Grasshopper Bank NA will make inroads into consumer banking via the planned acquisition of Auto Club Trust FSB and envisions the new category making up half of its deposit base over time.
Auto Club Trust, a federal savings association, is a subsidiary of the Auto Club Group — the second-largest club of AAA in North America — and the Auto Club Insurance Association. The acquisition, expected to close in the first half of 2025, will bring Grasshopper roughly $300 million of deposits that skew toward savings accounts and certificates of deposits, Grasshopper Chairman, President and CEO Mike Butler said in an interview.
Upon closing, consumer deposits will account for roughly 30% of Grasshopper's deposit base, and the bank will continue to grow consumer deposits, likely to roughly 50%, Butler said.
One driver of the consumer business will be the Auto Club Group's connection with AAA. As part of the deal, Grasshopper will be offering depository and lending products to AAA members in 14 states in which the Auto Club Group operates.
"We do this in conjunction with a brand like AAA, which gives us a great deal of confidence in our ability to grow it, and then what we'll find is how well we can diversify that down the road," Butler said.
While consumer banking is a new business line for Grasshopper, it is not new to Butler and some of the staff. The CEO's last venture, Radius Bank, was an online consumer bank acquired by LendingClub Corp. in 2021. Butler founded Grasshopper in part to try to replicate Radius' digital banking model while serving small businesses.
"We thought the next disruptive place to get to was business, but I don't think we ever wanted to leave the consumer behind. We just wanted to kind of solve the business side of it," Butler said.
After Radius was sold, some of its employees followed Butler to Grasshopper. As a result, Grasshopper already has teams of consumer banking veterans, especially around product, marketing, and compliance with consumer protection regulations, Butler said.
The digital advantage
While the Auto Club Trust offers auto loans similar to those of a brick-and-mortar branch, Grasshopper will be able to change the customer experience by making the loans digital, Butler said. The new owner can also offer new loan product opportunities to AAA members, including providing finance for their travel, he added.
Grasshopper has been a sponsor bank behind many fintech companies' deposit account offerings, and the company's future relationship with the AAA brand may echo the banking-as-a-service concept, with Grasshopper enabling a well-known nonbank to offer banking products.
"We think this model of being a bank behind the scenes of larger companies that want to deliver some financial services into their companies, but don't want to be banks, is really a model for the future," Butler said.
The acquisition will position Grasshopper for its next phase of organic growth by giving it a relationship with AAA members. Grasshopper is open to acquisition opportunities, but only those with outstanding revenue opportunities, Butler said.
In conjunction with the acquisition, Grasshopper plans to raise $35 million in additional capital, and the Auto Club Group will retain a 4.9% stake in the combined business. The raise, led by existing Grasshopper investor Patriot Financial Partners LP, mainly aims to support Grasshopper for future growth initiatives, Butler said.