It was recently reported that fintech disruptor SoFi Technologies (SOFI -2.81%) has officially been approved to become a bank. In this Fool Live video clip, recorded on Jan. 20, Fool.com contributors Matt Frankel and Jason Hall discuss why this is such a big deal for SoFi, and what investors need to know about it.
Matt Frankel: Boston Stu says, "Do you think SoFi has the risk mediation policies and durability to survive a stress test? Financial innovations can be scary, especially after seeing the Great Recession play out." Well, right now they don't have their own bank yet. Once the acquisition is complete they're immediately going to capitalize it with $750 million of their own cash. The bank will absolutely pass the stress test right now. It's just kicking out a year or two when they've actually built up a real portfolio of loans that they own and have a real bank's balance sheet to go along with that $750 million in capital. But there's no reason they won't be able to pass the stress test. They're going to maintain minimal capital levels as part of the whole regulatory process. I don't see a big issue with that, especially because they don't have, like I said, a legacy branch network, a legacy portfolio of bad assets like some of these other banks do.
Jason Hall: Right.
Frankel: I think Citi and Bank of America are still working out some of the assets they had at the time of the financial crisis.
Hall: That's just bananas. You think about it. A dozen years removed here.
Frankel: I liked that they have like a clean slate.
Hall: I think it's important to remember, too, that it's a bank holding company. You have SoFi Technologies will be the holding company and then the bank will be a subsidiary. The bank's a little bit shielded from some of its other businesses. I think that's important, too, that should be reassuring for depositors and the stability of the bank.
Frankel: That's by design to be able to offer as many products as possible. For example, SoFi is not allowed to offer any cryptocurrency products under its bank banner. Under its own name it can so it has to keep that part of the business separately. It's made it clear it has no desire to get out of that. Real quick, I want to share one thing. This is from SoFi's third-quarter earnings, we won't hear its year-end earnings for another couple of weeks.
But the chart on the left its its financial services products, this is primarily the SoFi money account. Its credit card which it recently released, and its brokerage account, its investment products. Up 179% year over year. That's without the freedom to compete on interest rates with their competitors. That's without the ability to set their own rates, to set their own loan terms and things like that. It's nearly tripled year-over-year in terms of financial services, products. This is really why I'm excited to see what the next year or two will bring, now that this disadvantage they have has been wiped away.