Upstart, Affirm, and SoFi All Lend to the Same Borrowers. Only One of Them Funds With Deposits.
There has been an increase in the number of fintechs applying for bank charters.
Overview
One of the challenges for nontraditional fintech lenders has been the expense associated with lending.
Because most of them do not have bank charters, they must partner with a traditional third-party bank to fund their loans. However, they must pay a fee or provide a cut of interest income earned on every loan they make using a third party. That eats into their profits.
Details
A federal bank charter would allow the fintechs to take deposits, because without one, they cannot. The deposits serve as an internal funding source, as loans can be made from the deposit base. With an internal funding source, these fintechs do not have to get third-party funding for loans, which, in turn, allows them to save on fees and collect all of the interest income.
Source
Originally published at www.fool.com.
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