Social Finance (SoFi) has a storied history in its ten-year lifetime. The firm was initially formed to meet its four founders’ educational funding needs, with a peer-to-peer lending model, then began to cross-sell mortgages to MBA and law school graduates, known as HENRYs (High Earners, Not Rich Yet). The company raised close to $1 billion; in 2013, it arranged an asset-based lending model to securitize its loans.
Indeed, a few bumps along the way led to a CEO resignation in 2017 and an FTC settlement for lending clarity, but the company fared well. In May 2019, it added a funding vehicle backe4d by Qatar Investment Authority and acquired Galileo Payments for $1.2 billion in 2020. In 2021, they announced they would merge with a Special Purpose Acquisition Company to bring the firm to the next level.
Today’s news involves two significant moves. The first is the acquisition of a bank; the second is the issuance of a credit card.
TechCrunch announces that SoFi acquired a small community bank, rather than going through the friction of directly getting a banking license. For a mere $23.3 million, SoFi gets fast-tracked into the gentile banking world. According to the article, “A national bank charter will give SoFi the ability to accept deposits and make loans that use SoFi’s member deposits as opposed to funding its loan offerings as a nonbank, by contracting external underwriters at a premium.”
- As a result of the proposed acquisition, SoFi said it would switch its current de novo bank application to a change of control application. GPB currently has about $150 million in assets. Still, if the OCC and Federal Reserve grants SoFi a national bank charter, the company said it would put $750 million toward its national, digital business plan. At the same time, it will maintain GPB’s community bank business and footprint, including its current three physical branches.
- SoFi expects the acquisition to close by year’s end. At that time, GPB’s community bank business will operate as a division of SoFi Bank, N.A., a renaming of GPB’s bank entity.
With a background at Goldman Sachs, Lehman Brothers, and the NFL, CEO Anthony Noto is certainly no slouch when it comes to business. At the same time, SoFi is launching a credit card, as Finextra announces. The company press release indicates the financial institution behind the card will be the Bank of Missouri, which is an aggressive issuer, so expect that SoFi will cast a wide net beyond their original target market of “HENRY’s.”
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group