Reflecting Silicon Valley’s growing influence on traditional finance, Regions Financial, which operates bank branches across 16 states, plans to partner with Fundation, a lending startup, to provide online loans to small businesses, according to USA Today.
“We expect it will at least double (loan) originations and revenue” Sam Graziano, Fundation CEO told USA TODAY. He declined to give revenue numbers for the privately held company, which is backed by private equity firm Garrison Investment Group.
The partnership comes as banks of all sizes – including Goldman Sachs – seek to compete with online lenders, a growing field that currently includes LendingClub, OnDeck, Fundation and FundingCircle.
Online lenders have competitive advantages over traditional banking since they face less cost and regulation and can also provide faster loan guarantees.
Goldman Sachs predicts the emerging financial technology industry, called fintech, could grab $4.7 trillion in revenue and $470 billion in profits from traditional Wall Street firms. That revenue includes payment transactions and even investment advice in addition to lending.
Lloyd Blankfein, CEO of Goldman, in May told staff that the investment bank is developing 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.
Regions Financial began seeking an online partner last year after a customer survey revealed close to 20% “were using online alternatives other than Regions,” said Joe DiNicolantonio, head of Regions business banking unit.
Regions spoke to dozens of startups and chose Fundation, which underwrites its own loans, as opposed to LendingClub, which matches borrowers to lenders.
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The new co-branded website provides small business customers a single loan application. The site, powered by Fundation, then directs borrowers to either Fundation or Regions, depending on their needs.
Borrowers seeking a fixed-rate installment loan, which is repaid over time with a set schedule of payments, will have loans underwritten by Fundation up to $1 million. Those looking for installment loans valued at more than $1 million, or other loan types, such as a line of credit, will have loans underwritten by Regions.
Graziano of Fundation expects to gain 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,” he said.
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