SoFi's [SOFI] stock could be set for a sustained surge after receiving approval for its National Bank Charter from the Office of the Comptroller of the Currency (OCC). The bank charter gives credibility to SoFi’s brand by deeming its management, business plan, and profitability roadmap worthy.
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What is SoFi?
SoFi is a challenger bank aiming to disrupt the traditional banking sector. It operates three core units; lending, financial products, and its Galileo platform. Galileo handles payment processing and digital banking solutions through its application programming interface (API) for fintech companies such as Dave [DAVE], Chime, Robinhood [HOOD], and Revolut.
Coined a “one-stop-shop” for all financial needs, SoFi operates student loans, auto loans, mortgages, refinancing, credit cards, as well as checking and savings accounts. On the investment side of things, the company has fractional shares, specialized ETFs, robo-investing, margin trading, crypto, and it gives members free access to qualified financial advisors. SoFi even offers insurance products too, through partnerships with companies like Gabi and Lemonade [LMND].
SoFi is not yet profitable while it undergoes its growth strategy, but it seems well-capitalized to do so.
CEO Anthony Noto noted on the most recent earnings calls:
“The $1.2 billion we raised in a zero-coupon convertible debt offering in October brought our total capital raise over the past year to $3.6 billion, and our total capital to $4.6 billion.”
The same results in Q3 2021 showed 96% year-over-year (YoY) growth to a total of 2.9 million members and it has seen success in its cross-selling strategy with more than 4.3 million products sold in total, or a 108% YoY increase.
Its Galileo platform had an 80% YoY increase to 89 million accounts worldwide, and its financial services product segment — while still early in its lifecycle — grew triple digits (179%) to 3.2 million products.
What does the bank charter mean for SoFi's stock?
SoFi, like many other fintech firms, is required to partner with FDIC-insured banks to insure customer loans and deposits. This will no longer be the case and it won’t need an intermediary to facilitate its loan offerings. This means the company itself can offer more competitive interest rates without having to share a cut of the profits with another third party, which should have an immediate impact on overall profitability.
Even before news of the charter, SoFi offered some of the most competitive rates in the market because of its asset-light model which doesn’t rely on physical infrastructure. Amid market uncertainty, SoFi could also stand to benefit from the anticipated rate hikes by the U.S. Federal Reserve which could see further growth in its credit and lending lines.
It’s still early on in the company’s journey, making it a high-risk, high reward investment but it’s making significant progress to becoming a real competitor in the banking sector. Tackling a trillion-dollar industry is no easy task for any company, but at just an $11 billion market capitalization, we could see this fintech grow into its valuation over time.
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