A tiny start-up led by a former Goldman Sachs trader has
become the first fintech firm to complete the acquisition of a
nationally-regulated U.S. bank, CNBC has learned.
Jiko, a 23-person company co-founded by Stephane Lintner,
has closed a deal to purchase Mid Central National Bank, a 63-year old retail
bank based in Minnesota, according to people with knowledge of the transaction.
The start-up secured approval for the move from the Office of the Comptroller
of the Currency and the Federal Reserve Bank of San Francisco, these people
said.
The move by Jiko, which bills itself as a new kind of bank,
gives it broad access to the highly-regulated U.S. market. Fintech firms have
to choose one of three ways to break into this market: acquire a banking
institution, apply to become a chartered bank, or partner with an existing
lender.
Most of the new breed of online only-banks like Chime and
Current chose to team up with existing FDIC-backed institutions, as that is the
fastest way to get started. Last month, Varo Money became the first consumer
fintech firm to earn a banking charter from the government through an
application.
But Jiko, a company that has flown under the radar since its
creation in 2016, is the first of the recent wave of fintechs to complete the
takeover of a regulated bank, allowing it to offer Americans a broad array of
financial services. Lending Club, one of the biggest U.S. providers of personal
loans, said it was buying Radius Bancorp in February, but that deal will close
in 2021, CNBC reported at the time.
“The move by Jiko represents an important milestone in the
maturity and evolution of fintech companies seeking to expand the reach of
their products and services,” Acting Comptroller of the Currency Brian Brooks
said in a statement. “It demonstrates the value and attractiveness of banks and
in particular the federal banking system.”
Regulatory blessing
That U.S. regulators blessed the Jiko transaction is
significant mostly because of how fundamentally different it is: It’s a
consumer bank that doesn’t revolve around holding deposits.
Instead, customer money lands in an FDIC-backed account
momentarily before being swept into Treasury Bills, which are liquidated when a
person uses a debit card or withdraws cash from ATMs. Rather than ceding the yield
on those investments to the typical bank, which takes deposits and buys
Treasuries or lends out the money, the Jiko customer keeps it.
Lintner, 40, is a computational mathematics PhD who spent
nearly a decade on the trading floor of Goldman Sachs, helping the bank
automate the buying and selling of stocks and derivatives. There, he saw during
the 2008 financial crisis how institutions around the world made disastrous
bets that threatened the safety of customer deposits.
“Once I saw what happens to deposits, I just thought there
had to be another way to give people that money experience without entangling
it with the risky lenders,” Lintner said. “I don’t want a society that
collapses once in a while.”
He left the New York-based bank in 2016 with the kernel of
an idea: How could you cut out the middlemen in banking?
His answer was to give banking customers direct access to
Treasuries, which are backed by the U.S. government and considered one of the
least risky investments available. Jiko means “self” in Japanese.
The Jiko account, which has been in beta mode for the past
two years, functions like a combination of a checking and savings account. The
bank’s app is being revamped with more features, including a cash-back debit
card and tokenized bank account numbers, and will be released before year-end.
“Now that you’ve gotten money that’s transparently stored,
you know what you’re holding, you’re not funding the North Dakota pipeline or
something like that,” Lintner said. “You’re getting what that money is earning,
the Treasury Bill rates, which is the first thing that banks do when they get
your money, they buy T-Bills.”
Since money at Jiko is swept into a brokerage account
invested in T-Bills, it’s covered for up to $500,000 by the Securities Investor
Protection Corporation, or SIPC, and not the FDIC.
Not risk-free
But it remains to be seen if American banking customers want
to assume the risk of fluctuations in the value of investments, even as safe as
T-Bills, in exchange for the chance of greater yield.
The Jiko account generated a 3.3% annualized return last
year, far outstripping the rate that most big banks pay, Lintner said. But
interest rates have fallen since then as the Federal Reserve slashed rates in
response to the coronavirus pandemic.
Meanwhile, the brick and mortar bank the start-up is
acquiring, formerly known as Mid-Central Federal Savings Bank, will continue to
operate its three branches in Minnesota as a normal bank.
Since Jiko passes on the yield from investments and most of
the swipe fees on an upcoming debit card to customers, Lintner said he
envisions charging a “Netflix-like” subscription fee.
“As a first place to put money in, it’s an excellent place
to be in,” Lintner said of Treasuries. “We built a scalable platform, we can go
from zero to 300 million Americans, and do a lot of stuff with absolute
stability. Now we can deliver an awesome experience and a number of other
features.”
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