Digital-only Grasshopper Bank has completed a $46.6 million funding round, which it plans to use to support its
Grasshopper CEO Mike Butler told American Banker that the Auto Club deal, which closed in April, is akin to a banking-as-a-service transaction, in that it provided Grasshopper with an entry point to a pool of 13.8 million American Automobile Association customers in 13 states. Looking ahead, Grasshopper would like to explore similar deals with other large brands.
"We have this opportunity to take the concept of banking-as-a-service outside of the traditional fintech and into a brand like AAA," Butler said.
New York-based Grasshopper's success in raising a significant amount of new capital from a group of sophisticated investors led by Patriot Financial Partners and Glendon Capital Management signals a "vote of confidence" in its strategy, Butler added.
"This capital gives us the opportunity to continue pushing boundaries, broaden our reach, and unlock new possibilities in how we deliver meaningful, future-ready digital banking experiences," Butler said.
The $1.33 billion-asset Grasshopper was founded in 2019 as a digital-only bank that served small and medium-sized businesses. Butler called business banking "the most exciting, fastest-growing part of our company," but he said the bank's business model would naturally evolve as Grasshopper deepens its involvement in partnership banking.
"Because of the way we're built, we're a bit of a white board as it relates to where to go next," Butler said. "We do want to expand into serving the client base bigger and broader, and we will move into more consumer-type activities. The mission is to be a full-service digital bank."
Grasshopper is also open to working with community banks that may be interested in pursuing digital banking opportunities but would prefer to do so alongside another institution, rather than building their own platforms.
"What Auto Club said was, `I'm having a hard time building this, I want to partner with somebody," Butler said. "We think this … could also lead to relationships with other banks that might want to look to us as partners."
Powered by the acquisition of Auto Club, Grasshopper reported loans of $962 million and deposits totaling $2.37 billion on June 30. Those figures represented increases of 55% and 193%, respectively, compared with June 30, 2024, results.
Grasshopper's move to bulk up in banking-as-a-service comes as demand for banking services by fintechs and other companies far exceeds the supply of banks active in the space, according to experts.
"The demand is enormous," Erik Sprink, CEO of the $4.5 billion-asset Coastal Financial Corp. in Everett, Washington, told American Banker in a recent interview. "The amount of money flowing back into technology, innovation, digital adoption … it's at a fever pitch right now."
For his part, Butler said he believes the population of technophiles is growing rapidly. He argued that such consumers want "to be working with financial services more like they would with a company like Amazon."
"We believe that the expansion of the fintech ecosystem will require partnerships with banks down the road more and more. And we want to be a part of that," Butler said. "We embrace that."
Along with the additional capital, Grasshopper announced Tuesday that it has appointed four new members to its board, bringing the number of directors to 11.
The new directors include James Fitzgerald, former chief financial officer of Boston-based Eastern Bankshares; Brian Graham, a cofounder and partner at the investment and advisory firm Klaros Group; former Office of the Comptroller of the Currency Chief Counsel Karen Solomon; and entrepreneur John Surgent.
