Pursuing a bank charter is an option for fintech Dave, CEO says

Neobank Dave Inc. may eventually apply for a bank charter, but that is not on the horizon for nowe Chicago-based specialty lender.

In an interview, Dave CEO, Chairman and President Jason Wilk said the company would need one large enough deposit base to make net interest income a meaningful income stream before pursuing a charter. Evolve Bank & Trust currently holds deposits from Dave’s consumers and issues Dave’s debit card product, but Wilk declined to disclose the amount of deposits his company has originated.

“We will continue to work with the community banks like Evolve in the meantime, until we reach a size and scale that it would make more sense to be our own bank,” Wilk said in an interview.

Dave reported having 7.8 million members as of September 30. Consumers open checking accounts using Dave’s mobile application and can overdraft up to $500 with no interest, fees or credit checks, according to the website.

The company has a $100 million credit facility backed by Victory Park Capital Advisors LLC, whose management helped establish VPC Impact Acquisition Holdings III Inc., a blank check company that took Dave public in January.

Financial technology companies in consumer lending have different philosophies about whether to pursue a bank charter. During their most recent earnings calls, SoFi Technologies Inc. and LendingClub Corp. claimed advantage as a bank to reduce funding costs by increasing deposits, while Upstart Holdings Inc. CEO David Girouard said being a bank is not aligned with its vision of being a bank. loan marketplace for various banks and lenders.

While Dave’s isn’t looking to get a charter in the near term, it has the right team to execute that strategy when it wants to, Wilk said. Its general counsel John Ricci came to Dave in August 2020 from Green Dot Corp., and Ricci was general counsel when Green Dot secured its bank charter through the acquisition of Bonneville Bank in 2011, Wilk noted.

Moderate new customer growth

The growth focus for the next year is to drive interchange revenue from the debit card product, Wilk said. Transaction-based net income accounted for 7.06% of net operating income of USD 56.81 million in the third quarter, with the remainder from service-based income generated from cash advances. It has not been profitable and recorded a negative $11.3 million in adjusted EBITDA in the quarter.

Dave has shown rapid growth among its neobank peers, with app downloads growing 23% year over year as of September, but the lack of profitability creates greater funding risk amid rising interest rates, Jefferies analysts wrote on Nov. 9. Jefferies has a “team”. ” rating on Dave’s stock with a price target of 35 cents.

Dave’s price per share opened at 38 cents on Nov. 23, giving it a market capitalization of about $137 million. Its market capitalization shrank significantly after it achieved $4 billion in equity value when it signed off on the merger of the special buyout company in June 2021.

“With a loyal and growing customer base, we believe Dave will benefit from a short-term focus on [long-term value] of users instead of growing accounts (as management already stated on the last earnings call), as well as possibly diversifying products (especially different types of credit products) beyond the short-term upfront service it currently offers,” wrote Jefferies analysts.

Dave has moderated marketing spending, Wilk said. It has also moved away from proactively looking for acquisitions, which it considered more seriously earlier in the year when the share price was higher, he added.

“We’re on hold until we can start showing positive results towards profitability and growth, as we showed in Q3, and I think we’ve seen a positive trajectory for the share price, but it’s small steps towards where we need to get it going,” Wilk said.