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15 Nov, 2021
By Yizhu Wang
BM Technologies Inc. pursued its deal for First Sound Bank to secure a banking charter that will allow the financial technology company to offer banking products without relying on partnerships.
In a deal that adds to a growing list of fintechs buying banks, BM Technologies, a provider of banking-as-a-service solutions, will buy Seattle-based First Sound Bank for approximately $23 million. Once BM Technologies closes the deal and obtains the bank charter, it will look to form BMTX Bank. Being a chartered bank will allow the company to capture revenues that it currently has to share with banking partners, said CEO and Chairman Luvleen Sidhu in a Nov. 15 deal and earnings call.
"When you work with a partner, they're sharing in revenue. But when you have your own charter, you're able to create more control over your financials into the future and create more sustainable profitable growth by owning that entire revenue," Sidhu said.
BM Technologies' shares were up as much as 28% in morning trading following the deal announcement. At around 1 p.m. ET, shares were up 13.6%. The KBW Nasdaq Financial Technology Index was up 0.4% around the same time.
In the third quarter, BM Technologies reported core EPS of 23 cents, up from 9 cents in the year-ago quarter. Deposits made through its banking-as-a-service platform surpassed $2 billion at quarter-end.
As a chartered fintech bank, BMTX Bank will be able to generate net interest income to supplement the fee-based income from its banking solutions. The company plans to add more fintech products, including cryptocurrency trading, retail trading and investing and insurance. Sidhu said the company would look to develop the new products through internal development, partnerships and M&A.
The company has held preliminary conversation with the Federal Deposit Insurance Corp., the primary regulator for First Sound, Sidhu said. "They're, in my opinion, very innovative in their mindset as they think strategically about how banks and fintechs can work together," she said. The deal is expected to close in the second half of 2022 but could complete sooner, she added.
BM Technologies' acquisition of the bank comes as several fintech companies have pursued bank charters in recent years, such as Square Inc., LendingClub Corp., Varo Bank and SoFi Technologies Inc.
BM Technologies was founded in 2015 as a subsidiary of Customers Bancorp Inc., which divested the unit in January through a merger with special purpose acquisition company Megalith Financial Acquisition Corp. Customers Bank currently provides services for BM Technologies' depository accounts.