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Wall Street Journal

GreenSky Scores $3.6 Billion Valuation From Fifth Third Bancorp

Regional bank's $50 million investment set to be announced as soon as Tuesday

By Telis Demos

GreenSky LLC, which provides technology to banks and merchants to make loans, has raised $50 million from Fifth Third Bancorp in a deal that values the Atlanta startup at $3.6 billion, according to the companies.

The investment, set to be announced as soon as Tuesday, makes GreenSky one of the most valuable privately held financial technology startups, more than doubling its valuation from a 2014 fundraising.

The firm enables banks to make loans to consumers for home improvement and other projects. It started growing that business in 2012. Since then, banks have lent nearly $5 billion to customers via merchants using GreenSky's system. But the firm is less well known than rivals such as Social Finance Inc. or LendingClub Corp., in part because it doesn't sell loans to investors, make loans using its own capital or advertise loans directly to customers.

Instead, the firm partners with 14 banks including Regions Financial Corp. and SunTrust Banks Inc. The banks then make loans online or through a GreenSky mobile app to customers of some 12,000 merchants ranging from retailers such as Home Depot Inc. to individual contractors.

The investment by Cincinnati-based Fifth Third is part of a broader partnership with GreenSky. The bank will commit to lending up to $2 billion via GreenSky's existing network of merchants, and will also integrate GreenSky's technology into its own mobile app. The bank will also make the product available to its own merchant clients who want to provide loans to customers.

Increasingly, upstart lenders such as Avant Inc., On Deck Capital Inc. and others are partnering closely with banks to originate and fund loans, rather than aiming to take on banks head-on for customers and capital. The moves have been driven by high costs finding customers and a shaky capital market for raising money.

"We're not competing with banks, and we're not attempting to be a lender," said David Zalik, GreenSky's co-founder and chief executive. "We're a technology company."

The loans made via GreenSky are aimed at people with strong credit, with an average score of about 760 out of a range of 300 to 850.

At Home Depot, a project loan from GreenSky offers up to $40,000 at an annual percentage rate of 7.99%, with a payback term of 84 months. Borrowers apply online or in-store and receive a card that allows them to make purchases over a six month window, before repayment begins.

GreenSky is the largest of several companies aiming to offer U.S. loans where people might have previously used credit cards, including Affirm Inc. and Klarna Inc., which partner with online retailers, and Promise Financial Inc., which offers loans via wedding planners.

Tim Spence, chief strategy officer at Fifth Third, said that the bank was "witnessing a bit of a shift away from credit-card or home-equity based borrowing toward purchase-specific borrowers." He said that younger customers in particular were using loans "as a mechanism for maintaining financial discipline" versus open-ended revolving credit.

Mr. Spence said that Fifth Third had considered building its own online personal lending portal, as banks such as Goldman Sachs Group Inc. are doing, but opted instead to partner with GreenSky after reviewing the technology of several online lenders. Fifth Third will pay GreenSky to license its software.

GreenSky doesn't disclose revenue, which it generates by charging merchants a fee and by charging banks fees to service the loans they make. It currently has more than 670 employees. Mr. Zalik said GreenSky is profitable and has bank commitments for up to $7 billion worth of loans.

There are no plans for a public offering, Mr. Zalik added. In 2014, GreenSky raised $300 million in equity capital from TPG, Wellington Management, and technology venture funds DST Global and Iconiq Capital, on top of earlier venture funding including from QED Investors.

In its recent deals, GreenSky has been advised by investment bank Financial Technology Partners LP.

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