Propel Holdings to establish subsidiary in Puerto Rico

Key Concepts

• Underserved and Underbanked Consumers: Individuals who are overlooked by traditional financial institutions, lacking access to essential banking and credit services.
• K-Shaped Economy: An economic model where different segments of the population experience vastly different outcomes, with some prospering while others struggle.
• Propel Bank: A newly established bank by Propel Holdings, designed to offer enhanced financial products and services to underserved consumers.
• Banking License: Regulatory approval granting an entity the authority to operate as a bank.
• Fintech: Financial technology, companies that use technology to provide financial services.
• Treasury Services: Financial services offered by banks to manage a company's cash flow, liquidity, and financial risks.

Propel Holdings Secures Regulatory Approval for US Expansion via Puerto Rican Bank

Canadian fintech company Propel Holdings has announced a significant regulatory approval that will facilitate its expansion into the United States market. This approval allows Propel Holdings to establish and operate a bank in Puerto Rico, a strategic move to enhance its service offerings to underserved and underbanked consumers.

Business Model and Target Market

Propel Holdings' core business model revolves around providing access to credit for consumers who are typically overlooked by mainstream banks and credit unions. This segment represents approximately 90 million consumers across Canada, the US, and the UK. These individuals can often open basic bank accounts but struggle to access a wider range of financial services.

The company observes a "K-shaped economy" where a record number of applications are being received from this large consumer segment. Propel Holdings aims to position itself to offer these consumers "best-in-class products and services," including additional financial solutions.

Strategic Rationale for Propel Bank

The establishment of Propel Bank is described as the "next step in that evolution." A banking license will enable Propel Holdings to:

• Offer Best-in-Class Banking Products: Over the long term, Propel Bank will be able to provide services such as debit cards, credit cards, and other products leveraging its own banking infrastructure.
• Expand Access to Credit: Propel Holdings has historically grown access to credit by partnering with banks that share its mission. The Propel Bank infrastructure will allow them to offer services to more consumers in more jurisdictions and markets, thereby creating even more bank partnerships.

Clive Kin Ross, Chief Executive of Propel Holdings, stated, "By having a banking license, we'll be able to do a few things for our consumers. Obviously, able to offer them best-in-class banking products and services over the longer term like debit cards and credit cards and other products that we'll be able to do with the Propel Bank infrastructure."

Maintaining Existing Partnerships and Future Focus

Propel Holdings will continue to maintain its relationships with its existing bank partners. As recently as a month prior to the interview, Propel partnered with Column Bank, marking them as the first North American fintech focused on underbanked consumers to partner with a nationally chartered bank. This partnership extends Propel's network to five originating banks across the US, which is described as an industry-leading number.

The Propel Bank in Puerto Rico is intended to support and enable more bank partnerships. The ultimate beneficiaries of this strategy are identified as the underserved and underbanked consumers.

International Scope and Revenue Opportunities

While the immediate focus is on the US market due to regulatory oversight, Propel Bank is an international bank. This structure provides the ability to expand services into other jurisdictions in the future. While no immediate expansion into the UK or Canada is anticipated, the integration of additional services will enable the offering of treasury services across other markets.

This expansion is expected to create "huge revenue generating opportunities" and also presents opportunities for "lots of cost savings" due to being a bank. These benefits are anticipated to be advantageous for both consumers and the investor base.

Competitive Landscape and Canadian Market Dynamics

Regarding the sale of Laurentian to Fairstone, Clive Kin Ross commented on the competitive landscape. He noted that the US is Propel's largest market, followed by the UK and then Canada. Significant regulatory changes in Canada over the past year have made it more challenging for underserved and underbanked consumers to access desirable products, pushing them towards less favorable credit options.

Kin Ross suggested that the Laurentian-Fairstone transaction "makes the competitive landscape that much smaller at a time where if anything consumers in Canada need access to more product and to into a better market." He also found the multiples of the transaction "interesting," suggesting potential in the large underserved market where Propel is experiencing strong demand. He believes that companies focused on their market segment are seeing "very very strong demand at the moment."

Conclusion

Propel Holdings' acquisition of regulatory approval to establish a bank in Puerto Rico is a strategic move to deepen its commitment to serving underserved and underbanked consumers. By leveraging its own banking infrastructure, Propel aims to offer a wider array of financial products and services, expand its network of bank partnerships, and create new revenue streams, all while navigating a dynamic and evolving financial landscape.