SoFi has become the latest fintech to apply for a full national bank charter. They filed a de novo bank application with the OCC on Wednesday.
You may remember that back in 2017, when co-founder Mike Cagney was still CEO, that SoFi applied for an industrial loan charter. They pulled the plug on that application a few months later after Cagney resigned from the company.
The interesting difference is that SoFi has decided to pursue a full bank charter this time rather than the ILC as they did before and as fellow fintech Square has done. Of course, it could be that ILCs are somewhat controversial, with many banks, large and small, opposing their very existence.
I reached out to SoFi today and they responded back with this official statement:
We can confirm that SoFi has formally submitted an application to the OCC for a proposed de novo national bank, SoFi Bank, National Association. We look forward to working closely with the Office of the Comptroller of the Currency, as well as with the Fed and FDIC, as they review our application.
CEO Anthony Noto had this to say:
SoFi is on a mission to help our members achieve financial independence to realize their ambitions. We firmly 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.
SoFi will no doubt be leaning on the experience of Varo, the digital bank that is three years ahead of SoFi on this journey, having filed with the OCC in the summer of 2017. They are still waiting for final approval from the OCC (the FDIC has given their approval) . Hopefully, SoFi will not have to wait three years before getting their approval as they should be able to follow a similar playbook. The other fintech that has applied for a full banking charter is Robinhood, a company that has been in the news for many of the wrong reasons lately. LendingClub decided to go down the acquisition route as they announced in February that they intend to acquire Radius Bank.
One advantage that SoFi has now is that Brian Brooks, the new Acting head of the OCC, is intimately familiar with fintech, having previously been on the board of Avant. FDIC Chairman Jelena McWilliams is also very innovation minded, so for the first time the heads of both banking regulators are very reform minded and SoFi should receive a more receptive audience for their ideas.
For any non-bank the big advantage of getting a banking license is that it should lead to a cheaper cost of capital. Today, SoFi has to get bank funding lines to finance their loans but a bank charter will allow them to offer deposits directly. Right now, anyone can open a SoFi Money account which accepts deposits but that account is officially a cash management account with deposits being held with SoFi’s partner banks. This obviously has a cost involved and SoFi cannot lend this capital directly.
Another benefit is lending licenses. SoFi does not work with a partner bank to originate loans, instead it has obtained consumer and mortgage lending licenses separately in every state where it is required. National banks can lend with just one license simplifying the licensing process. Now, there is obviously a much bigger compliance burden overall when becoming a national bank.
The entire industry will be watching SoFi’s progress here with great interest. It is clear that fintech leaders are moving towards offering more bank-like features and many will likely end up becoming banks themselves (or be acquired by a bank). By applying to become a bank SoFi is cementing their position as a fintech leader and one that will continue to blaze their own trail as fintech goes mainstream.