Fifth Third Teams With Startup on New Loans -- WSJ

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 [e-mail]

(END) Dow Jones Newswires

December 13, 2016 02:47 ET (07:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.