Shares of SoFi Technologies (SOFI) rallied more than 15% in after-hours trading on news that the fintech has cleared the final regulatory hurdle needed to become a bank.
San Francisco-based SoFi received approval from the Office of the Comptroller of the Currency (OCC) and Federal Reserve to become a bank holding company. The mobile-first finance company offers banking products such as loans, cash accounts and debit cards.
However, to date, SoFi has not technically been 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 community lender Golden Pacific Bancorp and operate its bank subsidiary as SoFi Bank. The deal was announced last year and is expected to close next month (February).
While officially entering the banking business brings on more regulatory oversight, it also improves the company’s economics. By cutting out the middleman, SoFi gets a bigger slice of each transaction.
SoFi executives have said a national bank charter will allow lending at more competitive interest rates, and give SoFi customers higher-yielding accounts.
SoFi has been on the hunt for a bank charter for more than three years. Before going the bank acquisition route, it filed an application for the charter with the Office of the Comptroller of the Currency. The OCC granted preliminary approval last October.
The company went public last year by merging with a blank-check company run by venture capital investor Chamath Palihapitiya. Shares have been under pressure this year as investors rotate away from high-growth tech companies.
Before the current rally, shares of SoFi were down 23% to start the year.
