What happened
The overall stock market was largely flat on Wednesday afternoon, with all three major indices up or down by less than 0.2% as of 1:40 p.m. ET. However, financial technology company SoFi (SOFI +1.78%) remained a major outperformer, with shares rising by more than 18% for the day.
So what
SoFi already offers a range of banking products to its customers, including mortgages, personal loans, credit cards, and an alternative bank account (SoFi Money). So it might seem like getting a bank charter won't change much.
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Nothing could be further from the truth. Now, instead of partnering with third-party financial institutions to hold consumer deposits and actually make the loans it approves, SoFi can do those things in-house. This will greatly improve SoFi's cost of capital. In fact, an analyst with Mizuho Securities said in a note that this alone could boost SoFi's EBITDA by as much as $300 million annually. Plus, being a bank can boost SoFi's net interest income, as it will now be able to hold loans longer before it sells them.
Not only that, but becoming a bank helps SoFi compete more effectively. Now, it has more freedom to set its own rates. It can offer better interest rates than the competition on savings accounts, and offer favorable loan terms that aren't possible as a non-bank originator.
Now what
SoFi also said in the press release announcing the bank charter approval that it will allow the bank to add to its suite of financial products it offers, which could provide cross-selling opportunities to boost its business even more.
In a nutshell, being a bank will lower SoFi's cost of capital, boost its net interest income, and create several other revenue-driving possibilities. And this is all on top of the company's current momentum. SoFi grew its membership base by 96% over the past year and its revenue spiked by 35% to an all-time high. As a SoFi investor, I can't wait to watch the next chapter in its growth story play out, especially now that SoFi Bank is officially going to happen.
