Last year BM Technologies was
Why not just stay part of a bank in the first place?
Chief Executive
“We divested because Customers’ strategic priorities shifted and weren’t focusing on consumer banking,” Sidhu said.
However, BM — which
"When we became an independent fintech company, always on the top of our priority list was, how to combine a fintech and [bank] charter?” she said.
It's not alone among fintechs.
More fintechs are buying banks, rather than partnering with them, because they seek access to lower-cost funding and want to offer deposit and other products customers would find at a traditional bank — and they want to be in control of the relationship. De novos are an option, too, but take a long time to get up and running.
For those reasons, fintechs lately are more willing to jump through the regulatory hoops it takes to buy a bank.
“What scared fintechs away from banks for a long time was the regulatory aspect,” said Michael Diana, managing director at the investment bank Maxim Group. “The more companies that do it, the less fintechs will be deterred by the regulatory burdens that you have when you’re a bank.”
Sidhu considered partnering with a chartered bank but preferred the acquisition route because otherwise BM would have had to share revenue with its partner.
BM, in Radnor, Pennsylvania, distributes financial aid to students at about 745 universities and colleges and provides the technology for the T-Mobile Money checking account. It has 2 million accounts.
“That’s an enormous amount of accounts for a company their age and size,” Diana said.
In a research note, Diana mentioned that the deposits generated by BM's student and white-label businesses recently exceeded $2 billion. As a bank, “it can keep the deposits in-house and deploy them into loans and securities, thereby generating net interest income to supplement its fee-driven fintech businesses,” he wrote. “In addition, it can offer many more products on its own.”
BM zeroed in on the $154 million-asset First Sound Bank because it is profitable and has strong asset quality as well as a respected chief executive and management team, according to Sidhu. First Sound’s Seattle headquarters is near T-Mobile’s base in Bellevue, Washington.
First Sound makes a lot of sense as an acquisition target, Diana said.
“It’s the perfect acquisition,” he said. “You want to spend as little money as possible. It doesn’t matter whether the bank is big or small, because they have a charter and [BM] can hold the deposits themselves and get the economics.”
The combined company — which would be named BMTX Bank — would have five priorities: banking, lending, advice, crypto and investing and insurance. Future products could include checking and savings accounts, credit cards, loans, credit monitoring, buying and selling cryptocurrency, and robo advice. Sidhu plans to roll these out over the next one to three years.
Some of these products already exist at BM but are offered through partners, such as Upstart for personal loans and Deserve for credit cards. Instead of relying on partner balance sheets, BM will be able to directly originate its loans over time. Customers Bancorp currently holds the deposits for T-Mobile Money, but BMTX will eventually move those deposits onto its own balance sheet.
Sidhu’s overarching aspiration is for BMTX to be a technology-driven bank.
“We’re among the fintechs that are realizing that to create a sustainable, profitable model into the future and to provide the best customer experience, it is important to embrace the charter,” Sidhu said.
