Dive Brief:
- BM Technologies’ said its planned $23 million acquisition of a Seattle-based community business bank has been pushed to 2023, following a decision to resubmit its merger application in order to answer questions from regulators regarding the tie-up.
- During the bank’s third quarter earnings call on Tuesday, Luvleen Sidhu, BM Technologies’ chair, CEO and founder, declined to provide more detail into specific questions, but said regulators are seeking a better understanding of the company’s risk management, teams, policies and processes regarding the merger.
- The banking-as-a-service (BaaS) provider, formerly known as BankMobile, filed its application to acquire First Sound Bank in March, but withdrew the application in September, according to Federal Deposit Insurance Corp. (FDIC) data. The companies initially estimated the deal would close in the second half of 2022.
Dive Insight:
BM Technologies’ deal to acquire the $150 million-asset First Sound Bank would, over time, create a $2 billion-plus institution, and regulators want more details on the infrastructure that would support that growth, Sidhu told analysts.
“We view this as being part of the normal process and we're being very thoughtful about how we want to respond,” Sidhu said. “We have our heads down, focusing on creating a bank that the regulators feel and know can support that type of growth over time. And we're hopeful that we can get to the finish line in 2023.”
BM Technologies, which was spun out of Customers Bank in 2021, has touted the deal as a strategic move that would enable the fintech to combine its financial technology and proprietary BaaS expertise with a bank charter.
“We strongly believe a bank is the most profitable way for us to operate our model, versus a bank partner model where we need to share in revenues and have less control over our financial future,” Sidhu said in November.
A bank charter would allow the company to accelerate its earnings power by supplementing fee-based income with net interest income, as well as allow the firm to offer new products and services, Sidhu said.
The acquisition aligns with the company’s ultimate goal to become a “fintech bank,” Sidhu said, comparing the business model to that of other BaaS-focused banks like Cross River, WebBank and MetaBank.
During Tuesday’s call, Sidhu reiterated the bank’s push to obtain a charter.
“We continue to believe we will benefit immensely in the long term from having a bank charter, which will provide more flexibility in pricing deposits and the ability to earn more on these deposits with a high quality asset generation strategy,” she said. “In 2023, we are committed to combining with a bank and improving our revenue.”
In addition to providing a merger update, the company said it is in the process of securing an agreement with a new sponsor bank, a partnership which would eventually replace its existing relationship with Customers Bank.
“That partnership will facilitate an off-balance sheet strategy for our deposits, even in the future as part of a chartered institution,” Sidhu said.
BM Technologies was incubated by Wyomissing, Pennsylvania-based Customers Bank for five years before it was acquired for $140 million by special-purpose acquisition company Megalith Financial Acquisition Corp. in January 2021.
While under Customers’ umbrella, the fintech originally had a direct-to-consumer model before shifting to a business-to-business one in 2016, in light of growing competition from challenger banks.
The company appears to have found success in its embrace of the BaaS model. The company claims it covers one out of every three college students in the U.S through its partnerships with more than 750 colleges and universities, where it provides disbursement services.
The fintech is also the technology backbone for T-Mobile’s banking app. The partnership, BM Technologies’ largest, allows the wireless carrier to offer checking accounts to its more than 100 million customers.
