Now that the online lender Oportun has completed its acquisition of the challenger bank Digit, the two teams are beginning the work of a phased integration and building a neobank that they hope will stand out from the competition with its broad range of deposit and loan products.
Oportun paid $211 million for Digit in a deal that
Oportun, a community development financial institution based in San Carlos, California, offers direct personal loans and credit cards and provides personal loans in partnership with money-services businesses. It has made 4.5 million loans since its founding 15 years ago.
Digit, a San Francisco challenger bank, pioneered the concept of automated savings — letting an algorithm determine small amounts of money that could be transferred from checking to savings from time to time without interfering with the user’s ability to pay bills. Digit also monitors checking accounts for low balances and transfers money from savings to checking when necessary to help customers avoid overdrafts. It provides early access to paychecks, personal financial management and automated investing, including in retirement accounts. It has 600,000 users and charges a $5 monthly subscription fee.
The merger opens doors to Oportun that were shut earlier this year when the company opted to withdraw its application for a bank charter in the face of an investigation into its debt collection practices.
In an interview, Oportun CEO Raul Vazquez said that the merger “creates a neobanking platform that we don't believe is matched by anyone today." It will give the company more products than neobank competitors like Chime, Varo, Current and Dave, he said. These all offer mobile banking, early direct deposit, personal financial management and overdraft monitoring.
The company will also have a broader income stream. Where many challenger banks rely on debit card swipe fees, Oportun will combine its loan revenue with Digit’s interchange fees and subscription fees. The company says it will continue to be mission-driven, trying to help underbanked consumers and people living paycheck to paycheck access credit and banking services.
“Through the combination we think we could be the most consumer friendly, financial-health-focused and most competitive neobank in the market in the U.S. today,” said Ethan Bloch, CEO of Digit, who will continue to run Digit as a business unit of Oportun.
Oportun and Digit have been helping to tackle two of the toughest challenges facing financial consumers, said Jo Ann Barefoot, CEO and co-founder of the Alliance for Innovative Regulation. Barefoot introduced Vazquez and Bloch at a conference she hosted five years ago.
“Oportun has provided millions of borrowers with credit, saving them $2 billion in interest and fees,” she said. “Digit has figured out how to make savings effortless — and fun, even — helping over a million people save more than $7 billion.”
They serve a consumer base that's similar but not overlapping, which means there’s opportunity to cross-sell new products to existing customers, Barefoot said.
CFPB investigation
Before pursuing the merger with Digit, Oportun had intended to become a full-service neobank by applying for a national bank charter from the Office of the Comptroller of the Currency in November 2020. It then
That CFPB investigation stemmed from a report published by
In July 2020,
Vazquez said that when Oportun was a smaller business, about half the people who applied for loans lacked a credit score, and therefore the company focused on helping people create and improve their credit scores and avoid charge-offs.
“A credit score doesn't just help you get access to financial products, it can help you be able to rent an apartment and in some states, employers pull a credit file before they make an employment offer,” Vazquez said in an interview last week.
For these customers, a charge-off would result in a lower credit score and cause difficulty in other parts of their lives.
The lawsuits were a way of starting conversations with customers before resorting to charge-offs, Vazquez said.
“In two-thirds of cases, where we started legal collections, a customer would reach out and say, ‘Wait a minute, I didn't understand that we might end up in a situation where through legal means you would seek to collect the funds, so can we please try to figure something out?’ ” Vazquez said.
Sometimes these conversations took place on courthouse steps. When customers wanted to work something out, Oportun would immediately stop the legal collections process, Vazquez said.
Oportun has not filed a new lawsuit against a borrower since the middle of last year, Vazquez said.
Barefoot said she is confident Oportun can put its troubles behind it.
“It's been about 18 months since the team acknowledged and addressed those challenges,” she said. “I don't think any other lender is providing small- dollar loans at the scale Oportun has achieved under a 36% annual percentage rate cap, which is widely accepted as the gold standard for lending in this space.”
Oportun has made its collections process more digital, like the rest of the business, Vazquez said.
More than 80% of new loan applicants apply online. They also want to communicate over digital channels when they are behind on payments.
“Our mobile servicing use has gone up significantly and our outreach to customers, if they haven't made a payment, is now much more via email or text,” Vazquez said. “We've seen really positive results through just expanding the number of communication channels that we use with our customers.”
Phased integration
The integrations between Oportun and Digit will happen in phases.
First, each team will make its own customers aware of the other’s offerings.
“Finding a way very quickly to offer Digit and to make people aware of Digit is one of our highest priorities,” Vazquez said. “And it's something that we want to execute” in the first quarter.
In the second quarter of 2022, Oportun will begin offering its loans to Digit customers. Digit’s automated investing capabilities will be extended to Oportun customers in the third quarter. Later, mobile apps will provide all products of the combined company in one place.
Both brands will continue on, Vazquez and Bloch said.
“They mean different things in the market,” Bloch noted. “People see Digit as a financial app that helps them manage their money and people see Oportun as a lender.”
When the integrations are complete, customers will be able to come to the company for savings, investing, loans and help managing their finances.
“We'll meet the customer wherever they are with that first need, and then over time we'll make them aware of the other ways that we might be able to help them,” Vazquez said.
Both companies happen to work with Meta Financial Group in Sioux Falls, South Dakota, as a sponsor bank. (Facebook recently
“We'll keep all the bank relationships because they're all working right now,” Vazquez said.
