Many of the most popular finance apps are little more than glitzy loan pushers with a voracious appetite for risk. Enabling them is a tiny bank in New Jersey with overinflated ambitions.
Funding Circle was conceived over pints in a London pub by a former management consultant named36, during the financial crisis. As with LendingClub, the idea was to match borrowers—in this case small businesses—with institutional investors on the internet. Funding Circle listed on the London Stock Exchange in September 2018, raising nearly $400 million at a value of $2 billion.
Gade began originating loans for GreenSky and realized the nascent fintech could become Cross River’s engine for growth. The rise of fintechs has some benefits. By tapping data and using behavioral economics, many of the new companies, like Acorns and Betterment, have increased savings rates and made personal finance more efficient. Fintechs have been responsible for some $170 billion in refinancings and loans to date.
Today Cross River continues to expand, seemingly oblivious to the looming risks. Just as banks competed in a frenzy to issue “low doc” and low-rate mortgages while the housing bubble inflated, some fintechs have begun making riskier loans.
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