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Pursuing a bank charter is a down-the-road option for fintech Dave, CEO says


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Banking Essentials Newsletter: December 7th Edition


Banking Essentials Newsletter: December 7th Edition


According to Market Intelligence, December 2022

Pursuing a bank charter is a down-the-road option for fintech Dave, CEO says

The neobank Dave Inc. may eventually pursue a bank charter, but it is not currently on the horizon for the Chicago-based specialty lender.

In an interview, Dave CEO, Chairman and President Jason Wilk said the company would need a large enough deposit base that leads to net interest income becoming a meaningful revenue stream before it pursued a charter. Evolve Bank & Trust currently holds deposits of Dave's consumers and issues Dave's debit card product, but Wilk declined to disclose the deposit total his company has originated.

"We'll continue to work with the community banks like Evolve in the interim, until we reach a size and scale of which it would make more sense to be our own bank," Wilk said in an interview.

Dave reported having 7.8 million members as of Sept. 30. Consumers open checking accounts using Dave's mobile application and can overdraft up to $500 without interest, fees or credit checks, according to its website.

The company has a $100 million credit facility backed by Victory Park Capital Advisors LLC whose leadership helped establish VPC Impact Acquisition Holdings III Inc., a blank-check company that took Dave public in January.

Financial technology companies in consumer lending have different philosophies as to whether to pursue a bank charter. During their most recent earnings calls, SoFi Technologies Inc. and LendingClub Corp. touted the advantage as a bank to reduce funding costs by growing deposits, while Upstart Holdings Inc. CEO David Girouard said being a bank is not aligned with its vision to be a loan marketplace for various banks and lenders.

Although Dave is not looking to get a charter in the near term, it has the right team to execute that strategy when it wants to, Wilk said. Its general counsel John Ricci joined Dave in August 2020 from Green Dot Corp., and Ricci was the general counsel when Green Dot secured its bank charter through the acquisition of Bonneville Bank in 2011, Wilk noted.

Moderating new customer growth

The growth focus in the next year is to drive interchange income from its debit card product, Wilk said. Transaction-based net revenue accounted for 7.06% of its $56.81 million net operating revenues during the third quarter, with the rest from service-based revenues generated from cash advances. It has not been profitable and recorded negative $11.3 million in adjusted EBITDA in the quarter.

Dave has showcased fast growth among its peer neobanks, with app downloads growing by 23% year over year as of September, but its lack of profitability creates greater funding risk amid rising interest rates, Jefferies analysts wrote Nov. 9. Jefferies has a "hold" rating on Dave's shares with a 35-cent price target.

Dave's per-share price opened at 38 cents on Nov. 23, giving it a market capitalization of about $137 million. The market value shrunk significantly after it fetched $4 billion in equity value when it signed the special purpose acquisition company merger in June 2021.

"With a loyal and growing customer base, we believe Dave will benefit in the near term from focusing on the [long-term value] of its users rather than growing accounts (as management has already stated on its recent earnings call), as well as possibly diversifying products (in particular various types of credit products) beyond the short-term advance service it currently provides," Jefferies analysts wrote.

Dave has been moderating marketing expenses, Wilk said. It has also walked away from proactively looking for acquisitions, which it considered more seriously earlier in the year when the stock price was higher, he added.

"We're on pause until we can start to show positive performance towards profitability and growth, which we showed in Q3 and I think we've seen a positive trajectory of the stock price, but it's baby steps towards where we need to get that going," Wilk said.