SOFI's bank charter news is a big deal. Thanks to the banking license, SOFI won’t have to go through third parties anymore for loans. They will be able to loan deposited funds to other clients at rates higher than the ones they pay out on checking accounts. And their margins will substantially improve. The banking license allows them to fund their costs at about 50% lower, effectively lowering their cost of capital, increasing their margins, and freeing up more money for the company to be more profitable and be able to offer products are more competitive prices to help them gain more market share. They can neutralize inflation because of their bank status. Long term, the value proposition that they will offer customers should reduce their cost of customer acquisition.
SOFI is planning on offering the highest interest rates on checking and savings accounts in the market, which is something that I think will be very popular among their targeted demographic, especially in this low interest rate environment.
Now that SOFI can be considered their own bank, it’s really going to make them a one stop shop for banking and financial needs, where you can keep a checking account, a savings account, grab a credit card and get a mortgage. They also do student, personal and commercial loans. They have a robo advising business. They have a financial planning service. They have a partnership with coinbase to allow to trade over 30 different cryptos and they even sell zero fees ETF’s on their stock brokerage business… all of this just shows how focused SOFI is on fintech. It also attests to SOFI's strategy. SOFI is playing the long term game.
The company spends a lot of money on acquiring customers, which seems to be their main focus. But that’s part of their expansionary strategy. Their diversity is their strength and the synergies between product verticals allows them to offer attractive perks to their customers. That means the cost of acquisition eventually reimburses itself, but it will be something to monitor looking forward. They’re targeting millennials under 35 and trying to become the only financial institution that these people will need for the rest of their lives. One thing to consider in terms of marketing is the extra advertising reach that will come from the NFL playoffs and the superbowl.
In terms of product growth, SOFI hits it out of the park with five consecutive quarters of 100% year over year growth. The galileo platform has been growing by 75% yoy for the last seven quarters and the financial service products have been growing at 179% year-over-year. If the products were not good, they wouldn't be growing at such a fast pace. Looking forward, revenue guidance is for 1B in 2021 and 3.7B by 2025.
Unfortunately this bank charter approval came with one of the conditions prohibiting SoFi Bank from engaging in any crypto-related services. But it’s to be noted that this restriction is on just SOFI Bank, not the parent company itself. This means that this has aboslutely no impact on SoFi Money’s Crypto products.
The trading side of SOFI’s business represents approximately 18% of the revenue, however they are expecting headwinds for this segment over the upcoming quarters, which is something that was reiterated by other banks. Other potential headwinds looking forward include rising wages for their staff and customer reps… and a decline in margins on mortgages
