{"id":340621,"date":"2017-05-11T06:43:15","date_gmt":"2017-05-10T22:43:15","guid":{"rendered":"http:\/\/techcrunch.com\/?p=1488022"},"modified":"2017-05-11T06:43:15","modified_gmt":"2017-05-10T22:43:15","slug":"sofi-plans-to-apply-for-a-bank-charter-in-the-next-month","status":"publish","type":"post","link":"https:\/\/people.utm.my\/asmawisham\/sofi-plans-to-apply-for-a-bank-charter-in-the-next-month\/","title":{"rendered":"SoFi plans to apply for a bank charter in the next month"},"content":{"rendered":"

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With an eye on providing banking services later this year, online lending startup SoFi<\/a>\u00a0is planning\u00a0to apply for an industrial bank charter in the next month, according to CEO Mike Cagney. If approved, it would become the first company to receive a new industrial loan company (ILC) charter in a decade.<\/p>\n

Since launching in 2011, SoFi has gradually added new financial products and services to serve its member community. Banking is one area that it\u2019s keen to enter, as it sees an opportunity to provide\u00a0checking, deposit and credit card accounts to its users.<\/p>\n

SoFi\u00a0has long been interested in applying for an industrial banking charter, and has even weighed the possibility of acquiring a regional or community bank to offer those services. In a profile of the company published last summer, The Wall Street Journal reported<\/a> SoFi had met with Utah and federal regulators about applying for a charter in March 2016.<\/p>\n

In a conversation with TechCrunch, Cagney explained why he thinks the time is right for SoFi to move forward with its\u00a0application, and what it expects to do if approved.<\/p>\n

In short,\u00a0a lot has happened since SoFi spoke\u00a0with regulators a year ago. Earlier this year, the company announced it has raised an additional $500 million<\/a> in equity\u00a0financing from Silver Lake Partners. But more importantly, it\u00a0acquired online banking startup Zenbanx<\/a>, which gives it the tech infrastructure it would need to process deposits and manage checking, savings and credit card accounts.<\/p>\n

\u201cWith Zenbanx, we got a banking stack that de-risks the ILC application,\u201d Cagney said. \u201cWe will have the ability to get our deposit product out later this year.\u201d<\/p>\n

Also, with $1.9 billion in venture capital backing it and its\u00a0tech stack in place, Cagney told me that the company has plans to apply for an ILC charter in the next month.<\/p>\n

Industrial bank charters, or ILCs, provide a way for companies that aren\u2019t banks to provide banking-like services\u00a0to customers. And while ILCs have been around for more than 100 years, they\u2019ve fallen out of vogue in the last decade due to increased regulation against them.<\/p>\n

According to Cagney, that\u2019s because\u00a0companies\u00a0like John Deere and\u00a0Harley-Davidson used ILCs as a way to take advantage of FDIC-insured deposits to\u00a0fund\u00a0the financing arms of their businesses.<\/p>\n

\u201cOur situation is very different,\u201d Cagney said. \u201cWe\u2019re not doing this\u00a0to fund our loans. We see this as an opportunity to deliver a better product to our members than what\u2019s available today.\u201d<\/p>\n

By combining a banking option with its lending products, Cagney said\u00a0SoFi could offer discounted rates to members who set up auto-pay between their accounts. And with a SoFi-issued credit card, he said the company could potentially use its reward program as a way to help users pay down student loans.<\/p>\n

\u201cI\u2019m optimistic about this as a solution that delivers a ton of consumer value,\u201d Cagney said.<\/p>\n

Cagney admitted there was a bit\u00a0of uncertainty around the approval of such an application. Among other things, he noted that current FDIC chairman Martin Grunenberg is serving out a five-year term, but that will\u00a0end in November. \u201cIt wouldn\u2019t be prudent to assume anything at this stage,\u201d Cagney said.<\/p>\n

The greater challenge for SoFi is\u00a0that there haven\u2019t\u00a0been any new\u00a0ILC applications approved<\/a> in nearly a decade. In the wake of the 2008 financial crisis, the Dodd-Frank Act placed a moratorium on industrial bank charters. The moratorium ended in 2013, but still\u00a0no company has tested the waters with an ILC application since.<\/p>\n

That means SoFi\u2019s application could be a watershed moment for the industry. While it might not necessarily\u00a0open the floodgates for other companies seeking an ILC charter, approval would send a signal to the market that regulators are once again open to the idea of issuing this type of license to non-banking institutions.<\/p>\n

\u201cI think this is going to be the biggest challenge with the FDIC, and absolutely something the FDIC has to take into consideration,\u201d Cagney said.<\/p>\n

As a result, the company is working on other ways that\u00a0it could begin offering a SoFi-branded banking product later this year.\u00a0Even if the company is not able to get approval for an industrial bank charter, it would still be able to offer checking, deposit and credit card services through a regional\u00a0banking partner.<\/p>\n

\u201cThere are ways we can do this without an ILC.\u00a0The benefit, though, is that it allows us to have a bank subsidiary,\u201d Cagney said.<\/p>\n","protected":false},"excerpt":{"rendered":"

\"\" With an eye on providing banking services later this year, online lending startup SoFi is planning to apply for an industrial bank charter in the next month, according to CEO Mike Cagney. If approved, it would become the first company to receive a new industrial loan company (ILC) charter in a decade. Read More<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

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