KKR takes a stake in the bank behind Affirm

Cross River Bank is a major financial and compliance player behind numerous fintechs such as Affirm, Coinbase and TransferWise, an expanding business model that's attracting fresh attention from VC investors.

KKR, which has a substantial financial services portfolio, has made a $75 million equity investment in Cross River Bank, part of an overall $100 million capital raise. Cross River will use the funds to expand the technology and compliance infrastructure that it provides to fintech organizations.

Cross River provides banking services to Affirm, the fintech startup from PayPal co-founder Max Levchin. Affirm provides alternative financing at the point of sale and via Apple Pay. Affirm uses alternative data for credit risk, allowing it to offer installment payments and microloans. Without Cross River's services, Affirm could not extend its installment loans that are now popular with millennials and used for shopping at thousands of websites unless it found another banking partner.

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In some ways similar to a credit union service organization and correspondent bank, Cross River is the bank that originates the loans and conducts money transfers for organizations that don’t have banking licenses and the ability to connect to the Federal Reserve banking system. In addition to Affirm, Cross River counts marketplace lenders such as Best Egg, Upstart and RocketLoans as clients, in addition to the cryptocurrency exchange Coinbase and the transfer provider TransferWise.

Consumers often only see the bank’s name in the fine print when obtaining a loan from a company such as Affirm. While the company has been a provider of traditional banking services since its inception in 2008, it has gained significant accolades for the services it provides to fintech startups.

The bank has found its niche as a full-service financial services provider to fintechs by offering its compliant banking platform that can underwrite loans, disburse funds to borrowers (or the merchant they are buying from) and even provide capital. It works with partners across multiple industries including debt consolidation, point of sale, home improvement, medical and small businesses. According to its website, Cross River Bank has originated $5 billion in loans this year through Aug. 28.

When Cross River doesn’t have a direct banking service capability it will partner with other banks and financial services providers to deliver it. For example, in coordination with its partners, it can provide payment transfers to offer ACH, wire transfer, debit card disbursement, money transfer, back-office support, and compliance framework

According to Crunchbase, a website that tracks venture capital funding into fintech startups, Cross River Bank has raised $128 million in two separate funding rounds since 2016. The first round in 2016 raised $28 million and was led by Battery Ventures. Andreessen Horowitz, the Silicon Valley venture capitalists with investments in Affirm, Coinbase, Lyft and Transferwise, also participated in that initial round.