What the SoFi Acquisition of Zenbanx Means for the Future of Fintech

In a move viewed as a step towards becoming more central to their member’s financial lives, SoFi acquired Zenbanx for $100mn in an all-stock deal. The deal will allow SoFi to offer their members the ability to open bank accounts, another area of finance that SoFi is keen to disrupt.

Fintech companies of all kinds have started to partner with banks but this deal is different. It marks the first time that an online lending platform will have the ability to accept deposits.

During Peter Renton’s latest podcast with SoFi CEO Mike Cagney, they discussed the future plans of the company and how they view themselves in the market. Mike explained that they are building SoFi to be a new kind of financial services firm. “We’re one that embraces the idea of beyond the product, it’s really around the concept of money, career and relationships, that’s what we’re trying to deliver into our member base.”

While the specific terms of the deal were not disclosed, the Wall Street Journal reported that “it was an all-stock deal valued at nearly $100 million”. It was also disclosed that the majority of the Zenbanx staff will be joining SoFi and Zenbanx founder and CEO Arkadi Kuhlmann will be coming on board to run the development of new banking services. Initially Zenbanx customers will not notice any difference, but in a few months when SoFi starts rolling out their new banking products all current Zenbanx customers will migrate to the new SoFi platform.

Zenbanx offers a mobile account in the U.S. and Canada that lets people save, send and spend money in multiple currencies. According to a Bloomberg article, Zenbanx had raised about $10mn in venture financing from Tencent Holdings and Recruit Strategic Partners at a $129mn pre money valuation. The global footprint of Zenbanx and the recent move into Australia will help SoFi transition into more of a global brand, something they are keen to do.

The size of this deal brings to mind a similar deal from a few years ago when Spanish bank BBVA acquired the digital bank startup Simple for $117mn. Since that acquisition occurred, reporting shows that customer acquisition and disruption in the banking space is not as easy as it may sound. According to a Quartz report in May of 2014 the BBVA-Simple deal was a challenge from the start as the size of the deal raised alarm in the banking community and Simple’s customer growth was slowing down.

BBVA is still grappling with the ramifications of their 2014 acquisition, American Banker reports today that BBVA has taken nearly $90mn in goodwill impairment charges related to the Simple deal. While the charges seem steep, the company is still happy with the Simple deal from a digital standpoint and they have hired 260 more employees to help that part of the business run. Valuing a digital bank seems to be an inexact science to say the least; Simple went to BBVA for $117mn in 2014 and now BankMobile is on the market from Customers Bancorp in what analysts think will be a deal valued around $100mn.

BankMobile is said to have more than 2 million customers, while back in 2014 Simple was thought to have 100,000 customers. On the face of the deal it looks as if the BankMobile transaction would be a steal, though understanding who uses the product and how you grow that user base over time will help to put a firmer number on that value of the transaction for the buyer.

That brings us back to SoFi and Zenbanx, how does SoFi value the cost of acquiring Zenbanx and does this acquisition fit within their product set. According to CEO Mike Cagney’s blog post, it will fit nicely with the type of products their core customer is looking to utilize. “Zenbanx’s focus on a fast and simple mobile experience on top of solid banking technology makes them a natural fit for SoFi and our members, who demand to be able to manage their money whenever and wherever. They’ve also been at the forefront of conversational banking built into popular messaging apps, an area core to our current development.”

Banking built into messaging apps is very interesting and something that has taken off in China in recent years. We are probably some time off before it becomes mainstream in the USA but it looks like SoFi wants to be at the forefront when it does.

This is an important deal for the fintech space and an important milestone for SoFi’s product diversification. SoFi will now be able to offer you a student loan refinance, a consumer loan, a mortgage, help to manage your wealth, purchase insurance and accept deposits. Mike Cagney has also said that also on the list for SoFi will be their move into offering a credit card. As the roll out of their banking products begins, we will learn more about how this acquisition will affect their overall strategy.

Todd is the Chief Product Officer of LendIt Fintech.

He is the host of PitchIt: the fintech startups podcast, a weekly interview show featuring emerging fintech founders and leading venture capitalists.

He is responsible for leading the content team which covers fintech through daily & weekly email newsletters, editorial, virtual events, and in-person conferences.

He has been covering fintech, banking, and venture capital for more than 15 years, including speaking regularly at industry events.

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