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Here's Why SoFi's Latest Move Is So Important

By Matthew Frankel, CFP® - Apr 9, 2021 at 7:28AM

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SoFi just bought a small Sacramento-based bank, but it's a bigger deal than it might sound like.

We recently learned that fintech start-up SoFi, which is set to go public through a special purpose acquisition company (SPAC) merger with Social Capital Hedosophia Holdings V (IPOE), is acquiring Golden Pacific Bancorp. Now, this is a tiny bank with just three branches, but it's a far more significant acquisition than it sounds. In this Fool Live video clip, recorded on March 29, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why the move into physical banking is such a big deal. 

Jason Moser: Question from Ben Scully. IPOE SPAC, SoFi, has recently bought a local community bank, thoughts on its expansion, long-term growth, potential and upcoming IPO.

Matt Frankel: SoFi bought a bank. I think it's got like three branches in Sacramento, if I'm quoting that correctly. The bank itself is not material. What it represents is. It gives them a physical banking infrastructure, because they've got approved for a bank charter. But they figured it will be quicker to acquire one that already existed. This is like a local bank. I mean, this would be like Amazon (AMZN 3.15%) buying the hardware store on Main Street. It's not material to the company's results, but it gives them that physical presence that they could use in their other operations.

Jason Moser: Yeah.

Matt Frankel: So that's really what SoFi is thinking when they bought that bank. They want to be a bank, they want to disrupt the traditional banking industry. To do that, you need some of banking infrastructure. You're not going to have a SoFi branch on every corner in your city, but they need some sort of physical banking infrastructure. This really gives them an established banking presence. I don't even know if they're going to make any more branches, but this just really accelerates their rollout of being their own bank. Because until now, SoFi hasn't been a bank and they rely on a middleman, a third-party bank, to actually make their loans, and actually take their deposits. Because they offer high-yield savings accounts but they don't hold the money because they're not a bank. That also doesn't give them control over their interest rates. CEO Anthony Noto, who we've just talked about, he said, if it was up to us, we would pay the highest interest rate in the market. But our third-party banks that we partner with would never agree to that. Being a bank give some control over their interest rates, it gives them control over how much they charge interest rate-wise on loans. It just gives them a whole lot more control over the process, which could be a real big competitive advantage. So to really answer that question, the bank itself is not a material acquisition, it's a tiny bank. It's a tiny fraction of SoFi's available cash. They did say they're going to contribute something like half a billion dollars to build up the bank's capital, but that's to really accelerate the national rollout of their banking products, not necessarily to build an actual physical bank, which I don't think is in their plans.

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