One Branch, Many Partners: Community Bank Embraces Fintech Boom

By Jeff Bater

Cross River Bank, which boasts just one branch in suburban Teaneck, N.J., has become an outsized player in fintech less than 10 years after its founding on the eve of the financial crisis.

The community bank started by a French-born former Barclays and Bear Stearns investment banker has forged partnerships with scores of fintech firms including online lender Upstart, and Coinbase, the virtual currency exchange operator. Cross River also attracted the attention of Silicon Valley, where a leading fintech venture capitalists invested $28 million last year.

This fintech-focus wasn’t foreseeable when Gilles Gade founded the bank in June 2008, just months before the financial crisis halted bank startups and caused hundreds of established institutions, many of them community banks, to fail.

Cross River first diverged from the traditional bank model in 2009, when it partnered with Green Sky Credit, an Atlanta fintech firm that helps businesses offer credit to their customers. The relationship opened the bank’s eyes to the promise of fintech.

“This is something we explored a little further and we became very interested in some of the companies that were nascent at the time,” Gade said.

Rapid Growth

After nine years in banking, Cross River has $775 million in assets, reflecting a cumulative annualized growth rate of 63 percent since mid-2008.

Its single office in Teaneck, N.J., takes deposits, makes real estate loans, and acts like the community bank that it is. “We do have a very robust commercial real estate and small business lending practice,” Gade said. “And that’s going to remain.”

What makes the obscure lender unique is its fintech alliance. To help its partners gain access to the payment rails, Gade’s bank taps its suite of application programming interfaces. An API acts as a “go-between” enabling a software program to interact with other software.

The bank says it offers faster, more secure, and cheaper transfers to new payment providers. One of its partners in the payment space is Earthport, a United Kingdom company that offers cross-border payment services. Another partner is Coinbase, a digital asset exchange company based in San Francisco.

Hand Holders

Cross River also works with 15 online lenders, including Marlette Funding in Wilmington, Del., and Upstart in San Francisco. Those firms market the loans and Cross River provides the underwriting. While the loans are delivered through the latest technology, the underlying loan offerings must adhere to regulations that apply to Cross River as a federally-insured and state-regulated bank.

“The compliance component is key to the success of those companies to keep them out of trouble,” Gade told Bloomberg Law. He later added, “We view ourselves a little bit like hand-holders.” Compliance management is a challenge, with “the goal post constantly moving,” Gade said. In July, the Office of the Comptroller of the Currency said the delivery of loans through new technology platforms also creates “new vulnerabilities that increase potential bank exposure to money laundering risk.”Going forward, Gade sees more integration of various countries’ know-your-customer models into one comprehensive international protocol. “We want to be there to be able to develop technology and provide access to those fintech players when that happens,” he said.

Compliance Help

Marlette began its partnership with Cross River in 2014, hooking up with the New Jersey bank because of its experience and focus in working with fintechs. The resulting program, called Best Egg, has made a little more than $4 billion in personal loans to consumers for things like debt consolidation and credit-card refinancing.“They have a big oversight program to make sure we are testing to make sure we are following all the regulations,” Marlette’s president, Josh Tonderys, told Bloomberg Law. ”There are other, different ways to go to market. We’re doing it in a partnership. Cross River Bank provides a platform for us to make sure all the compliance functions are buttoned up.”

“It’s been a really strong partnership. For Marlette, it’s a big part of our business. This is helping to drive the growth and profitability of our company,” he said.

Some of the loans produced through fintech partnerships are retained by Cross River Bank, which receives interest income. Other loans are sold within a few days and the bank collects an origination fee. In 2016, for instance, Cross River originated 711,000 loans totaling $2.7 billion and received $11.2 million in origination fees.

Fintech Charter?

As fintech emerges, regulators have been encouraging — while warning startups to behave responsibly and advising their traditional bank partners not to relax underwriting standards.

“I think they’ve kept an open mind,” Phil Goldfeder, Cross River’s vice president for government affairs, told Bloomberg BNA. “We firmly believe that all of our partners can fit within the current regulatory structure.”

Near the end of 2016, the OCC proposed offering special purposes charters to fintech companies, an idea that has proved to be controversial.

“The problem is, if these companies don’t do a good job, they run the risk of making other players in the industry look bad,” Gade said.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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