BM Technologies, First Sound Bank nix $23M merger

Dive card:

• BM Technologies’ 23 million dollar acquisition of a Seattle-based community bank has been discontinued, the two firms announced in separate statements last month.
• The banking-as-a-service (BaaS) provider filed to buy First Sound Bank for $150 million in March.
• The deal, which the two companies originally estimated would close in the second half of 2022, would have created an institution, called BMTX Bank, with more than $2 billion in assets.

Diving Insights:

BM Technologies, which was spun off from Customers Bank in 2021, had spied the deal as a strategic move that would enable the fintech to combine its financial technology and proprietary BaaS expertise with a banking charter.

“This move enables us to become a fintech bank that can support other fintechs to come to market, in the same way that Cross RiverWebBank, MetaBank and a few other players do today,” said Luvleen Sidhu, chairman, CEO and founder of BM Technologies at the time.

But a sign that the deal was up against regulatory hurdles only emerged in November, when BM Technologies announced that the merger had been pushed back to 2023, following a decision to resubmit its application to answer questions from regulators about the tie-up.

Both parties said the delay provided additional time to reflect on their respective broader strategies.

“Interest rates and their outlook are significantly higher today than last year when the merger was announced,” Sidhu said in a statement last month. “In this environment, we believe that BMTX is better placed as a FinTech with a sponsor bank without the capital requirements and credit risk that a balance sheet strategy would entail. We believe this is in the best long-term interest of our shareholders.”

BM Technologies is in the process of finalizing a new sponsor bank deal, which will give the firm “variable pricing and improved financials,” Sidhu added.

“We continue with our strategy of combining the best of banking with the best of technology to attract, engage and retain banking customers with an affordable acquisition model,” Sidhu said in a statement to Banking Dive. “We will continue to do this by working with brands and leveraging their customer base and partnering with universities to provide students with the best banking experiences. We will do all of this with a strong focus on compliance and risk management.”

Seattle Bank CEO Marty Steele said he was clear from the start that “trying to merge a regulated bank with a fintech company” would likely result in a lengthy approval process.

“As it turned out, the regulatory approval process was actually extended, giving us an opportunity to reflect on our broad strategy of maximizing the value of the bank to all our stakeholders – our shareholders, customers, employees, business partners and regulators” Steele said in a statement. “Our board and senior management now believe that continuing to grow the bank and continuing to increase profitability is our best course of action.”