Doorstep lender Morses Club is to enter the current account market for the first time with the acquisition of U Account for up to £11m.
Batley-based Morses said U Account will give it a leading digital current account proposition, card services through Mastercard and 20,000 customers.
The addition of Sheffield-based U Account will increase Morses' customer base by 9 per cent to 255,000.
Morses said the acquisition of U Account is an important step in its strategy to build a digital offering to allow its customers to access credit flexibly in a significant growth segment of the market.
The acquisition follows the recently announced purchase of some of CURO Transatlantic's assets.
Morses' chief executive Paul Smith said: “This acquisition represents a fantastic opportunity to enter the rapidly growing online banking market.
"U Account features the full suite of digital banking services and has grown its customer base to around 20,000 active customers. U Account’s offering is highly complementary to that of Morses Club, and through this acquisition we expect to deliver significant synergies and cross selling opportunities.
“This is another exciting step for Morses Club as, consistent with our stated strategy, we continue to diversify our product offering to serve a broader range of customers across the non-standard credit space."
He said that Morses' use of technology and innovation enables customers to access a broader range of more flexible and suitable credit.
The acquisition will be paid for with an initial cash consideration of £5.8m, financed from existing Morses Club cash and debt facilities. It will also pay a deferred consideration of up to £5m, payable in cash over the next four years, conditional upon certain net profit criteria having been met.
Morses said that U Account is a leading digital current account provider offering an alternative to traditional banking by providing a fully functional agency banking service.
As well as providing card services with its current accounts through contactless Mastercard debit cards, it said U Account also offers in-app features and functionality to help customers manage their finances more effectively.
U Account focuses on customers who are rejected by traditional banks. Morses said it offers a current account banking service that enables customers to receive wages or benefits directly, manage their outgoings and avoid unnecessary bank charges. U Account customers can also deposit cash at one of PayPoint’s 28,000 terminals across the UK and earn rewards from recognised retailers.
As part of the transaction, Morses has acquired U Account’s technology and e-money banking platform.
Morses said that many of its existing 235,000 customers have expressed interest in opening an online current account.
It plans to offer U Account customers new lending products and services to meet their financial needs.
Morses said that whilst U Account has historically made losses, it expects that after integration and restructuring, the losses incurred in the remainder of 2020 will be in the range of £1.4m to £1.7m.
Morses said it is confident that U Account will be earnings accretive thereafter.
Analyst Kim Bergoe at FinnCap said: "With the acquisition of U Account, Morses Club is accelerating its stated strategy of moving into online banking.
"The latest acquisition is an addition to the stable and highly cash-generative home collected credit operations, adapting to changing customer behaviour in this segment, while building the product offering for a new and larger customer pool.
"While the short-term impact on profits will be modestly negative, the longer-term effects of owning the U Account platform are clearly positive for Morses Club in our view."
Analyst Gary Greenwood at Shore Capital said: "With profitability in the home credit division stagnating, Morses Club is ramping up its investment in building online capabilities to service non-standard customers.
"This an ambitious but risky strategy, in our view, as profitably servicing this customer base has proven somewhat difficult for rivals in recent years, with only a small number of high APR lenders so far achieving profitability.
"Consequently, we expect to leave our fair value unchanged at 145p, viewing the acquisition as initially value neutral with scope for a more positive assessment if it can demonstrate delivery of management’s ambitious targets.
"We view this as a pivotal moment in Morses’ development as it looks to transition away from being a just a traditional face-to-face lender."