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FORBES.COM DECEMBER 31, 20 19THEINVESTIGATION
Instead, drive across the George Washington Bridge to Fort
Lee, New Jersey. If you glance left as you come over the traffi c-
clogged expanse and make your way onto Interstate 95, you’ll
see a red granite offi ce building. On its 14th fl oor, 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 staff ers and traders stuff ed elbow to jowl into about
23,000 square feet, peering into hundreds of computer moni-
tors—often stacked three per desk. There are startup touches—a
kitchenette stocked with LaCroix sparkling water, gourmet cof-
fee 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 offi cers aren’t human beings. They are
apps. Cross River’s loans originate mostly from 15 or so buzzy
venture-capital-backed fi nancial technology startups, so-called
fi ntechs, that go by names like Affi rm, Best Egg, Upgrade, Up-
start and LendingUSA. The fi ntechs 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
fi ntech 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 stor-
age business,” booms chief executive Gilles Gade,
53, an immigrant from France, balding and wear-
ing 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 fi ntech revolution. State-chartered banks
like his have the regulatory and compliance
framework in place and the lending licenses necessary to orig-
inate loans. Most fi ntechs do not and thus rely on banks for
funding. It’s the industry’s dirty little secret. Once you get be-
yond the slick iPhone apps and infl ated tales of big-data mining
and AI-generated lending decisions, you realize that many fi n-
techs are nothing more than aggressive lending outfi ts for little-
known FDIC-insured banks.
Since 2010, Silicon Valley venture fi rms and others have in-
vested some $175 billion to disrupt the fi nancial system, ac-
cording to Accenture. This has inevitably resulted in astronom-
ical valuations for many privately held fi ntechs. But just as We-
Work’s prospectus laid bare the fact that the company was little
more than an overpriced lessor of real estate, a glance under the
hood of many fi ntechs reveals similar sleights of hand.
Take out a $2,000 zero-interest, 39-month installment loan
from Affi rm to buy a Peloton bike this Christmas and it is likely
that Cross River is actually making the loan. Cross River holds
onto such loans for a few days, then typically transfers them to
the fi ntech, which will sell the debt to hedge funds and bond
buyers, or securitize it into bundles of thousands of such loans.
On the stock market, banks tend to trade for a fraction of the
multiple technology stocks do. That’s why fi ntechs are eager to
position themselves as tech fi rms, not fi nancial fi rms. The VCs
are eager to sell that story, but the market hasn’t been that stu-AFRAID OF GOING PUBLIC?
THE FIVE RICHLY VALUED FINTECHS BELOW CAN THANK CROSS RIVER BANK FOR ENABLING SOME OF THEIR
IMPORTANT LINES OF BUSINESS. DESPITE THE STRONG ECONOMY, NONE HAVE DARED TO IPO.PRIVATE MARKET CROSS RIVER
NAME / CITY VALUATION RELATIONSHIP WHAT THEY DO
Affi rm/San Francisco $2.9 billion, capital Lender High-interest installment loans
raised: $800 million
Coinbase/San Francisco $8.1 billion, capital Provides sett lement accounts, Treasury Cryptocurrency exchange and
raised: $525 million management and transaction services a brokerage business
Stripe/San Francisco $35.3 billion, capital Provides debit platform for workers Digital payments company with soft ware
raised: $1.3 billion in the gig economy that helps businesses conduct online transactions
Upgrade/San Francisco $562 million, capital Lender Personal loans and credit cards that
raised: $162 million convert balances into installment loans
Upstart/San Carlos, CA $750 million, capital Lender Lends money for credit card debt consolidation
raised: $165 million and to fund expenses like weddings
SOURCES: THE COMPANIES; PITCHBOOK.Affi rm/San Francisco $2.9 billion, capital Lender High-interest installment loans
raised: $800 millionStripe/San Francisco $35.3 billion, capital Provides debit platform for workers Digital payments company with soft ware
raised: $1.3 billion in the gig economy that helps businesses conduct online transactionsUpstart/San Carlos, CA $750 million, capital Lender Lends money for credit card debt consolidation
raised: $165 million and to fund expenses like weddingsIf you want a glimpse of
the future of banking, don’t
look to Silicon Valley or
Manhattan’s financial district.
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