Fifth Third Teams With Startup on New Loans -- WSJ
December 13 2016 - 3:02AM
Dow Jones News
By Telis Demos
Fifth Third Bancorp is backing startup online lender, ApplePie
Capital, which extends credit to people starting franchises of
chains such as Dunkin' Donuts and 7-Eleven, according to the two
financial companies.
The move is the latest example of partnership between banks and
young fintech firms, as the more established lenders seek new
avenues to grow lending, and the upstarts seek access to borrowers
and funding.
Cincinnati-based Fifth Third is taking an equity stake, as part
of a $16.5 million venture round this month, and exploring
potential purchases of loans from ApplePie, of San Francisco, which
started extending credit less than two years ago. The exact terms
of Fifth Third's investment couldn't be determined.
It's the second major new fintech lending partnership for the
bank this year. In September, Fifth Third said it invested in
GreenSky LLC, and that it would also buy loans through the firm's
mobile app and partnerships with retailers such as Home Depot
Inc.
ApplePie has made 120 loans for about $50 million since the
beginning of 2015. It works closely with chain brands to underwrite
people who want to open new franchise locations. It also refinances
existing franchise locations, to enable the owners to open more
stores.
ApplePie's chief executive and co-founder, Denise Thomas, said
that banks' costs are now too high to make $420,000 loans -- the
firm's average size -- economical, creating an opportunity for her
firm to step in.
"Banks would love to originate products like this, but they
can't afford to," she said.
Many online lenders have struggled to secure independent funding
in 2016, and many have turned to banks as partners and sources of
capital, rather than as rivals to be disrupted.
"The part of the market [ApplePie] is going into is really ripe
for technology," said Vanessa Indriolo Vreeland, head of
acquisitions and strategic investments at Fifth Third.
Fifth Third is co-leading an equity round with fintech
venture-capital firm QED Investors. Colchis Capital Management LP,
a hedge fund that has been an early backer of online lenders, is
also investing.
Ms. Thomas, who before ApplePie served as an executive at a
number of venture-backed companies, said her firm is insulated from
many problems plaguing other online lenders, such as a lack of
access to capital, high customer acquisition costs, and poor
returns.
By working with brands to meet franchisees, she said, ApplePie
didn't need to advertise widely online, avoiding the need to screen
thousands of applicants.
While the company has only done business in relatively benign
credit conditions, ApplePie said it hasn't yet had a loan go bad,
and that its loans have returned 8.6%, or $7 million to buyers.
ApplePie also sells fractions of loans to wealthy individual
investors.
By working toward bank partnerships ApplePie can secure solid
future funding, Ms. Thomas added. "Banks have always been in our
vision and path," she said.
ApplePie is also working with SunTrust Banks Inc. The Atlanta
lender will provide credit to an investment firm, TowerBrook
Capital Partners L.P., to purchase up to $180 million worth of
future loans from ApplePie, the companies said.
SunTrust declined to comment on any potential future
arrangements with ApplePie.
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
December 13, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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