A small wave of neobanks and fintechs has been seeking a banking charter, seeing greater growth potential by doing so.
BankMobile, however, did just the opposite, splitting off from its bank parent, Customers Bancorp, in order to operate as a nonbank technology company. There is precedent for such a move. nCino, now a cloud-based bank technology company, was originally a unit of Live Oak Bancshares. But such moves are relatively rare.
It’s been nine months since BankMobile spun off from Customers through the use of a special purpose acquisition company (SPAC). Rechristened as BM Technologies, or BMTX, the company now serves as a go-between, linking financial institutions, consumers, employers, customers of nonbank companies and more with banking tech and compliance expertise.
Partnerships were key to BankMobile’s success and are an essential element of BMTX’ game plan. In a wide-ranging interview with BMTX’s CEO, Luvleen Sidhu, The Financial Brand asked her about the importance of partnerships as well as the new company’s plans in banking-as-a-service, embedded banking and more.
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Understanding Different Types of Partners’ Goals and Needs
When BM Technologies was part of Customers Bancorp, each time it was bringing banking services, such as deposits, to one of its corporate partners, it tapped its parent’s deposit-gathering powers. While the company continues to have the banking relationship with Customers Bancorp, at least through 2022, a key aspect of its new status is the ability to form relationships with additional deposit-taking institutions.
Sidhu told analysts during an earnings call that the company was talking to multiple potential banking companies about adding them to the fold. We asked about the dynamics of crafting a new bank relationship, what potential partners are looking for.
“Bank partners are looking to have true customers. You can easily get deposits through broker networks. But the institutions we talk to want to establish primary banking relationships that they can grow over time. They want to be able to cross sell.”
— Luvleen Sidhu, BM Technologies
In time, that cross selling may also involve Sidhu’s company as it explores white labeling other banking services for client institutions and others. While the firm brings multiple technologies to the table, a key purpose of that effort is to serve as a marketing asset for its partners. Sidhu explains that her company strives to offer more than a simple “API-based approach.” Part of what makes BM Tech’s services stand out is that it goes beyond tech, bringing support functions like compliance and anti-fraud to the arrangements.
One of the core partnerships the company has had is being the banking as a service engine (currently using Customers Bancorp’s deposit powers) behind the T-Mobile Money accounts that the mega carrier makes available to its smartphone customers. While her company typically releases few details about this relationship, Sidhu says it is still going strong and that “we are at the beginning stages of what the potential for this partnership could be.”
This is a model for future deals. “We continue to actively work a pipeline of prospective new white label customers, whereby we enable them to offer a suite of financial services products through our proprietary technology stack. We continue to be in discussions with retailers, grocers, fintechs and banks, among others, and hope to announce a partnership in the coming months,” according to Sidhu, during the earnings call.
The presence of “banks” in that list means more than potential bank partners for the role currently fulfilled by Customers Bancorp.
New Meaning for BaaS:
In a new wrinkle, BM Technologies announced that it was expanding its banking as a service line to offer it to banks and credit unions themselves.
Offering BaaS to financial institutions may seem like a “coals to Newcastle” move at first, given that traditional institutions already have charters.
Sidhu explains that for the institutions this foray is targeting, BaaS is no contradiction or redundancy. Yes, they have a financial institution balance sheet and federal deposit insurance, she acknowledges. But what they lack — and want — is the ability to accelerate their application of technology to the evolving needs and expectations of consumers. The key market for this service is small to mid-sized institutions, according to Sidhu, who want to move faster than they can by growing their own advanced tech.
“Their motivation is speed of development and controlling its costs,” says Sidhu. BaaS in this context entails outsourcing of banking functions that are more efficiently provided by a third party.
The Difference Between BaaS and Embedded Banking
For nonfinancial companies, the ability to stir some banking into their apps, their websites and other public-facing efforts is becoming more important, according to Sidhu.
“Competition outside of banking is growing more fierce,” she says. “So retailers, grocers, wireless companies and others are looking for differentiation. For them, finding ways to continue to attract, engage and retain customers and create new revenue streams makes a lot of sense.” Sidhu says financial services can make a good add-on, whether they are embedded functions or full-fledged BaaS options.
That said, what is the difference between “banking as a service” and “embedded banking? Some people tend to use the terms interchangeably.
“That’s a good question,” says Sidhu. “We have discussions about this internally.” To her, it’s a matter of degree and visibility.
“Embedded finance is a bigger marketplace, potentially,” says Sidhu. “To me, embedded finance is things like having a car sales site and being able to offer financing right on the site. It’s taking components of financial services and embedding them in small ways within a partner’s own ecosystem.”
The purpose, generally, “is to provide a better customer experience and a monetization opportunity,” says Sidhu.
On the other hand, BaaS is a bigger deal in her mind, using tech and someone’s bank charter “to help nonbanks launch full-fledged challenger banks,” much as her company did for T-Mobile.
For a company like hers, says Sidhu, it’s critical to remain on the lookout for new features that can broaden what partners can offer. She was asked, for example, if she had plans to expand the firm’s menu to include “buy now pay later” financing.
“I believe we would be well-positioned to provide that,” Sidhu responds. “It doesn’t require any technology or balance sheet access that we don’t have today.”
What the Future Holds for the ‘De-Banked’ Operation
As noted, BMTX is something of a contrarian in moving out from under a charter at the same time nonbank players such as Lending Club, SoFi and Varo pursued charters. It continues to have an eclectic mix of income sources:
- Card Revenue (interchange fees and other sources) 39%
- Deposit Servicing Fees (charged to partner banks) 33%
- Account Fees (monthly fees and certain service charges) 17%
- University Fees (dealing with a highly specialized banking function) 8%
- Other Fees 2%
While the company plans to continue with all of its existing activities, Sidhu says in the next 18 months it will also explore expansions into cryptocurrency, financial advice and investing and insurance. This will all be in the context of broadening the scope of its partnerships, as well as its more direct relationships. (The BankMobile Vibe transaction account, for example, offered in partnership with Customers Bancorp at present, adds several hundred thousand new accounts annually.)
Regarding crypto, which is highly exploratory right now, Sidhu points to research that indicates that many consumers have growing interest in these currencies as investments but would prefer to work through banking institutions rather than tech firms. She says her company’s white label approach could work well here, to get bank efforts moving. She sees crypto savings accounts that pay interest in crypto as one possibility.
Still on the docket is the Google Plex project. BM Technologies retained the BankMobile commitment to be part of the small group of banks and credit unions working with Google on these joint accounts. Things have been quiet on that front, though Google had been expected to go live by this point.
Google and its financial partners have been tight-lipped about the project throughout its life. Sidhu says that “the commitment mutually is still very much there, though it’s taken a little bit longer to come to market than I would have hoped for.”