FinTech: Jiko, A 23-Person Startup, Becomes The First Fintech to Buy A National Bank
Stephane Lintner, a former Goldman Sachs trader, co-founded Jiko in 2016.
Jiko, the four-year-old upstart fintech, and digital bank, which has all of just 23 employees, appears to have pulled off the impossible. It acquired Mid Central National Bank, a 63-year old retail bank based in Minnesota, becoming the first fintech to complete the acquisition of a nationally regulated bank in the U.S. (CNBC)
The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank of San Francisco have blessed the deal with their approval.
In February, LendingClub (NYSE: LC) announced its acquisition of Radius Bancorp. It gains a readymade bank charter, low-cost funding, savings in costs at correspondent banks, and payback in two years. However, this transaction will close in 2021.
Meanwhile, Jiko has sewn up its deal to buy Mid Central National Bank.
The value of banks and the federal banking system
“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.”
Jiko says it’s a new bank holding company building an innovative money platform. In a departure from traditional practices, it transparently keeps its customers’ money directly invested in liquid US government-backed Treasury bills.
Customers’ money stowed in T-Bills
This direct access to Treasuries makes one of the least risky investments available to customers.
“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 to CNBC. “You’re getting what that money is earning, the Treasury Bill rates. That is the first thing that banks do when they get your money, they buy T-Bills.”
Interestingly, when a customer draws money at an ATM or uses her debit card, the T-Bills are instantly converted into cash.
NetFlix-like platform subscription
Jiko’s site leads you to a waiting list that you join by giving your email address.
“Enjoy the most fluid and rewarding experience. Ever. $99/year for exclusive platform access,” the site invites.
According to CNBC, Jiko will pass on all the yield from the investments in T-bills to its customers, as also any swipe charges earned on forthcoming debit cards.
Hence the bank levies the above “Netflix -like” subscription charge.
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