SoFi CEO Anthony Noto at the new SoFi Stadium under construction in Los Angeles.
Etienne Desaulniers | CNBC
Shares of SoFi rose more than 16% in after-hours trading on Tuesday following news that the fintech cleared its final regulatory hurdle by becoming a bank.
San Francisco-based SoFi has received approval from the Office of the Comptroller of the Currency, or OCC, and the Federal Reserve to become a bank holding company. The mobile-focused finance company offers banking products including loans, cash accounts and debit cards. But it’s not technically a bank. Like many fintech companies, it relies on partnerships with FDIC-insured banks to hold customer deposits and issue loans.
In order to become a bank, SoFi plans to acquire California-based community lender Golden Pacific Bancorp and operate its banking subsidiary as SoFi Bank. The deal was announced last year and is expected to close in February.
Although formal entry into the banking industry brings increased regulatory scrutiny, it also improves the economics of the business. By removing the middleman, SoFi gets a bigger share of every transaction. CEO Anthony Noto said a national bank charter will lend at more competitive interest rates and provide SoFi customers with higher yielding accounts.
“This important step allows us to expand our wide range of financial products and services to better be there for our members during the major financial moments of their lives and all the moments in between,” said Noto, former partner at Goldman Sachs and former chief operating officer of Twitter, said in a statement.
SoFi has been seeking a bank charter for over three years. Before going down the acquire bank route, it filed for a charter with the Office of the Comptroller of the Currency. The OCC gave preliminary approval in October.
The company went public last year by merging with a blank check company run by venture capitalist Chamath Palihapitiya. Stocks have been under pressure this year as investors turn away from high-growth tech companies. As of Tuesday’s close, stocks were down 23% to start the year.