By Antoine Gara, Nathan Vardi and Jeff Kauflin
If you want a glimpse of the future of banking, don’t look to Silicon Valley or Manhattan’s financial district. Instead, drive across the George Washington Bridge to Fort Lee, New Jersey. If you glance left as you come over the traffic-clogged expanse and make your way onto Interstate 95, you’ll see a red granite office building. On its 14th floor, overlooking America’s busiest toll plaza, is the headquarters of a tiny FDIC-insured bank named Cross River.
Cross River is not a typical community bank. There are no tellers here, or ATMs or safe deposit boxes. Instead there are 175 bank staffers and traders stuffed elbow to jowl into about 23,000 square feet, peering into hundreds of computer monitors—often stacked three per desk. There are startup touches—a kitchenette stocked with LaCroix sparkling water, gourmet coffee and a game room.
Cross River is on a lending tear. It is underwriting loans at the rate of more than $1 billion a month—some $30 billion worth in just nine years. But unlike in banks of yesteryear, virtually all Cross River’s lending officers aren’t human beings. They are apps. Cross River’s loans originate mostly from 15 or so buzzy venture-capital-backed financial technology startups, so-called fintechs, that go by names like Affirm, Best Egg, Upgrade, Upstart and LendingUSA. The fintechs provide the customers; Cross River provides the licenses and infrastructure. It holds 10% to 20% of each loan it issues, and the massive volume of fintech loans has propelled Cross River to $2 billion in assets, up from $100 million a decade ago.
“We’re in the moving business, not the storage business,” booms chief executive Gilles Gade, 53, an immigrant from France, balding and wearing clear-framed glasses and a navy Hugo Boss sweater. “We move assets. We originate [them], we package them, and we sell them.”
Gade is being modest about Cross River’s role in the fintech revolution. State-chartered banks like his have the regulatory and compliance framework in place and the lending licenses necessary to originate loans. Most fintechs do not and thus rely on banks for funding. It’s the industry’s dirty little secret. Once you get beyond the slick iPhone apps and inflated tales of big-data mining and AI-generated lending decisions, you realize that many fintechs are nothing more than aggressive lending outfits for little-known FDIC-insured banks.