Central Pacific Financial Corp., parent company of Central Pacific Bank, will continue its "banking-as-a-service" initiatives with an equity investment in Swell, a new financial technology company based in Boulder, Colorado.
According to the company, Swell plans to launch a consumer banking app that combines checking, credit and more into one integrated account. CPB will serve as the bank sponsor.
There also will be a collaboration between the company, Swell and Elevate Credit, a provider of digital lending solutions.
CPF said Swell is scheduled to release its first product in mid-2022.
According to the company, the banking-as-a-service initiative is being developed "based on the successful product development and launch strategies" used in the company's new all-digital checking account, Shaka, which has opened more than 3,300 accounts since its November debut.
Senior Executive Vice President and Chief Financial Officer of Central Pacific Financial Corp. and Central Pacific Bank David Morimoto said in a recent call with Pacific Business News that banking-as-a-service is a concept that has gained traction over the past several years, especially since the start of the Covid-19 pandemic.
With banking-as-a-service, Morimoto there's generally a "fintech," or financial technology, entity, typically on the Mainland, which needs a sponsor bank.
"The fintech [entity] itself, ... is offering banking services to consumers across the nation, but they are not a bank," he explained. "So they can't offer bank products, but they can do it as a financial technology company with a bank sponsor behind them. So what has happened over the last several years, financial technology has gained a lot of traction because fintech companies excel at two things.
"They do customer acquisition very well ... and then they do user experience. The user experience via their mobile app is very, very good. That's what allows them to generate so many customers. So they do those two pieces well, but they're not a bank, so they need a sponsor bank."
Morimoto said CPB will become the sponsor bank and leverage the fintech's expertise to "efficiently access what we've been calling the other 99% of the U.S. banking market. Hawaii's population is less than 1% of the U.S., so we're using banking-as-a-service as a way to efficiently have CPB participate in the other 99% of the U.S. banking market."
Over the last year, "we've been incubating Swell within CPB," he said. "And we've been learning from what is happening with the other fintech banks, so we believe we're building a differentiated model that's focused on profitability."
CPB has so far invested roughly $1.5 million in sweat equity, what it spent incubating Swell over the last nine months, and will likely invest another $500,000 later this year.
Swell also is independently talking to third-party investors to raise a series A round of funding, he said, and when that is complete more details will be available about the ownership structure.
President and Chief Operating Officer Arnold Martines said in the same call with PBN that other banks are partnering with fintech companies on the Mainland, but CPB's approach is different.
"Other community banks are just offering ... products and services to the fintech," he said. "As David mentioned, we came up with Swell. We incubated this within CPB as we were concurrently launching our Shaka digital checking product.
"So the approach is very different," Martines continued. "We know the players involved, and we believe that the strategy we have and how we're going to proceed tactically is going to be very unique. It's going to be very unique partnership between a bank and a fintech."
