Why SoFi’s bank buy might rewrite the bank charter playbook for fintechs

• SoFi’s acquisition puts it on the verge of becoming a full-fledged bank

• And its decision to acquire a small community bank instead of independently obtaining a national banking charter provides a roadmap to other deep-pocketed neobanks and tech companies.

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The US-based alt lender is acquiring Golden Pacific Bancorp Inc., a California community lender, for $22 million to become a nationally chartered bank, The Wall Street Journal reports.

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Upon receiving regulatory approval for the Golden Pacific purchase, SoFi will contribute an additional $750 million into the bank to further drive Golden Pacific’s national and digital expansion. The pending transaction follows SoFi’s January 2021 announcement that it will go public later in Q1—through which it expects to raise up to $2.4 billion in cash proceeds. The alt lender is wasting no time bolstering its current banking offering in the interim, launching its first ever credit card yesterday as well.

And Insider Intelligence believes that the Golden Pacific acquisition means SoFi is abandoning its original plan to build a nationally chartered bank from scratch.

• How it got here: The alt lender had previously attempted to form an industrial bank in 2017, but withdrew its application amid a scandal involving its then CEO. After instead filing for a national charter, SoFi finally received preliminary, conditional approval from the Office of the Comptroller of the Currency (OCC) last October. Buying a community lender is a departure from its prior strategy, but current CEO Anthony Noto indicated it is a more efficient approach to achieving SoFi’s goal of becoming a national bank.
• Why it switched things up: Obtaining OCC approval is time-consuming and expensive: Varo became the first fintech to secure a national banking charter last summer, but due to the capital requirements enforced by the OCC, the endeavor cost nearly $100 million and took three years to complete. It is particularly notable that the bank SoFi acquired has the same amount in assets—roughly $150 million—as what it would have expected to keep as capital reserves if it was operating a standalone bank. SoFi can now more effectively deploy that freed-up capital in other areas, including marketing and modernizing its newly obtained banking operations.

SoFi’s new approach to becoming a nationally chartered bank could inspire other well-funded neobanks and tech companies to do the same. Purchasing Golden Pacific allows SoFi to switch from a de novo to a change-of-control application, ultimately speeding up its process of becoming a bank.

Meanwhile, Chime has said it is considering applying for a national charter, and Klarna—which is actively expanding in the US—is already chartered in Europe. Given the significant amount of funding each has at its disposal, following SoFi’s strategy of scooping up a smaller bank could greatly accelerate their banking ambitions in the US.

And nonbank fintechs aren’t the only ones attempting to carve out a piece of this market: Tech companies—including Apple and Google—have been dipping their toes into banking as well. The significant regulatory requirements have likely precluded them from applying for banking charters of their own, but acquiring an already established bank that is more experienced in handling such matters could alleviate those concerns.

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