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Innovation in Financial Services – Covid-19 and PPP

Small Bank, Big Money – Relatively tiny Cross River punched way above its weight in Paycheck Partner Program lending.

The pandemic and other events are changing financial services. When the U.S. Treasury released data on the PPP small-business rescue package (the Paycheck Protection Program), the banks biggest in distributing the money were –

Source: US Small Business Administration

What’s interesting is that Cross River Bank, a New Jersey community bank with only $2.5 billion in assets ranked 4th on the list. In a few months, Cross River – which has just a single brick and mortar branch – has managed to make more PPP loans than behemoths like U.S. Bank, Citizens Bank and BMO Harris, as well as Citi – whose assets dwarf Cross River’s nearly 900 times over !

Until recently, Cross River was known for being the bank behind fintech companies such as cryptocurrency firm Coinbase, payment processor Stripe, and consumer financing lender Affirm. In all of last year, Cross River made just $50 million in Small Business Administration-backed loans.

To scale up its small business lending quickly after the government unveiled the PPP in March 2020, Cross River turned to Fintechs to originate additional loans. That turned out to be a very efficient way to serve lots of small companies – rather only lending under your own brand – especially when time is of the essence ! After building a platform to automate PPP Loan Applications in less than 10 days, Cross River partnered with more than 30 Fintechs who directed their customers to the Bank got stimulus funding – including nonbank lending companies like BlueVine and Kabbage to payroll software company Gusto. Its largely automated application portal welcomed many businesses overlooked by numerous established banks. While Cross River’s average loan size is less than $36,000. (by far the smallest amount of the top bank lenders), “PPP demonstrated that disruption and Fintechs are the great equalizer,” says Phil Goldfeder, Cross River’s senior vice president of public affairs. And an example of change in the making in lending and other areas of financial services.

Interestingly, while Citi blamed its relatively minor PPP lending on having fewer than 700 U.S. branches (that typically serve small businesses), the Cross River / Fintech model proved otherwise – where digital players can acquire customers nationally through innovative technology and partnerships.

That new paradigm is a reflection of the change in the making in financial services and creating opportunities for Fintechs – such as Rocket Mortgage, whose parent company just filed for an IPO. “It’s a totally different model in terms of how financial services scale,” says John Pitts, head of policy for Plaid, which powers the data connection between Fintech companies and banks, including Cross River. “ Further, Fintechs are opportunistic, can scale fast, are not tethered to geography or demographics, etc.”


October 26, 2020                      CAIL Innovation Commentary