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The 'anti-bank' comes full circle

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday, SoFi shows its bank-charter strength, the CFPB asks about payment-app problems, and Kraken gets social.

Off the chain

Crypto winter has not chilled the enthusiasm among once and future financial hubs to play host to digital assets businesses. Gibraltar is making a play for DeFi, and Hong Kong is considering allowing crypto trading despite Beijing’s disapprobation. Singapore wants to have it both ways, hosting crypto businesses while discouraging speculative retail trading. Malta has seen billions in crypto transactions since passing a regulatory framework for digital assets. The City of London is fretting about its market position if the FCA doesn’t hurry up its regulations. Dubai, meanwhile, seems like the place to go if you’re a crypto mogul under legal scrutiny. Crypto was meant to transcend national boundaries, but it actually seems more like an example of the late Citi chief Walter Wriston’s maxim “Money goes where it is wanted and stays where it is well treated, and that’s all she wrote.”

— Owen Thomas (email | twitter)

An anti-bank’s turnabout

SoFi’s banking bet is paying early dividends. The San Francisco company revealed in its third-quarter earnings report that total customer deposits had reached $5 billion. It was only nine months ago that the fintech lender became a chartered bank able to hold deposits, through a $23 million acquisition of a small community lender called Golden Pacific Bancorp.

Its rapid growth in deposits, the company said, is a product of winning customers from large banks and has boosted its lending business.

Wall Street liked what it saw. The company’s shares climbed more than 10% immediately after earnings release Tuesday morning and closed up by 5%.

  • SoFi’s quarterly loss of $0.09 per share and $419 million in revenue for the quarter were both better than analyst expectations.
  • Its $5 billion in deposits marked an 86% quarterly increase. CEO Anthony Noto said on Tuesday’s earnings call that the company is winning customers from big banks.
  • It helps to offer more money. SoFi this week will raise the top annual percentage yield on its savings accounts from 2.5% to 3%, compared to a 0.16% national average at all banks, according to Bankrate.
  • “The vast, vast majority of what we’re seeing is coming from the largest banks in the United States, and we’re winning deposit share from them,” Noto said. He added that big banks were losing deposits to “fintech companies like SoFi” but also money-market funds.

Some perspective: JPMorgan Chase and the like may not be feeling the loss as much as SoFi feels the gain. The largest U.S. consumer banks measure their deposits by the trillion.

  • The deposits mean an awful lot to SoFi, though. That’s because the banking charter allows SoFi to use the deposits to fund its loans, providing a cheaper, more stable alternative (especially as interest rates rise) to the investor funding that most nonbank fintech lenders rely on.
  • “By using our deposits to fund loans, we benefit from a lower cost of funding for loans, and that’s more profit per loan,” Noto said. SoFi originated about $3.5 billion in loans from July through September, up 2% from the same period last year, and reported a 43% increase in revenue from loans, at $301 million.
  • LendingClub, which last year added its own banking charter, warned of weakness for so-called marketplace lending in earnings last week and said it was holding more of its loans. It has also reached about $5 billion in deposits over its first year as a chartered bank.
  • Upstart, which is not a bank and relies on marketplace funding for its loans, on Tuesday laid off 140 hourly employees, blaming “the challenging economy and reduction in the volume of loans on our platform.”

A bank charter was not SoFi’s only bet. It also reported growth for its Galileo unit, which provides software and payments technology. A Wedbush report Tuesday said SoFi’s one-stop shop approach gives it “a significant competitive advantage over neobank competitors.” But as the company digs its share price out from a roughly 60% year-to-date fall, it’s notable how much a company whose advertising once had it labeled an “anti-bank” is being boosted by banking basics.

— Ryan Deffenbaugh (email | twitter)


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On the money

The CFPB is again looking for your thoughts on Big Tech and payments. Director Rohit Chopra tweeted that the agency is reopening a public comment period for “Big Tech and P2P payment platforms.” The agency is looking for input “on companies’ ‘acceptable use policies’ and their use of fines and penalties,” he added.

On Protocol:How Marqeta CEO Jason Gardner decided it was time to step down.

Shopify made an acquisition. The company did not disclose the price paid for Remix, a startup developing an open-source web framework.

MoneyGram is adding crypto features. The MoneyGram app will soon allow nearly all U.S. customers to buy, sell, and hold bitcoin, ether, and litecoin.

Galaxy Digital could cut jobs. The crypto financial services firm founded by billionaire Michael Novogratz is exploring eliminating as much as 20% of its workforce, Bloomberg reports.

Social currency

Kraken is joining the crypto social networking craze. With Twitter now controlled by Elon Musk and backed by Binance, and Jack Dorsey working on a new social network, Cryptowatch, a Kraken subsidiary, on Tuesday launched Cryptowatch Social, a new social media service geared to crypto users and enthusiasts.

Cryptowatch founder Artur Sapek said the new social network’s goal is to become “the discussion center of the crypto world.”

“We are building the ultimate all-in-one crypto mobile app where traders can watch markets, manage their portfolio, and learn from each other,” he said in a statement.

Cryptowatch allows crypto holders to check prices, make trades on multiple exchanges, and analyze market trends. The social network would add “social features,” including “live idea feeds and chart sharing,” the company said. Cryptowatch also streams Crypto Fight Night live from Dubai, which will also be available to the social network users.

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— Benjamin Pimentel (email | twitter)


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