3 FINTECH NEWS STORIES
#1: Array + Payitoff
What happened?
Array is acquiring Payitoff:
Array … announced the acquisition of Payitoff, a pioneer in embedded debt guidance solutions. This acquisition fortifies Array’s position as the industry leader in intelligent debt management solutions, empowering financial institutions, fintechs, and digital brands with seamless, no-code debt management tools that improve consumer outcomes, accelerate growth efforts, and unlock new revenue streams.
So what?
If you don’t know who Array is, that’s probably because you don’t work for a small bank or credit union. They provide a white labelable suite of offerings — credit score monitoring, credit building, identity and privacy protection, and subscription management — for banks and credit unions to embed within their digital banking channels.
Put simply, Array exists to identify proven trends in fintech product design and package those innovations into embeddable products that increase bank and credit union customers’/members’ stickiness and satisfaction.
As I have written about recently, B2C debt management tools are a very intriguing fintech product innovation, but not one that has proven to be a viable standalone business.
Payitoff developed a suite of capabilities that enabled consumers to understand their current debts (across all product types) and to optimize the servicing of that debt in a way that would free up their cash flow. This was primarily accomplished by enrolling consumers with student loan debt into money-saving government programs, although Payitoff had been in the early stages of expanding its product capabilities deeper into areas outside of student lending.
I like this acquisition for Array, particularly if we see an expansion of the CFPB’s Personal Financial Data Rights Rule to cover installment loan products, which would make it even easier for Array/Payitoff to link together all of a consumer’s debts. I also would like to see Array tie together Payitoff’s capabilities with its existing credit building capabilities so that consumers could more easily understand the relationship between debt reduction and credit building.
#2: Socure + Effectiv
What happened?
Socure is acquiring Effectiv:
Socure … has signed an agreement to acquire Effectiv, a real-time risk decisioning company, for $136M. The acquisition is expected to close in November.
This strategic acquisition pairs Socure’s best-in-class digital identity verification and fraud solutions with a developer-friendly AI orchestration and decisions platform – a combination of technology not held by a single competitor, and one that will elevate the way the market combats fraud and verifies identities across the entire customer journey.
So what?
Effectiv was founded in 2021 and raised a $4.5 million seed in 2023, led by Better Tomorrow Ventures. The founding team are ex-PayPal, Google, and Walmart fraud and risk guys, and, from what I can tell, they built the risk decisioning system that they always dreamed of having.
Judging from their website, I’m guessing that the problem isn’t the product (although building something like this right before the advent of generative AI must have been annoying) but rather the go-to-market strategy. Effectiv lists the following use cases for its decision engine — business onboarding, customer onboarding, credit underwriting, payment fraud detection, and transaction monitoring.
I have lived in the world of decisioning and workflow orchestration for many years, so you’ll have to trust me on this — no one can build a platform to excel at account-level and transaction-level decisioning for credit, fraud, and compliance risk management for consumers and businesses. It’s not possible.
With this acquisition, Socure is clearly trying to narrow Effectiv’s ambitions to just the use cases that hinge on consumer identity (Socure’s sweet spot) while enabling Socure to compete more with orchestration providers like Alloy, Provenir, Taktile, and Oscilar, where its vast suite of fraud data and analytics capabilities can (potentially) be a significant differentiator.
#3: First Carolina Bank + BM Technologies
What happened?
First Carolina Bank is acquiring BM Technologies:
BM Technologies, Inc. … today announced it has entered into a definitive agreement to be acquired by First Carolina Bank pursuant to which First Carolina will purchase all outstanding BMTX shares of common stock for $5.00 per share in an all-cash transaction with an equity value of approximately $67 million.
So what?
I saved the weirdest one for last!
Here’s the history:
- 2009: Jay Sidhu takes over as Chairman and CEO of New Century Bank, which is soon renamed Customers Bank.
- 2015: Jay Sidhu and his daughter Luvleen co-found BankMobile, a digital bank incubated under Customers Bank.
- 2015: Customers Bank acquires Higher One Holdings for $37 million. Higher One was a fintech company that offered a disbursement service and checking account that streamlined financial aid refund disbursement for more than 800 college and university campuses across the U.S. Customers Bank was a bank partner of Higher One and had been a provider of the OneAccount checking account since 2013. Higher One experienced some significant UDAAP compliance issues before the acquisition, which resulted in Customers entering into a consent order with the Fed after the acquisition was completed.
- 2017: Customers Bank enters into a very weird agreement with a tiny little community bank in Florida called Flagship Community Bank to sell BankMobile for $175 million. Flagship only had $126 million in deposits at the time, compared to BankMobile’s $732 million, and the deal would have resulted in a new, merged company (to be called BankMobile) that would have been publicly traded. The Federal Reserve killed the deal due to concerns that the overlap between shareholders at Customers and the combined BankMobile/Flagship company effectively would have made BankMobile/Flagship an affiliate of Customers.
- 2017: BankMobile enters into a partnership with T-Mobile for the development and roll-out of a mobile banking platform — T-Mobile MONEY. This arrangement, which still appears to be active today, represents one of the biggest non-Higher One contributors to BankMobile’s growth over the last seven years.
- 2020: BankMobile is sold for $140 million to Megalith Financial Acquisition, a SPAC formed to take the division (renamed BM Technologies) public. Jay Sidhu and his son Samvir Sidhu (who became president and chief executive officer of Customers Bank in 2021) were both Directors on Megalith Financial Acquisition’s Board.
- 2021: BM Technologies goes public in January. In the immediate aftermath, the stock traded at a high of $18.35 per share.
- 2021: In November, BM Technologies agrees to acquire First Sound Bank (a Seattle-based community bank with $150 million in assets) for $23 million. This would have allowed BM Technologies to jump from being a BaaS middleware platform to directly providing BaaS as a licensed bank. BM Technologies’ stock price traded up to a high of $14.61 per share on the news.
- 2022: After a lengthy delay (likely caused by regulatory concerns), the acquisition of First Sound is called off.
- 2023: BM Technologies partners with First Carolina Bank, giving the BaaS middleware provider a second bank partner (in addition to Customers).
- 2024: First Carolina Bank agrees to acquire BM Technologies for $5.00 per share. This is a significant premium, given that the stock was trading at less than $2 per share back in May, but it is apparently justified (according to First Carolina Bank CEO Ron Day) because it “gives our bank a nationwide deposit gathering business and the opportunity to expand banking relationships with the institutions and their students across the United States.”
Phew!
In oversimplified terms, Higher One was acquired by its bank partner, sold to public market investors at an inflated price, and then sold to its new bank partner for an inflated price again.
Neat! Finance is neat!
2 FINTECH CONTENT RECOMMENDATIONS
#1: Why Everyone’s Wrong About Stablecoins (by Christian Catalini, Forbes) 📚
I’m a sucker for a “why everyone is wrong about X” article, especially when it’s about a subject I’m already 95% sure I’m wrong about.
This one is worth a read.
#2: Bloat, Redundancies Inflate Ever-Increasing Tech Spend (by Kiah Haslett, Bank Director) 📚
Spending more and more on tech and getting less and less out of it is literally the worst-case scenario for any bank that hopes to be around ten years from now. Kiah explains how this happens and what can be done to stop it.
1 QUESTION TO PONDER
If federal banking regulators could do one concrete thing to make bank-fintech partnerships work better, what would it be?
If an industry standards-setting organization could do one concrete thing to make bank-fintech partnerships work better, what would it be?
