Online lending platform files de novo bank charter request

• Key insight: Avant is looking to become an insured digital bank through filing for a de novo national bank charter from the OCC.
• Expert quote: "We expect to reduce our cost of funds, which is one of the primary reasons for seeking a bank charter." —Avant COO Margaret Hermes
• Supporting data: Avant has processed around $17.6 billion in credit for 4.8 million middle-income customers since 2013.

Avant, an online lending fintech for middle-income consumers, is joining the queue of fintechs applying for bank charters.

The fintech filed applications on Friday with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to establish Avant Bank, according to a company statement. The OCC did not immediately respond to a request for confirmation, and the public portion of the filing has not yet been released.

"A bank charter would enable further diversification, added resilience and access to a lower cost of funds through the introduction of deposits as a funding source," Kevin Friedrich, Avant's chief financial officer and proposed CFO of Avant Bank, said in a statement.

The lending fintech filed its de novo application the same week as another consumer lending fintech, Enova, withdrew its regulatory applications to acquire Grasshopper Bank and its licenses. Enova CEO Steve Cunningham alleged that the revocation was due to regulators not having clear standards for nonbanks that want to become banks, but the OCC said that its standards and decision criteria are clearly laid out in its publicly available licensing manual.

"I'd compare Avant to Upstart, not Enova," Unconventional Ventures founder Theodora Lau told American Banker. "They both underwrite with their own models. Upstart received conditional OCC approval in July so that's a good early test case proving the OCC isn't screening out lenders. What we need to watch out for is fair-lending explainability: can the bank demonstrate why the model approved one borrower and declined another?"

Avant provides a lending platform that has processed around $17.6 billion in credit for 4.8 million customers since it first started offering loans in 2013. WebBank originates the fintech's loans and credit products.

Charles Whittaker, Avant's chief business officer and proposed CEO for Avant Bank, told American Banker that the de novo strategy was a better "logical and strategic fit for us at this point" over buying an existing bank.

"We've built a lot of risk management and controls in this foundation," he said, "and we're really excited about where we are today. Building upon that by taking this next step in our journey with a [de novo] bank charter application was the most strategic choice for us."

Subject to regulatory approvals, Avant Bank would be able to originate its own loans and offer additional banking products, according to the company.

"We plan to put all of the loan business, the card business and the credit building products into the bank," Whittaker said. He told American Banker that Avant is requesting a charter for three reasons: a streamlined regulatory framework, reduced operational costs over time and expansion of the company's mission to serve middle income "near-prime" consumers with loans and credit products. 

"We would start by originating cards and personal loans out of the bank," he said. "The most logical next thing that it unlocks would be the ability for Avant to open checking and savings accounts and banking products for our customers."

The company defines its customer segment as individuals making between $40,000 and $100,000 per year, according to Whittaker. 

"We expect to reduce our cost of funds, which is one of the primary reasons for seeking a bank charter," Margaret Hermes, Avant's chief operating officer, told American Banker. "We have a diversified funding model with both on-balance sheet and off-balance sheet elements, and the bank charter complements this strategy and fits well into the go-forward path." 

Hermes is slated to be the president and chief operating officer of the proposed bank. "This is something that we have been contemplating for a long time, and we really see it as the next step in our evolution as a business," she continued.

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Evey Gou, principal at fintech consulting firm FS Vector, told American Banker that the charter application is "a straightforward economics and control play" for Avant. 

"Avant currently relies on WebBank to issue its credit products and a patchwork of state lending licenses to operate," Guo said. "A national bank charter would let them originate and fund their own loans through deposits, [which are] a materially cheaper cost of funds, while replacing that state-by-state licensing with a single federal charter and nationwide rate exportation authority."

WebBank has worked with Avant as the platform's sponsor bank and loan originator for around 12 years, according to a company representative.

"We've had that strong relationship in place for more than a decade and we highly value the partnership with WebBank," Hermes said. She declined to comment on what the next steps are for the partnership should the charter be approved, but said that "the goal is to continue as is for now." WebBank did not immediately respond to a request for comment.

In January 2020, the fintech spun off the tech-provider side of its business into a separate company called Amount. Avant also acquired the neobank Level and its parent company, Zero Financial, in 2021 for an undisclosed sum.