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SoFi is Acquiring a California Community Bank

The fintech leader is paying $22 million for Sacramento-based community bank Golden Pacific

March 9, 2021 By Peter Renton Leave a Comment

Emily Chang of Bloomberg interviews SoFi CEO Anthony Noto

It has been a busy first quarter of 2021 for SoFi. The new year kicked off with the announcement that SoFi will go public via SPAC in a groundbreaking merger that valued the company at $8.65 billion. Today, we learned that the company will be acquiring a small community bank called Golden Pacific Bank based in the Sacramento region. The transaction will cost SoFi $22 million and is expected to close by the end of the year.

Now, we know that last July SoFi applied for a national bank charter with the OCC and that was conditionally approved in October. But according to sources close to SoFi there was a parallel process that has been running this entire time. While the charter application progressed SoFi was also looking for a community bank to acquire. They have found the perfect match in Golden Pacific, a three-branch community bank with $150 million in assets. Now, they are changing their OCC application from a de novo bank to a change of control application.

If the OCC and Federal Reserve approve the merger then Golden Pacific will change their name to SoFi Bank and SoFi will contribute an additional $750 million in capital for its national digital bank. Its entire lending business, which operates with state lending licenses today, will move under the new bank as well as the SoFi Money accounts. The community bank will continue, operating as a division of SoFi Bank, and the leadership will remain in place.

Here is what Anthony Noto, CEO of SoFi said of this acquisition:

We believe that by pursuing a national bank charter, we will be able to help even more people get their money right with enhanced value and more products and services. We are thrilled to have found a partner in Golden Pacific Bank to both accelerate our pursuit to establish a national bank subsidiary, as well as begin to expand our offerings in SoFi’s financial products and Galileo’s technology platform to serve local communities. We look forward to working with Virginia and her team.

The CEO and President of Golden Pacific Bank, Virginia Varela said:

We’re excited for this new partnership with SoFi and the strength it will bring to enhance our ability to serve our customers at the highest level. We will continue our commitment to bringing more services and convenience for our individual customers, small businesses, and the communities that we serve in Sacramento and surrounding counties.

One interesting part of this deal is that it gives SoFi an entry point for their Galileo division to expand to providing their technology platform to community banks. They are already working with fintechs around the world and now they can potentially adapt their platform for community banks.

Is This the Start of a Trend?

SoFi is not the first fintech to acquire a community bank. Jiko acquired a community bank in Minnesota last year and, of course, LendingClub recently acquired Radius Bank although that is a little different in that Radius is a former community bank, they switched to become a digital bank in 2012.

Around 18 months ago I recorded this podcast with the CEO of ProBank Austin, Chris Hargrove, where we spent the entire episode discussing this very topic. Back then Chris predicted we would see a dozen or more transactions where fintechs acquire community banks. We are not quite on that pace yet but I think we could see this accelerate in the next year or so.

Late last year I wrote about the flood of fintechs that want to become banks. Since then more fintechs have announced plans to acquire a banking license so the trend is continuing. Following SoFi’s lead you can be sure that many future banks will be looking at the acquisition route as well as the de novo application. So, stay tuned for more news here.

It is Almost Becoming a Flood: Fintech Companies Want to Become Banks

More fintech companies are applying and being approved for banking licenses, it is a trend that is here to stay

November 24, 2020 By Peter Renton 3 Comments

First, we had Varo. Then came Square. More recently SoFi, then Figure, now Oportun is joining the party. Let’s not forget LendingClub who are going the acquisition route and Jiko have done the same. Robinhood have toyed with the idea and Revolut is thinking about it. All these fintech companies want to become fully regulated banks.

Varo was the first one off the mark and were fully approved earlier this year. It was a long three-and-a-half-year process, but they have paved the way for other fintech companies seeking a full national bank charter. Square went the ILC route and they were also approved this year. SoFi has received conditional approval just last month from the OCC for their national bank charter.

Figure announced their charter application just a couple of weeks ago and we had an absolutely fascinating session yesterday on LendIt Fintech Digital with Ashley Harris, the General Counsel of Figure speaking with Michele Alt of the Klaros Group. Figure’s application is somewhat unique in that they are applying for a national bank charter with the OCC but not the FDIC as they will not be taking deposits directly. Ashley went into some detail on the reasoning here and how Figure Bank will operate.

Now, yesterday we heard the news that Oportun will be the latest company to apply for a national bank charter. In a blog post penned by CEO Raul Vazquez he shared the thinking here:

A national bank charter will allow us to reach all of the estimated 100 million low-and-moderate income (LMI) consumers in the U.S. that we seek to serve. Currently, Oportun maintains dozens of state licenses in order to offer affordable and responsible financial services to LMI communities. As a national bank, we can efficiently provide the security of dealing with a federally regulated and supervised bank to our customers and other stakeholders.

This is a theme we are hearing from many companies. Maintaining dozens of state licenses makes little sense when you are trying to serve consumers nationwide. Even for companies like Oportun, that operate hundreds of brick-and-mortar locations as well as offer loans online, they see the benefit in a national charter.

Fintech Charter Anyone? Anyone?

I have been following the fintech charter ever since former OCC head, Thomas Curry, proposed the idea back in December 2016. Since formally introducing the fintech charter in 2018 there has been significant pushback with multiple lawsuits and a federal judge ruling a year ago that the OCC does not have the authority to issue bank charters to non-banks.

Acting Comptroller, Brian Brooks, has openly challenged this argument and has proposed having potentially multiple special purpose charters issued by the OCC. He said at LendIt Fintech USA a few weeks ago that as fintech has unbundled banking there could be a payments charter as well as one for lenders. With 38% of lending being done outside the banking system Brooks thinks it would be better for consumers if banking regulators supervised more of the total lending pie.

But right now no company has come forward, at least publicly, and applied for one of these special purpose charters. And it seems that momentum has shifted towards a full national bank charter.

If You Can’t Beat Them Join Them

I was talking with a reporter recently about the changed narrative since the early days of fintech when fintech companies were going to disrupt or at least disintermediate banks. Now, that story is pretty much over as the majority of fintech companies are seeking to become banks or at least more “bank like”.

It is not that long ago (less than five years) that SoFi was launching a TV ad campaign, including a Superbowl ad, that ended with the tagline: Don’t bank. SoFi. Fast forward to 2020 and SoFi is well on their way to becoming a bank.

Fintech and banking are converging. There will be a time in the near future when there will be little distinction between banks and fintech companies. Even those companies that are happy without a banking license use partner banks to offer various to their customers.

The future of fintech is in banking. And the future of banking is in fintech. Similar to the way that e-commerce has evolved banking will have some traditional players who have embraced technology and thrive, and fintech will have created some national behemoths, with banking licenses, that will be approaching the scale of some of the largest banks.

So, you can expect many more bank charter applications from fintech companies in the months and years ahead.

OnDeck Pursuing Bank Charter, Loses Chase

OnDeck shared a flurry of updates on the business in their Q2 earnings results.

July 29, 2019 By Ryan Lichtenwald 1 Comment

OnDeck had some pretty interesting updates in their earnings release which took place earlier today. CEO Noah Breslow shared that the company has decided to pursue a bank charter which will enable the company to offer their small business customers a wider range of products. OnDeck has been studying their options for some time and felt that the timing was right. While OnDeck didn’t want to divulge their vision or timing for what the company may offer they did mention that the bank charter would be accomplished through a transaction or a de novo bank application.

To date, OnDeck has operated as a non-bank lending institutions, but they believe the opportunity is much bigger, even mentioning “digital banking for small businesses” as well as increasing product and services both in lending and non-lending on the call. There will also be benefits as it relates to funding. While this may be a costly endeavor they believe the benefits outweigh the costs. At this point this announcement leaves a lot to the imagination but it alludes to a number of interesting opportunities for OnDeck in how their business could transform.

OnDeck also shared plans for a $50 million stock repurchase program noting that even with the investment they will still have capital for further growth and a buffer against economic uncertainty.

Probably the biggest shock was that Chase is concluding their partnership with OnDeck. When this partnership was announced it created quite the buzz in the fintech community. To be working with Chase was a huge vote of confidence for OnDeck and I too thought it would radically change OnDeck’s business.

Chase will stop originating loans through OnDeck and OnDeck will continue to service the loans for two years. Breslow stated that the decision on Chase’s side was due to a change in strategic priorities and spanned more than just their small business lending plans. This decision makes one think about the long term plans of the bank as perhaps they look to build their own technology platform.

Despite the bad news with Chase, we learned that the pipeline has never been stronger with OnDeck’s ODX offering and that they are making progress in converting new customers. We should hear more announcements before year end.

In the quarter OnDeck also closed the transaction with Evolocity to combine their Canadian operations. Moving on to financials in Q2 2019, net income was $4.3 million compared to $5.6 million from the prior year period and $5.7 million in Q1 2019. Gross revenues were $110.2 million and originations were $592 million in what is typical for the second quarter.

You can view OnDeck’s Q2 earnings press release here.

Conclusion

It’s hard to sugarcoat losing the largest bank in the US as a client. Since the relationship was announced many have been looking to get a better understanding of the traction of the partnership. Now we have an understanding of perhaps why we never got the details. Since the Chase partnership was announced OnDeck created a new division called ODX to house this part of the business and signed up PNC on their ODX platform. There is clearly still opportunity in the ODX business but going forward OnDeck is going to have to work harder to prove the model out to their investors.