SoFi files for national bank charter with OCC

Dive Brief:

  • SoFi filed an application for a national bank charter with the Office of the Comptroller of the Currency (OCC), as the personal finance startup edges toward becoming a full-service bank.

  • In a 30-page application submitted Thursday, SoFi said a national charter would allow the fintech to operate under a unified set of national regulations instead of the “patchwork of varying requirements” it follows to comply with regulations across 50 states. A de novo charter would also put SoFi on a “level playing field” with traditional banks and lead to enhanced competition for consumers, the company said.

  • “SoFi is on a mission to help our members achieve financial independence to realize their ambitions,” SoFi CEO Anthony Noto said in an emailed statement to Banking Dive. “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.”

Dive Insight:

The San Francisco-based fintech said SoFi Bank, National Association, would be headquartered in Cottonwood Heights, Utah, and would be a wholly owned subsidiary of Social Finance Inc. 

In addition to the OCC, SoFi will also need approval from two other regulators, the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) before it can operate as a bank. 

“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,” a company spokesperson told Banking Dive. 

SoFi launched in 2011 with student-loan refinancing and has since expanded its services to include loans, wealth management and stock and cryptocurrency trading. SoFi also has its own cash management account called SoFi Money.

SoFi said its pursuit of a bank charter is a “logical next step” in the fintech’s evolution. 

“As a large-scale consumer lender and emerging deposit provider, the Company’s business model and product offerings already share many characteristics of a bank,” SoFi said in its application. 

SoFi completed its purchase of Galileo Financial Technologies in May, a $1.2 billion cash-and-stock deal it announced in April.

The Utah-based application programming interface (API)-based payments platform powers many challenger banks, including Chime and Varo Money.

“The acquisition provides infrastructure services that enable basic banking functionality, such as account opening, funding, transfers, bill pay, that power digital banking today,” Bryce VanDiver, a partner at consultancy firm Capco, told Banking Dive in April. “SoFi will look more like a traditional consumer bank with core services in banking, lending and payments after this acquisition.”

Galileo will operate outside SoFi Bank, but will “contribute substantial revenue and profit to the consolidated Company,” SoFi said.

SoFi has eyed a banking license in the past, and initially tried to become a de novo via the industrial loan company (ILC) route under co-founder and former CEO Mike Cagney in 2017.

SoFi ultimately withdrew its ILC applications with the FDIC and the Utah Department of Financial Institutions after Cagney resigned amid sexual harassment allegations made by two former SoFi employees, according to CNBC

With its second attempt, SoFi rejoins a growing field of fintechs looking to reap the benefits of gaining a banking charter. 

The FDIC approved Varo’s application for deposit insurance in February, followed by the ILC applications of Square and student loan servicer Nelnet in March.

Varo, which is in the final phase of its three-year journey to become a bank, must now pass a preopening exam from the OCC, the regulator from which it received preliminary approval in 2018. 

U.K. challenger bank Monzo is also seeking a U.S. bank charter. The digital bank submitted a de novo application for a banking charter with the OCC in April.

Other companies with ILC charter submissions pending include Japanese e-commerce company Rakuten, commercial equipment finance company GreatAmerica Financial Services Corp. and investment firm Edward Jones.

The ILC charter has long been criticized by banking trade groups and some lawmakers who say the model exploits a loophole by allowing companies to offer banking services without oversight from the Federal Reserve.