The Minnesota town is a far cry from M1’s home city of Chicago—and an even farther one from Wall Street. It is about 3.5 square miles in size and home to fewer than 1,000 people. But in January, Barnes made the trek north in the midst of minus 30-degree temperatures outside to meet the 11 people working at First National Bank of Buhl. 

One of the smallest banks in the U.S.—with its mascot, Miss Penny the Pig, situated out front—First National Bank of Buhl has two branches based in the northernmost parts of Minnesota. Its count of deposits according to S&P Global Market Intelligence data is $29.4 million, or 0.001% of JPMorgan’s. But its status as a federally regulated bank provides it with a license that has come into vogue with fintech firms like M1 looking to provide their users with the capabilities of a bank, brokerage, and more all in a single app housed on the phone in their back pockets. And so, months after that diligence visit, Barnes—not M1—officially bought the bank for an undisclosed amount.

“It was sort of like stars aligned,” Barnes, 31, tells Fortune of the deal. 

“The race is really on right now”

Founded in 2015, M1 has been quietly building out a network of assets and clients that has become more and more formidable over the course of the pandemic. An early adopter of fractional shares, the brokerage has expanded its count of customer assets fivefold since early 2020 to more than $5 billion, a staggering level of growth that has led the company to conduct four rounds of financing in that same time from investors like Left Lane Capital, SoftBank’s Vision Fund 2, and Coatue. Its latest raise valued the company at $1.45 billion. 

Barnes, a self-described “personal finance nerd,” first became enamored with investing around the time he was 10 years old. His parents walked him through a traditional brokerage account at the time, and, Barnes says, “Something just clicked.” Years later, though, what Barnes found to be out there in the investing world was far from the slick interfaces that society had become used to thanks to social media and the prevalence of the iPhone, paving the way for M1’s creation. 

M1 was built—like others in the evolving world of fintech including SoFi, Robinhood, and Stripe—to fulfill, within one app, every financial need that a consumer could have. In recent years, these “financial supermarket” hopefuls, partly following a path laid by their predecessors, have been scaling their businesses out into new areas at rapid speeds. The pandemic accelerated the transition further, especially for those like M1 whose businesses are based in investing in the financial markets.

For instance, Stripe, a payments processor, partnered with Goldman Sachs and Citigroup in late 2020 to begin offering checking accounts to its users. Robinhood has been expanding its business dramatically in recent years, pushing further into products like cash management and markets such as crypto. The newly public brokerage firm’s executive team has even expressed an interest in wading into the retirement account business. And Square, the fintech founded and led by Twitter’s Jack Dorsey, keeps expanding what seems like an ever growing web of new businesses, having recently purchased a buy-now, pay-later platform with Afterpay and Dorsey expressing interest in even building a Bitcoin mining operation. 

“We’re in the very early innings,” says Devin Ryan, director of financial technology research at JMP Securities. “The race is really on right now.”

Becoming a bank

M1 has grown its business around three pillars—invest, borrow, and spend—that allow its customers to set up an automated and customized investment strategy, take out money against their brokerage account, and, with its newest offering, set up a credit card through M1 and Utah-chartered Celtic Bank. But if M1 is to play a role in the next generation of Wall Street giants, it needs more, Barnes recognizes.

Enter First National Bank of Buhl.

The small Minnesota lender first popped up on Barnes’s radar when one of his lawyers flagged it for him in late 2020. That notice kicked off a months-long acquisition process that ended with the deal closing in July. The bank was acquired by Barnes, so for now it is bound to join Celtic Bank and Lincoln Savings Bank as one of M1’s banking partners.

The deal, officially announced Tuesday, is not the only banking news M1 made. The company also added Christine Larsen, a current director at CIBC, to its board. Larsen previously worked in various executive and senior leadership roles at First Data, JPMorgan, and Citigroup. M1 has also announced a partnership with banking software company Temenos so that it can “build a stronger, faster, more secure cloud banking platform.”

With First National Bank of Buhl, M1 first plans to provide personal loans, and then others like mortgages and auto loans, to its customers, Barnes says. M1 will continue to work with Celtic on its credit card offering, known as the Owner’s Rewards card, as well as Lincoln Savings so that it can continue to give access to checking accounts and debit cards to its customers too. 

In the long run, Barnes sees M1 itself becoming regulated as a bank, perhaps with an acquisition of First National Bank of Buhl, once it gets “into the position where it can be a bank holding company.” But for now, Barnes’s purchase of the tiny Minnesota bank is a step that the M1 Finance CEO says will be critical for its ultimate push to become everything that is finance for its customers. 

“The Schwab of the next generation or the JPMorgan Chase of the next generation isn’t going to be a brick-and-mortar, retail branch base. It’s going to be heavily built on a technology infrastructure, and it’s going to own the brokerage, the banking, and all aspects of financial services,” Barnes says. “And so we are putting the building blocks into play to really be that institution.”

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