Consumer lender Oportun has agreed to buy challenger bank Digit in a deal that the buyer says will accelerate its plans to offer a more comprehensive range of banking services.
Timely, a Silicon Valley lender that offers personal loans and credit cards to consumers, announced the deal for nearly $ 213 million in cash and stocks on Tuesday. Less than six weeks earlier, Oportun noted that he was withdrawing his request for a banking charter from the Office of the Comptroller of the Currency.
The proposed acquisition would allow Oportun to offer Digit’s services, including mobile banking, automated savings tools and automated investments, to its customers, and would give Digit’s 600,000 customers the ability to borrow from of Timely.
The aim is to give clients a “one-stop-shop” for all their financial needs that improves their financial well-being, said Raul Vazquez, CEO of Opportunity, in an interview.
“We are going to create a leading neobank focused on financial health,” he said.
Oportun says its products offer affordable alternatives to payday loans and that its artificial intelligence underwriting models help it provide credit to consumers who struggle to qualify with traditional providers. The company has drawn criticism from consumer advocates, especially for its past debt collection practices.
Oportun, based in San Carlos, Calif., Said it would be able to deploy Digit’s services to its customers much faster than the three to five years it would take the company to create products on its own. competitors. Both companies expect the deal to be done at the end of the year or early 2022.
Digit, which was founded in 2013, is best known for pioneering automated savings, but also offers banking services through its banking partner, MetaBank. Last year he deployed a robotic investment function.
Oportun, meanwhile, is a publicly traded lender that focuses on low-income borrowers, offering its products both in physical locations and through digital channels. The company reported nearly $ 2 billion in loans receivable at the end of the third quarter. Oportun also has a partnership with MetaBank, based in Sioux Falls, South Dakota.
Last month, Oportun noted he was withdrawing his application for a national banking charter, which had been pending for almost a year. The company had hoped to use the charter to offer checking and savings accounts, certificates of deposit, and eventually personal installment loans, credit cards and auto financing.
Timely plans to file a new application to reflect both changes in its operations over the past year and the ongoing deal with Digit, Vazquez said on Tuesday.
“Right now we’re focused on actually executing this combination, and at this point we’ll make sure to update the plan and find the right time to resubmit our bid,” he said. declared.
Consumer advocates challenged Opportunity’s request and urged the OCC to put its decision on hold until an investigation into the company’s debt collection practices by the Consumer Financial Protection Bureau was completed.
The CFPB investigation followed reports from ProPublica, The Texas Tribune and The Guardian on both the affordability of Opportunity loans and the debt collection lawsuits the company filed earlier in the pandemic.
Oportun announced changes to its debt collection practices in July 2020 and said it would cap the annual percentage rates it charges at 36%, which the company has admitted to having sometimes exceeded in the past.
Vazquez said Opportunity continues to cooperate with CFPB and believes it is “absolutely in line with the letter and spirit” of all consumer protection regulations. He also said he respects the role of consumer advocates in their comments on banking requests and looks forward to continuing to work with them.
Vazquez said Digit offers a new way to improve the financial health of customers, noting that the company’s app has helped its members save more than $ 7 billion and pay off $ 300 million in debt.
“This only adds to the image of how we are helping consumers,” said Vazquez, “and we look forward to having conversations with advocates about this in the future.”
Digit founder and CEO Ethan Bloch plans to lead the Digit team as a unit of Opportunity once the deal is done. The more than 100 employees of the company will also join Oportun.
JP Morgan was Oportun’s financial advisor on the case, and the Wilson Sonsini Goodrich & Rosati law firm was its legal advisor. Investment bank Jefferies has agreed to help Oportun fund the $ 114.4 million cash portion of the deal.
Digit’s legal advisor was the law firm Goodwin Procter, and Financial Technology Partners was its strategic and financial advisor.