eager to sell that story, but the market hasn’t been that stu-

AFRAID OF GOING PUBLIC?
THE FIVE RICHLY VALUED FINTECHS BELOW CAN THANK CROSS RIVER BANK FOR ENABLING SOME OF THEIR
IMPORTANT LINES OF BUSINESS. DESPITE THE STRONG ECONOMY, NONE HAVE DARED TO IPO.
PRIVATE MARKET CROSS RIVER
NAME / CITY VALUATION RELATIONSHIP WHAT THEY DO
Lender
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Affirm/San Francisco $2.9 billion, capital L e n d e r High-interest installment loanss
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$
raised: $800 million
raised: $800 million

Coinbase/San Francisco $8.1 billion, capital Provides settlement accounts, Treasury Cryptocurrency exchange and
raised: $525 million management and transaction services a brokerage business

Provides debit platform for workers

$35.3 billion, capital
Stripe/San Francisco $35.3 billion, capital Provides debit platform for workers Digital payments company with software
Stripe/San Francisco
Digital payments company with software
raised: $1.3 billion in the gig economy that helps businesses conduct online transactions
raised: $1.3 billion
in the gig economy
that helps businesses conduct online transactions
Upgrade/San Francisco $562 million, capital Lender Personal loans and credit cards that
raised: $162 million convert balances into installment loans
$750 million, capital
Lends money for credit card debt consolidation
Lender
Upstart/San Carlos, CA $750 million, capital Lender Lends money for credit card debt consolidation
Upstart/San Carlos, CA
raised: $165 million and to fund expenses like weddings
raised: $165 million
and to fund expenses like weddings
SOURCES: THE COMPANIES; PITCHBOOK.
F O R B E S . C O M D E C E M B E R 3 1 , 2 0 1 9