BM Technologies, the banking as a service (BaaS) fintech that went public earlier this year through a SPAC, Monday announced they plan to buy First Sound Bank, a community bank from Seattle.
After a year of providing services through a student banking app called Vibe and T-Mobile Money, BM tech is taking on the rest of the world. In their earnings call Monday, CEO, Chair, and founder Luvleen Sidhu specifically cited super app banks like LendingClub and SoFi, and fintech partners like Metabank and CrossRiver as new targets.
BMT will pay up to $7.22 per share in cash for the bank, a total of around $23 million. The combined company will be called BMTX.
“This is a thrilling milestone for BM Technologies and is a major step forward in executing our vision to create a disruptive fintech bank that combines the best of financial technology with a strong and compliant FDIC-insured institution,” Sidhu said.
“Looking ahead, BMTX Bank expects to add direct to consumer and small business operations, marketplace lending, robo-advisory, and blockchain-based payment systems to sustain our competitive advantage into the future,” Sidhu said during the firms Q3 earnings call.
She boasted results that broke company records and made it clear why it was a great time to buy. This past quarter, revenue is up 20% year over year to $22 million.
Added 350,000 new accounts
In 2021, BM added about 350,000 new accounts, especially within the higher education model. Sidhu said that one in three US university students could find BMT Vibe services at more than 700 college campuses.
Deposits from the Vibe business are up 17% this year to $1.7 billion. Total deposits surpassed $2 billion in the third quarter, and the cost for the firm to acquire each new customer is only $10. The goal is to support the Vibe brand and bring those skills to help digitize the thriving SMB banking operation at First Sound Bank.
First Sound has $150 million in assets and offers a variety of banking products to small businesses in Seattle. Marty Steele, President and CEO of First Sound will become COO of BMTX bank and oversee the banking division, while Sidhu will act as Chair and CEO, focusing on the digital side.
“As a local bank, we remain committed to our community and are excited about the opportunity to leverage BMTX’s innovative digital banking technology, Banking-as-a-Service business model, low-cost deposit funding, and better access to the capital markets to scale our SBA, commercial and private banking, mortgage, and other business lines,” Steele said. “Together, we are looking forward to this partnership to create a nationwide deposit gathering and lending platform with the power to deliver an integrated customer experience at the highest level.”
After the merger, which is expected to go through in late 2022, the goal is to branch from fee-based income into net interest income with new banking and fintech products.
Ready to compete
By establishing themselves as a fintech bank, Sidhu said alongside expanding the student banking division, she believes having a bank charter will prepare BMTX for consolidation in the BaaS industry.
“We’re also obviously tremendously focused on growing,” Sidhu said. “I think that there’s a consolidation that will take place between BaaS providers and chartered institutions because it’s just much more compelling to provide the technology and the charter together, rather than in two different entities.”
Change is coming, but both banks and tech firms alone are not equipped to handle it, Sidhu said. Banks have trouble keeping an innovative mindset, and tech companies without banking DNA don’t have the know-how to operate a banking license, she said.
“So we’re unique, where we have strong technology and come from a fintech-first mindset,” Sidhu said. “But we’re also bankers, and we’ve been bankers for six years prior to the divestiture that took place early this year. We feel we’re very well positioned given our history of being a bank to really take this step forward.”