The largest were initially slow to complete loans as they built systems to automate the process, leaving legions of small businesses clamoring for funds. And when the pandemic hit in 2020, traditional banks again ceded an advantage. Over the years, Cross River notched rapid growth. Many of those financial startups needed a commercial bank that they could plug into to underwrite their loans. Big banks were groaning under the weight of their soured loans, and as they pulled back from consumer finance, that created a vacuum and an opportunity for online lending platforms. The venture started weeks before the collapse of Lehman Brothers Holdings Inc.

“We’re trying to cross the spiritual river of banking by not trying to offer something that has been stuck in antiquity,” he said.Īnother irony: Big banks keep accidentally helping the upstart along. Cross River’s name even refers to that mission, invoking the Jewish tenet of tikkun olam: providing a service to repair the world. The bank focuses on structural issues in the financial system that Gade blames for neglecting some potential customers. “Marketplace lenders have attracted elevated levels of regulatory attention at the state and federal level,” and there’s still a chance that some of the loans could be deemed void or unenforceable, they said.Ĭross River’s rise presents an irony: One of the fastest-growing banks in America happens to embrace the idea that it’s a utility, a label scorned by many traditional lenders that have been trying to pitch themselves as tech platforms. “The social risk for this transaction is high,” wrote the report’s authors, Selven Veeraragoo and Pedro Sancholuz Ruda. When analysts at Moody’s Investors Service examined a $196 million issuance of securities backed by consumer loans from Cross River and another bank in June, they said investors should consider the possibility that authorities could revisit the true-lender issue. At the time of the accord, Cross River praised Colorado’s attorney general for creating a framework to resolve the issue. It was among a group of firms that hashed out an accord with Colorado in 2020 after the state accused a pair of nonbank lenders of partnering with national banks such as Cross River to make loans with interest rates that local laws deemed too high.ĭisagreements over which firm is the “true lender” in such situations, and which laws apply, have been simmering in recent years. Some of Cross River’s activities have irked state authorities. “A marketplace lender wants to become a payment company, and vice versa the payment companies want to become lenders,” said Cross River Chief Executive Officer Gilles Gade. Cross River intends to help them branch out. As fintech ventures mature, they’re seeking to add services - transforming from apps that perform one or two functions into something more like diversified financial services firms. Now Cross River is planning to use its pandemic-era earnings and the capital injection that followed to expand. For a time, it also worked with Kabbage Inc. Since its founding on the brink of the financial crisis in mid-2008, Cross River has struck up partnerships with a who’s who of tech-fueled ventures challenging traditional banking - such as crypto giant Coinbase Global Inc., payments heavyweight Stripe Inc., and financing platforms Upstart Holdings Inc. It’s among a few concerns that have arisen in the past few years around the closely held company providing a swath of consumer financing, which is also packaged for sale to Wall Street investors. Banks such as Cross River that the US encouraged to rush out pandemic aid haven’t been accused of wrongdoing. Forgiveness rates for the debts are unusually low, a potential indication that online borrowers might have abused the program and didn’t bother to follow through on paperwork to get debts canceled. Some of those US-backed loans, meanwhile, are showing some signs of trouble. Two years on, the firm’s growth helped it win a more-than $3 billion valuation in a recent funding round. As tech ventures attracted borrowers, Cross River created the loans that generated roughly $1 billion in gross fees for handling US aid.

The little-known 14-year-old suburban New Jersey firm was soon arranging aid faster than almost every other bank.Ĭross River is the regulated bank behind a slew of fintech startups, ranging from online lenders to cryptocurrency venues. It has also touched some nerves.Ĭross River Bank began turning heads across the financial realm soon after Congress started unleashing $800 billion in emergency loans to help small businesses survive the pandemic. (Bloomberg) - One of the fastest growing banks in the US is on a mission to rewire the industry.

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