Can student lending lift BankMobile into the black?

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Already a leader in financial aid disbursement, BankMobile is moving to secure a position at the opposite end of the higher-education finance spectrum.

The digital-only unit of Customers Bancorp in Wyomissing, Pa., has started offering student-loan refinancing in partnership with LendKey, a technology company that matches borrowers with lenders.

BankMobile didn’t provide specific financial milestones, but Chief Marketing Officer Regine Fiddler said that its goal is to offer refinancing to as "many former students and graduates as possible and hopefully grow to a similar scale as our disbursement offering,”

BankMobile currently provides financial aid disbursement services to more than 1.8 million students.
More broadly, BankMobile is counting on its student loans to help it sell other products to borrowers and bring in more revenue. Launched in 2105, BankMobile has yet to turn a profit for the $10.1 billion-asset Customers.

“We offer several products for graduated customers in addition to our ... checking account, including our savings account, personal loans and credit cards," Fiddler said in an email. "We’re continuing to evaluate our product set to build out new products and services that make sense for our customer base.”

The partnership with LendKey was announced Wednesday.

BankMobile will refinance up to $100,000 of debt for undergraduate and $250,000 for graduate students. Along with a streamlined application process and flexible terms the company is offering a 0.25% rate reduction if borrowers agree to recurring monthly payments.

BankMobile is casting its nets wider than the medical, legal and professional graduates many lenders are targeting with their student loan refinancing products.

“We allow borrowers from any Title IV school who has obtained an associate degree or higher to apply,” Karen French, BankMobile’s director for consumer lending product management, said. “It was important to us that the product was accessible to a broad range of borrowers rather than targeting a specific industry group, such as the graduate professional space.”

A Title IV school is one that accepts federal financial aid. That would include for-profit colleges and universities.

BankMobile said it might require a co-signer for some borrowers but provides a release option after 18 months of on-time payments.

The goal is to help borrowers "mitigate some of the challenges of the student loan repayment process,” Luvleen Sidhu, BankMobile’s president and chief strategy officer, said in a news release Wednesday.

Customers spent more than a year trying to spin BankMobile off to the $122 million-asset Flagship Community Bank in Clearwater, Fla. Flagship initially agreed to pay $175 million for BankMobile. When that transaction fell through, the two companies agreed on a more complicated plan involving an exchange of shares and a $10 payment for BankMobile’s deposits.

After that plan hit a snag in August, Customers did an about-face. It plans now to keep BankMobile for two to three years and is predicting it will reach profitability before the end of 2019. Ultimately, Customers believes BankMobile has the potential to achieve a 1.5% return on assets by 2022.

While BankMobile has yet to record a profit, losses narrowed considerably in the first quarter, to $163,000. It lost at least $2.5 million in each of the previous three quarters.

The new refinance platform is the second major initiative BankMobile has unveiled over the past seven months. In November it partnered with T-Mobile to offer clients of the mobile phone service giant a high-interest checking account-debit card package. The two companies followed with a nationwide roll-out in April. BankMobile generated more than $11 million in deposits in the five months leading up to the rollout, Sidhu said on a conference call in April.

Though it's still too early to judge what impact the entry into student loan refinance may have on Customers’ bottom line, investors appear to be supportive. Shares were trading at $21.17 midday Friday, up 2% on the day and more than 6% since Wednesday’s announcement.

In a recent note, analyst Joe Gladue, who covers Customers for Alden Securities, said that BankMobile had an average of $635 million of deposits during the first quarter, up more than 60% over the 2018 yearend total of $376 million. That growth “should help … enable [Customers] to replace higher-cost funding,” Gladue wrote.

BankMobile tapped LendKey, which already supports a number of bank student lenders, to provide the technology backbone for its new student loan refinancing division.

“We are proud to partner with BankMobile to expand its assets and grow its customer base,” LendKey CEO Vince Passione said Wednesday in a press release.

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