April 10, 2018
My guest today is pioneering a crucial innovation within the innovation landscape in finance -- by providing banking services to fintechs through a platform-based financial services model known as the sponsor bank, or partner bank. In today’s episode, Gilles Gade tells the story of founding and building one of the leading sponsor banks, Cross River.
Most fintech companies are licensed by their states, but are not banks. That means that every one of them has to find a bank through which to clear payments and connect to the payments system (which only banks can do). That’s not easy -- many fintechs struggle with this because banks are required by their regulators to set up complex systems for due diligence and risk management in dealing with any kind of third party that could affect the bank’s soundness or its customers’ wellbeing. Over the last decade or so, this challenge, combined with the enormous potential of the fintech market, prompted a number of banks to focus on meeting this need -- Gilles points to Webbank as leading the way. These banks have to meet a range of specialized needs including, crucially, taking responsibility for the partner fintechs’ compliance with regulatory requirements.
Gilles describes founding Cross River in 2008, when the financial crisis had curtailed many kinds of consumer and small business credit, and talks about how new companies emerged to fill the gap, with either new kinds of products, or new ways of creating access to old products. He points to fintech lenders -- like Affirm, Lending Club, and Sofi -- and also to payments-focused companies like Coinbase, Transferwise and ActiveHours, as innovators that are opening up more inclusive finance.
Gilles is especially thoughtful on regulatory issues, which he calls “by far” the biggest challenge for the fintech world. He emphasizes that the single biggest difficulty is sheer uncertainty, as technology change outstrips traditional regulatory change mechanisms. Gilles cites the Madden v. Midland litigation, with its controversy over national versus state interest rates, and the “valid when made” doctrine, as issues that need clarity so that lenders can build stable business models.
Gilles also has thoughts on the Comptroller of the Currency’s proposal for creating a special fintech charter (note that we recorded this discussion during the tenure of Keith Noreika as Acting Comptroller of the Currency). Gilles laments that we have no fewer than 12 federal regulators involved in these issues (I myself have actually counted twice that many, directly and indirectly involved). Like me, he’s optimistic about the innovation efforts of the regulatory agencies -- he mentions the OCC in particular -- and of congressional leaders like Congressmen Patrick McHenry (R-NC) and Gregory Meeks (D-NY) -- both of whom, I’m delighted to say, are going to be guests on our show.
Cross River’s emphasis on policy issues has led it to a number of leadership initiatives, including creating the Online Lending Policy Institute, which sponsors an outstanding Online Lending Policy Summit in Washington each fall, and also sponsoring the policy programming at the LendIt conference, which is coming up next month -- I’ll be there, by the way, and I hope you will too!
More on Cross River and Gilles Gade
Video about the bank
Gilles Gade is a founder of Cross River Bank (CRB) and has served as its Chairman, President and CEO since its inception in 2008 as an innovation-driven state-chartered bank and a provider of fully compliant financial solutions to the marketplace lending and payments sectors. Gilles has over 20 years of experience in investment banking and venture capital including as Co-Founder and Managing Director of Chela Technology Partners and Chela Internet Ventures, a boutique investment bank and venture fund focusing on emerging technologies and telecommunications; technology investment banker at Barclays Capital; and FIG investment banker at Bear Stearns. He started his career in 1990 at Citicorp Venture Capital, after graduating from the MBA Institute IMIP (Groupe IPESUP) in Paris with an MS in International Management.
More for our listeners
Our upcoming shows will include Nerd Wallet CEO Tim Chen; Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor; and the CEO’s of both Eastern Bank and Radius Bank. As I mentioned we’ll also have shows soon with two members of Congress, one a Republican and one a Democrat, and some other very special guests.
I hope to see you at upcoming events including:
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