Seven years after Moven came out with its Mint-like budgeting app and debit card, it’s establishing a joint venture with Japanese financial services giant SBI Holdings. The goal: To buy a bank.
The U.S. company is about to cross five million users globally this year, said CEO Brett King, who has plans to make Moven the first real U.S. challenger bank, a startup with a banking license, which would be called MovenBank. The U.S. is rife with “neobanks,” similar companies like Simple, Varo Money and Chime that have a partner bank in the background. But the FDIC hasn’t issued new banking licenses since 2008 and the Community Reinvestment Act requires that banks have branches. Until the OCC Fintech Charter comes out, there isn’t a regulatory framework for challenger banks in the U.S.
Banks buying startups isn’t anything new. But for financial technology startups, looking to scale or for a license to take deposits, buying a bank it’s a faster route to market than other solutions.
Moven is in talks with “a couple” of small banks with about two branches and healthy balance sheets about a potential acquisition in which the banks continue to run the branches and Moven focuses on the digital banking product.
“We’ll do a digital direct challenger bank without having to run branches,” King said. “That was really the thing we were waiting to see if we could solve because we’re just not interested in doing branch banking.”
The argument is sound: There are almost 6,000 FDIC-insured banking institutions in the U.S. as of the end of 2016 and 1,541 of them have less than $100 million in assets, including a sliver of troubled banks that need saving. With average common equity around $12.5 million for a healthy bank of that size, a well-established startup could pay $25 million and get fully licensed to be deposit taking.
Besides the company’s need for a license, customer acquisition is expensive. King said he created Moven with the idea that he would change the nature of the bank account and how it sits in customers’ day, but to do that there needed to be “tens of millions of people” using the experience.
“You need to initially spend a fair bit to get over that hump of customer acquisition,” King said. “We realized we needed to grow more aggressively and just going out and raising more money for customer acquisition — we didn’t think that was viable.”
Throughout that reckoning, Moven received requests from other banks interested in licensing its technology and in the last three years has formed partnerships with companies like TD Bank and New Zealand’s Westpac. Last year, Moven generated $7 million from that alone. With the new deal with SBI, which has access to at least 60 regional banks in Asia, this part of the company will become Moven Enterprise. King expects its revenue to double “in a quick amount of time.”
“I was a little reticent about pivoting to focus less on direct-to-consumer, but my cofounder [Alex Sion] said, ‘we’ve got to get our experience onto as many phones as possible.’ That’s what made sense,” King said. “Pragmatically, partnerships with banks brought in probably better quality revenue in the medium term than the revenue we were getting off the direct-to-consumer business.”