SoFi makes big bet on Galileo

SoFi has come a long way from refinancing student loans.

The company announced today that it's buying Galileo Financial Technologies, a company that specializes in financial services APIs, for $1.2 billion. It's a move that will likely help SoFi solidify its plans to become a modern bank.

Galileo offers APIs for a range of fintech products, like issuing credit and debit cards, creating bank accounts, and bill payment software. Its services are used by several buzzy neobanks and fintech companies, like Monzo, Chime, Varo and TransferWise. SoFi's Money product, a debit account with perks like no ATM fees and cash back on purchases, is built on top of Galileo's APIs. The conversations that began the partnership eventually led to talk of an acquisition.

Buying Galileo will allow SoFi to save on the fees it was paying the company to run its services, but also allow it to potentially operate in other countries. SoFi only offers its services in the U.S., whereas Galileo has customers in the U.K. and Canada — in theory, Galileo will be able to offer white-labeled SoFi products to its overseas customers as well.

Whether this move will pay off for SoFi remains to be seen, but it's a big bet that aims to deliver on the company's goal of becoming a bank that matches the way young people, and many others, live today. When the company launched its mobile-only checking account in 2018, it was clearly targeted at millennials who didn't see the need to visit a bank to make deposits or check the mail to pay bills.

SoFi started out refinancing student loans, then moved on to personal loans and mortgages before diving into debit accounts. It's since moved on to investing in stocks and crypto, selling insurance, and credit monitoring, and now has over 1 million customers, SoFi told Protocol. Tying all those services into one app where people can manage their finances is an appealing prospect — if it works out.

There are challenges — internal and external — that the company will need to weather if it's to succeed. SoFi endured claims of a toxic workplace and sexual harassment, removing co-founder Mike Cagney as CEO in 2018 and replacing him with former Twitter COO/CFO Anthony Noto. Back in November, Noto said, "It's safe to say our culture is still forming" — he'll have to keep pushing an open and productive work environment if the company is to build on its successes to date. SoFi has also had to spend a lot to acquire many of the customers it has, dropping hundreds of millions of dollars on advertising campaigns; that's a strategy that can only last for so long before the money dries up.

Then there's the armada of other neobanks looking to home in on the same segment of the population that SoFi is going after — and increasingly, they're coming in from overseas. Meanwhile, more-established players are trying to consolidate their positions. Companies like Bank of America, JPMorgan Chase and Wells Fargo have banded together to create Zelle, a peer-to-peer payments product similar to PayPal, Square's Cash or Venmo. Traditional banks are also upping their mobile game: Bank of America redesigned its app in late 2019, and Goldman Sachs is going after mobile-savvy consumers with its Marcus savings and loans product and its partnership with Apple on the Apple Card.

There are so many companies going after the same slice of the pie now that standing out in a crowded marketplace, especially one that has to combat the apathy people feel about swapping over something like a bank account, makes this a tough bet for SoFi, or any other neobank.

Even with all the disruption that the coronavirus pandemic has caused so far in 2020, the fintech market has also seen some big consolidations. Just this year, Visa bought Plaid, another fintech back-end system for $5.3 billion, and Intuit picked up Credit Karma for $7.1 billion. It's part of a larger recent trend of fintech startups getting scooped up that may well leave move space for neobanks to operate in, according to experts Protocol recently spoke with — that is, of course, unless the big banks continue to step up their game and move to where the world is going.