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  • Sanjeev Kumar & Risav Chakraborty

SoFi: a FinTech, a Challenger, and a Bank

The alliance between traditional banks and disruptive FinTechs is no news – the past few years have witnessed several established financial institutions acquiring or collaborating with these novel business model providers to develop collaborative business propositions. As the FinTech industry matures, many of these newcomers are venturing to become a full-stack business by obtaining the trusted safety net of licenses to operate as a bank. The agenda is to reimagine the entire business model and technology stack of the financial industry by launching an extensive set of customer-centric offerings for a variety of segments. And having a license enables a FinTech to get regulatory endorsement to build trust with the consumers, and to independently do everything that an incumbent can do.

SoFi has become the latest American FinTech to acquire a banking charter in this race of banking licenses, as the national regulators accepted its applications to become a Bank Holding Company and form SoFi Bank. Through this post, we take a look at some of the key events that shaped its path towards becoming a national bank.

SoFi—which started as student loan refinance FinTech —first set its sights on acquiring a banking license in 2017, when it applied for an industrial loan charter under the name SoFi Bank. Earlier that year, SoFi had bought mobile banking startup Zenbanx for about $100M in a bid to bolster its suite of financial offerings. However, with the exodus of company executives, its plans of becoming a bank soon started unravelling as the FinTech formally withdrew its bank application citing leadership change. The company announced closure of all Zenbanx accounts within six months of the acquisition and abandoned expansion plans in both Australia and Canada.

In July 2018, the Office of the Comptroller of the Currency (OCC) started accepting applications for national bank charters from non-depository financial technology (FinTech) companies engaged in the business of banking. This led to several rounds of challenge from The Conference of State Bank Supervisors (CSBS) in courts, which argued that the OCC had gone beyond its authority in issuing national banking charters to non-bank firms. Fast-forward to Jan 2022, and the CSBS dropped its lawsuit against the OCC – with a FinTech applicant agreeing to seek deposit insurance from the FDIC.

In July 2020, SoFi used this route to get a national bank charter by applying directly with the OCC, and was granted a conditional approval in October 2020, allowing it to receive deposits and make loans on its own. The following year, in an effort to speed up the licensing process, SoFi acquired Golden Pacific Bancorp for $22.3M. The merger was officially approved on 18th Jan, 2022 – as both the OCC and the Federal Reserve conditionally granted SoFi a National Bank Charter.

SoFi’s journey towards realizing its national banking license dream has been a long and perilous one, but it is the perfect stepping stone for the FinTech’s ambitions of national expansion and improved consumer offerings.

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