In a Twist, Fintech Startup Tandem Acquires Bank

A bank buying a fintech company is newsworthy, but a fintech startup buying a bank means the industry may be changing.

It’s happened before — Green Dot bought Bonneville Bank back in 2011, and there have been a few others, but it’s far from a trend — yet.

But that kind of change is what U.K.-based neobank Tandem is building towards with its newest move, acquisition of incumbent player Harrods Bank. The neo, or challenger bank will acquire “100%” of the traditional bank, the financial service institutions announced today.

The deal is currently pending, subject to regulatory approval, and the exact financial terms of the deal were not disclosed. Both Tandem and Harrods declined to comment on the deal.

One observer called Tandem’s move one of desperation, pointing out the neobank recently lost its license, and that Harrod’s has been a money-losing institution. Daniel Döderlein, CEO and founder of mobile payments platform provider Auka, told Bank Innovation:

This is a desperate move. Tandem had failed to meet requirements for a full banking license and was struggling. I get it. I’d be desperate too if I’d lost my licence, some investment and a lot of customers. Although the deal was reportedly worth millions of pounds, the fact remains that the Harrods Bank business is losing money..

The acquisition will bring an influx of about £80 million (roughly $104m USD) in much-needed capital to Tandem, which will be put towards further development of its app and credit card as well as its launch plans, according to the company.

Harrods was founded in 1893, putting it on the younger side for a European bank but still firmly in the traditional bank camp. The company, specializing in private banking, grew out of the famous Knightsbridge store of the same name. The decision for Tandem to acquire this kind of traditional bank is surprising, but not as much as an incumbent bank agreeing to an acquisition by a fintech.

However, this acquisition does come after troubling times for Harrods, with a reported loss of £8.4 million in 2016 (income for that year was about £2.3m). Additionally, the acquisition gives Tandem back its foothold in U.K. banking, since it not only brings capital, but access to new financial products.

Most importantly, it gives Tandem a full banking license; the neobank had previously lost its banking license due to a failure to meet U.K. capital requirements, after a December 2017 investment deal with Sanpower Group-owned department store House of Fraser fell through.

When the acquisition is closed, Harrods will operate under the Tandem brand. This is something that not only gives the neobank access to capital but also a physical base of operations, a factor rare for challenger banks which typically interact with their customers via digital and mobile means.

Tandem’s app is currently available for both Android and iOS users.

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