First Carolina Bank has launched a new line of business, which will boost its deposit portfolio by nearly $450 million, expand its customer base and give it more lending power. The bank’s deposit partnership with New Jersey-based BMTX, Inc., a financial technology company and subsidiary of BM Technologies Inc., started on Dec. 1.
 
The new five-year partnership makes the Rocky Mount-based First Carolina Bank, which has one branch in Wilmington, the exclusive provider of nearly 290,000 deposit accounts for college student customers of BMTX’s BankMobile Vibe. Those accounts total more than $431 million in FDIC-insured deposits.
 
Because BMTX is an online financial technology company and not a bank, it cannot offer FDIC insurance for those deposit accounts, First Carolina President and CEO Ron Day said.
 
“FDIC insurance is available only through a bank, which must pay for that insurance,” he said. “[BMTX] is not a lender; it’s a fintech involved in the business of gathering deposits and has a contractual relationship with one-third of the colleges and technical colleges in this country.”
 
This line of business has nothing to do with student loans, Day emphasized. BMTX serves low-to-moderate-income students who receive some kind of financial aid or government grant, Day explained. The grant money initially comes to the school to cover specified expenses, but some funds are forwarded to the student as spending money. The student can put the money into an existing bank account or open a digital account with BMTX. Those digital accounts now reside with First Carolina Bank.
 
“BMTX services the accounts, managing fraud risks,” Day said. “We oversee that to make sure BMTX is compliant. We provide the FDIC insurance and those accounts are ultimately our responsibility.”
 
BMTX formerly had a partnership agreement with a large bank in Philadelphia but decided it wanted a smaller bank as a partner. First Carolina was looking for more deposits. A financial institution “matchmaker” introduced the two companies more than a year ago, and over the past 13 months, they have gotten to know each other and have worked through the regulatory aspects of the partnership.
 
Of the more than 750 higher education institutions BMTX serves, about 80 are within a reasonable distance of a First Carolina branch, according to Day. That fact is beneficial to both the fintech business and the bank. It puts a somewhat local name and face to a BankMobile Vibe student provider, should the student need in-person help, and it creates “an inclination toward First Carolina” among those BankMobile Vibe customers.

Day said some of those account holders are already visiting First Carolina, which has branches in Raleigh, Cary and Reidsville, North Carolina; Virginia Beach, Virginia; Columbia and Greenville, South Carolina; and Atlanta, Georgia, in addition to Rocky Mount and Wilmington.
 
“BMTX doesn’t offer credit cards or loans, so we may do more business as a result of this partnership,” Day said. “We have experience with higher education institutions, so (this partnership) offers a lot of potential.”
 
The new deposits also help buffer First Carolina against possible headwinds. After the sudden collapse of Silicon Valley Bank, Signature Bank and First Republic Bank last March, banks have sought to increase their deposit portfolios and decrease the amount they hold over the $250,000-per-account FDIC insurance cap.
 
“That upheaval basically brought to the forefront the importance of insured deposits and how vulnerable a bank can be in the digital age if you hold a significant portion of deposits that are over the insured amount,” Day said. “These new accounts are mostly small, and very stable.”

The First Carolina CEO said there’s an additional benefit to his institution from working closely with the fintech company.
 
“The partnership is going to help us learn how to become more digitally proficient,” he said. “The majority of our customers deal digitally in a way that is efficient, safe and secure, and to their liking. This is only going to evolve. We believe we will learn a lot more about this through this partnership. We can be very responsive (to the BankMobile Vibe customers) and BMTX is going to teach us a lot about how to work with customers digitally.”
 
Day said First Carolina has another digital banking model, right in its neighborhood: Live Oak Bank.
 
“We lend in different verticals: we’re in consumer and commercial loans, as well as commercial real estate loans. They are almost exclusively small business lenders,” Day said. “But we have things in common, and we would like to learn from their example of being a low-branch-footprint company. Live Oak has made great strides.”