Depending on how things go, the purchase price could rise by up to £5mln.
U Holdings, trading as U Account, focuses on customers who are underserved by traditional banks. As part of the transaction, Morses Club has acquired U Account's technology and e-money banking
U Account has historically been loss-making, running up an unaudited loss in the year to the end of February of £4.0mln on revenue of £1.7mln.
Management expects losses this year will be in the region of £1.4mln to £1.7mln but is confident it will turn profitable thereafter.
The board said it intends to continue its progressive dividend policy and, in respect of the year ending February 2020, to at least maintain the current level of the dividend of 7.8p.
"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 c.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,” said Paul Smith, the chief executive officer of Morses Club.
Shares in Morses Club were down 2.6% at 151p in early deals.