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Fifth Third (FITB) Invests in Fintech Startup to Grow Lending
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With technology becoming an essential part of today’s world, financial services providers have been lately resorting to partnership with budding financial technology or “fintech” firms to better serve their customers. Cincinnati-based financial and multi-bank holding company, Fifth Third Bancorp (FITB - Free Report) , is one of the firms that followed this latest trend recently. According to a Wall Street Journal report, the bank is making an equity investment in San Francisco-based startup online lender, ApplePie Capital, to seek new opportunities in the lending space.
The bank’s stake is part of a $16.5 million venture round, co-led by QED Investors – a fintech venture capital firm – and Fifth Third Capital, the direct equity investment subsidiary of Fifth Third. In addition, the bank would be exploring potential purchases of loans from ApplePie, which is solely dedicated to the franchise industry and started extending credit less than two years ago. Notably, a hedge fund, named Colchis Capital Management LP, an early backer for online lenders, is also making an investment.
This investment will allow Fifth Third to gain assistance from the strong management team of ApplePie and their ability to enable investors earn lucrative fixed-income returns with established high-quality franchise brands. ApplePie has offered 120 loans for nearly $50 million, since it started lending in Jan 2015. Also, the firm has rewarded its investors with more than $7 million in principal and interest.
Notably, this is the second major new fintech lending partnership for Fifth Third. In Sep 2016, the bank declared that it invested $50 million in the Atlanta-based startup, GreenSky LLC, which provides technology to banks and merchants to make loans. The investment was part of a deal, which valued the startup at $3.6 billion.
Bottom Line
Banking institutions have been tackling numerous threats involving declining interest rate environment and heightened regulations since the financial crisis surfaced in 2008. However, many banks were able to demonstrate resilience and resourcefulness, making way through the headwinds. Nonetheless, at present, they appear to be dealing with the fintech threat as these startups offer easier and cheaper ways to perform monetary transactions through digital platforms, accessible anytime with minimal workforce and lesser fees.
As a result, banks are shutting down branches, laying off employees, investing heavily in their own technology platforms and even joining forces with or investing in fintech startups. They consider these young fintech as bigger threats than their traditional peers.
On the other hand, many online lenders have struggled to procure independent funding and have resorted to banks as partners and secure capital, rather than as rivals to be disrupted.
Notably, this partnership is on the rise as the more established lenders are seeking new ways to grow lending and startups seeking access to borrowers and funding. In Oct 2016, Morgan Stanley (MS - Free Report) backed the San Francisco-based Affirm Inc. with a $100-million debt investment.
With proper safeguard, these bigger banks, including Fifth Third, are likely to survive the fintech threat, as these are typically viewed to be a safer place to keep money by many consumers owing to their long histories in business. In addition, most of the fintech are still trying to gain a foothold by sorting venture capitalists and other financiers.
Currently, Fifth Third carries a Zacks Rank #2 (Buy). Shares of the company have gained nearly 32% so far this year, outperforming the 21.3% growth for the Zacks categorized Regional Banks-Major industry. This price performance is backed by a solid upward Zacks Consensus Estimate revision of 18% to $1.89 per share, over the last 60 days, for the current year.
Bank of America Corp. (BAC - Free Report) and Comerica Inc. (CMA - Free Report) are two better-ranked stocks in the same space, sporting a Zacks Rank #1 (Strong Buy). Over the last 60 days, the Zacks Consensus estimate for the stocks climbed 12.2% and 8.8%, respectively, for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Fifth Third (FITB) Invests in Fintech Startup to Grow Lending
With technology becoming an essential part of today’s world, financial services providers have been lately resorting to partnership with budding financial technology or “fintech” firms to better serve their customers. Cincinnati-based financial and multi-bank holding company, Fifth Third Bancorp (FITB - Free Report) , is one of the firms that followed this latest trend recently. According to a Wall Street Journal report, the bank is making an equity investment in San Francisco-based startup online lender, ApplePie Capital, to seek new opportunities in the lending space.
The bank’s stake is part of a $16.5 million venture round, co-led by QED Investors – a fintech venture capital firm – and Fifth Third Capital, the direct equity investment subsidiary of Fifth Third. In addition, the bank would be exploring potential purchases of loans from ApplePie, which is solely dedicated to the franchise industry and started extending credit less than two years ago. Notably, a hedge fund, named Colchis Capital Management LP, an early backer for online lenders, is also making an investment.
This investment will allow Fifth Third to gain assistance from the strong management team of ApplePie and their ability to enable investors earn lucrative fixed-income returns with established high-quality franchise brands. ApplePie has offered 120 loans for nearly $50 million, since it started lending in Jan 2015. Also, the firm has rewarded its investors with more than $7 million in principal and interest.
Notably, this is the second major new fintech lending partnership for Fifth Third. In Sep 2016, the bank declared that it invested $50 million in the Atlanta-based startup, GreenSky LLC, which provides technology to banks and merchants to make loans. The investment was part of a deal, which valued the startup at $3.6 billion.
Bottom Line
Banking institutions have been tackling numerous threats involving declining interest rate environment and heightened regulations since the financial crisis surfaced in 2008. However, many banks were able to demonstrate resilience and resourcefulness, making way through the headwinds. Nonetheless, at present, they appear to be dealing with the fintech threat as these startups offer easier and cheaper ways to perform monetary transactions through digital platforms, accessible anytime with minimal workforce and lesser fees.
As a result, banks are shutting down branches, laying off employees, investing heavily in their own technology platforms and even joining forces with or investing in fintech startups. They consider these young fintech as bigger threats than their traditional peers.
On the other hand, many online lenders have struggled to procure independent funding and have resorted to banks as partners and secure capital, rather than as rivals to be disrupted.
Notably, this partnership is on the rise as the more established lenders are seeking new ways to grow lending and startups seeking access to borrowers and funding. In Oct 2016, Morgan Stanley (MS - Free Report) backed the San Francisco-based Affirm Inc. with a $100-million debt investment.
With proper safeguard, these bigger banks, including Fifth Third, are likely to survive the fintech threat, as these are typically viewed to be a safer place to keep money by many consumers owing to their long histories in business. In addition, most of the fintech are still trying to gain a foothold by sorting venture capitalists and other financiers.
Currently, Fifth Third carries a Zacks Rank #2 (Buy). Shares of the company have gained nearly 32% so far this year, outperforming the 21.3% growth for the Zacks categorized Regional Banks-Major industry. This price performance is backed by a solid upward Zacks Consensus Estimate revision of 18% to $1.89 per share, over the last 60 days, for the current year.
Bank of America Corp. (BAC - Free Report) and Comerica Inc. (CMA - Free Report) are two better-ranked stocks in the same space, sporting a Zacks Rank #1 (Strong Buy). Over the last 60 days, the Zacks Consensus estimate for the stocks climbed 12.2% and 8.8%, respectively, for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>