SPACs supercharging fintechs

Opportunity Financial began contemplating whether to go public in early 2020. The online lender wanted to flesh out its installment loan business with more mainstream financial products and raise its profile.

“Then the pandemic hit, which was not in our plan,” said Jared Kaplan, CEO of the Chicago company, also known as OppFi.

Several months into the crisis, and confident in his company’s stability, Kaplan revisited the idea. Like many up-and-comers in a number of industries these days, OppFi chose to merge with a special purpose acquisition company rather than pursue a typical initial public offering, which takes longer and is more complicated.

Young financial technology companies like OppFi and MoneyLion, which has developed a digital banking app, say SPAC deals will allow them to more efficiently raise large amounts of money, rapidly develop more banklike products to compete with traditional players, and command more public attention.

Fintechs have been particularly popular targets this year for SPACs because there are a lot of them and they can be worth several billion dollars, says Brendan Carroll, a senior partner at the private capital manager at Victory Park Capital in Chicago.

“There is a lot of growth [with fintechs], and there seems to be significant demand in the public market for high-growth companies and higher-growth stocks,” Carroll said.

SPACs, also known as blank-check companies, do not have a business model other than raising funds in a public offering and acquiring existing businesses.

Fourteen financial technology companies have recently raised or announced plans to raise a combined $54 billion through SPAC deals, LendIt Fintech News reported in early February. Among those companies were the digital bank for students BM Technologies (formerly BankMobile), the online lender SoFi and the payments company Payoneer.

Those figures didn’t include deals announced more recently by OppFi and MoneyLion. OppFi has agreed to merge with FG New America Acquisition Corp., a SPAC based in Itasca, Ill., that is raising $803 million. MoneyLion is combining with a fellow New York company, Fusion Acquisition Corp., which is bringing $2.4 billion to the table. Both transactions are expected to close in the first half of the year.

The two companies say they will use public currency to boost their product set and accelerate growth, adding credit cards, a diverse array of loans and other offerings that help them more closely resemble banks.

In OppFi’s case, the decision to go public hinged on a few factors, but “the most important thing was to raise our public profile,” said Kaplan. “We built the company without any equity financing. We don’t get the headlines when you raise hundreds of millions of dollars from venture capital firms.”

OppFi began its business as a direct lender to consumers with low credit scores, but now largely markets and services small-dollar loans in partnership with small banks.

“Noncustomers don’t understand the product, so when you can have an earnings call every quarter and all the pomp and circumstance that comes with being a public company, we can really tell our story,” he said.

That story now includes Salary Tap, a payroll deduction loan that debuted in December, and an OppFi credit card planned for the first half of 2021. In the future, OppFi’s lineup may encompass mobile banking and near-prime lending. The company also changed its name from OppLoans to OppFi, which it felt better reflected its goal of offering a broad array of financial services.

“Now we’re adding graduation products,” said Kaplan. “Longer term, how great would it be if we can get your credit score back to near prime or prime and offer a mortgage product?”

At MoneyLion, a mobile bank that also offers automated investing, cash advances and credit-building loans, founder and CEO Dee Choubey felt like “we’re right at the inflection point of hyper growth,” he said.

The company says it ended 2020 with 1.4 million users, an increase of 60% year over year.

Going public “will allow us to put a lot of things in our product road map faster and in front of our user base sooner,” he said.

In 2021, MoneyLion will launch a buy-now-pay-later feature; a secured credit card linked to the user’s managed investment account balance; and cryptocurrency rewards.

“We don’t want to give our customers any reason to leave MoneyLion to go to other platforms,” said Choubey.

Kaplan and Choubey both point to the speed and efficiency that SPACs allow for when going public — a sentiment shared by many firms that choose to get listed this way. Kaplan estimates that getting a traditional IPO off the ground would have taken six to 12 months, compared with 3 to 6 months for a blank-check deal.

The two executives also highlighted the fact that they could discuss forward-looking projections in their investor presentations.

“With the IPO process you are beholden to historical financials to describe your company,” said Kaplan. “But so much of our promise is in the future. In our investor deck we can tell the story of all the great things we will build onto this platform over the next decade.”

Even as these companies grow, Carroll, of Victory Park Capital, foresees a continued coexistence between banks and fintechs, in which they compete on some levels and at times form partnerships.

“I don’t think it’ll change the need for traditional banking products or services,” he said. “It may help banks get more efficient or add different products, to adapt to the current desires of the customer base, but I don’t think it will replace them.”

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