SoFi gets preliminary OK on bank charter, launches credit card

Social Finance, which has long sought to provide a wide range of financial products to its young, affluent customer base, took two steps this week toward becoming a full-service bank.

First, SoFi received preliminary conditional approval on its application for a national bank charter. And second, after years of planning, the San Francisco fintech launched its first credit card.

The developments are key milestones in the realization of a strategy that was hatched several years ago. SoFi first applied for a banking charter, and first talked about launching a credit card, back in 2017.

Anthony Noto, who joined SoFi as CEO in 2018 from Twitter, has pursued a growth strategy aimed at young, well-to-do customers similar to that of his predecessor, Mike Cagney.

“By pursuing a national bank charter, we hope to be able to give consumers more choices and enhanced value when it comes to a full suite of financial services,” SoFi CEO Anthony Noto said Wednesday in an email.

The credit card is designed in a way that incentivizes the use of multiple SoFi products, bolstering the cross-selling strategy that the company has been pursuing.

Customers who redeem their card rewards in other SoFi products — redemption options include putting cash into the company’s deposit account and its investment product, as well as making payments on SoFi student loans — receive 2% cash back. Customers who select another option receive 1%.

The credit card, issued with Mastercard, is initially available only to SoFi’s existing customers, though the firm is planning a rollout to the general public early next year. Cardholders will initially pay an annual percentage rate that ranges from 12.99% to 24.99%, but those who make 12 consecutive on-time payments will receive a 1% reduction in their APR as long as they continue to make timely payments.

SoFi suggested Wednesday that the credit card — which incentivizes saving and paying down existing debt, rather than spending on travel — is well tailored to U.S. consumers’ mindset during the pandemic.

“We believe this credit card is really timely, and really based on member feedback,” a company spokesperson said. “They’re looking for financial health, and a greater feeling of security.”

Another feature that figures to differentiate SoFi’s credit card from others in the market involves the process of redeeming rewards. Rather than having to proactively redeem rewards each month, card holders will be able to use the SoFi app to automate their redemption choice on an ongoing basis.

While that design may cause SoFi to forgo revenue that other card issuers collect when customers fail to redeem their rewards, it should help keep customers in the SoFi product ecosystem, bolstering the company’s cross-selling strategy.

The bank charter, if it gets final approval, figures to bring several benefits to SoFi. It should lower the company’s cost of funds, which would level the playing field with traditional banks. And it could make it easier for SoFi, over time, to offer more product choices in the deposit realm.

“I do think that there will be an ability to be more nimble and more flexible,” said Alex Johnson, director of portfolio marketing at Fair Isaac Corp.

SoFi would also be able to operate under a single set of regulatory standards, rather than the 50-state scheme that applies to nonbank lenders, which should result in cost savings.

Plans for a credit card and a bank charter have both been in the works since the tenure of former CEO Mike Cagney, who left SoFi amid scandal in 2017. During his tenure, Cagney forged the company’s strategy of targeting young, well-to-do customers known as HENRYs — high earnings, not yet rich.

SoFi initially applied to become a Utah-based industrial bank but quickly withdrew its application. Arkadi Kuhlmann, the founder of a mobile banking company that SoFi purchased, was slated to become CEO of SoFi Bank under the original proposal, but he left the firm in 2017.

In July of this year, SoFi filed a de novo bank application with the Office of the Comptroller of the Currency, following the path blazed by the neobank Varo Money. Following the preliminary conditional approval by the OCC, the company is expected to apply for Federal Reserve membership and to seek deposit insurance from the Federal Deposit Insurance Corp.

SoFi’s credit card has also taken years to reach fruition. Naga Parvatharajan, a former Goldman Sachs executive who was involved in the creation of its online retail bank, joined SoFi in 2018 to head the credit card effort.Maria Lenz, a former Amazon executive, joined SoFi in March to oversee the firm’s deposit, credit card and brokerage units.

SoFi’s credit card will initially be issued by the Bank of Missouri, a $2 billion-asset institution based in Perryville, Mo., but the product may eventually be issued by SoFi Bank, assuming the bank’s application gets final regulatory approval.


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