Dive Brief:

• LendingClub is buying Boston-based Radius Bank in a cash-and-stock transaction valued at $185 million, the online credit marketplace announced Tuesday. The firm says acquiring the online bank will provide greater regulatory clarity and cheaper funding for its loans. 

• The San Francisco-based fintech said on a call with analysts it will pay 75% of the purchase price in cash and the remainder in stock. Radius Bank, founded in 1987, has $1.4 billion in assets.

• "This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems and where the success of LendingClub is aligned with the success of our customers," LendingClub CEO Scott Sanborn said in a statement. "By combining with Radius, we will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business."

Dive Insight:

It’s no secret LendingClub has been exploring options to become a bank, but as the first U.S. fintech to purchase one, its planned acquisition of Radius is an unconventional approach.

On a call with analysts last fall, Sanborn said the fintech was looking at “multiple options” that would let LendingClub obtain an official bank charter.

On an analyst call following the announcement, Sanborn said the firm’s analysis showed the acquisition of Radius to be a "superior route" to a bank charter, rather than the de novo approach, as the process accelerates earnings while reducing execution risk.

"[Radius] bringing a diversified portfolio of a billion dollars in loans is actually helpful," he said. "We like that, both because it brings diversity to the mix, and it allows us to start from a run, as opposed to from a standstill."

LendingClub anticipates the deal will be finalized within the next 12 to 15 months. On the call, LendingClub Chief Financial Officer Tom Casey said the firm believes the acquisition will improve the company’s financial performance by approximately $25 million annually.

Sanborn also told CNBC the deal will help save $40 million a year in bank fees and funding costs. 

To comply with federal banking regulations, LendingClub said its largest shareholder, Asian investment firm Shanda, agreed to exchange all of its voting common stock for non-voting stock, in exchange for $50.2 million.

"While significant, this payment unlocks substantial shareholder value, and clears the path for the acquisition of Radius," Casey said. 

Sanborn said the company is taking a careful approach as it looks to gain regulatory approval.

"It's not every day that an entity generating more than $12 billion in loans a year seeks to acquire a bank, and we start the formal regulatory approval process with a collaborative spirit and cautious optimism," he told analysts.

LendingClub’s news comes as other fintechs pursue their own paths to a bank charter.

Challenger bank Varo Money said last week the Federal Deposit Insurance Corp. (FDIC) approved its application to provide deposit insurance. The bank must now pass a pre-opening exam from the Office of the Comptroller of the Currency (OCC), the regulator from which it received preliminary approval in 2018, before it can receive a national banking charter. 

Another fintech, Square, as well as Japanese online merchant Rakuten, have pending applications to establish industrial loan companies, which aren’t regulated by federal banking agencies.

One fintech, however, has doubled back on its bank charter ambitions. The stock-trading app Robinhood announced in November that it pulled its application for a bank charter with the OCC after filing for one in April.