SoFi-Social Capital Merger Will Fuel Growth Of One-Stop-Shop Financial Supermarket

Online FinTech startup SoFi announced Thursday (Jan. 7) that it was merging with publicly-traded Social Capital in an $8.6 billion deal that brings it instant liquidity and avoids the uncertainty of the initial public offering (IPO) process, while leaving it better positioned to take on legacy banks.

In tying up with Social Capital, a special purpose acquisition company (SPAC) controlled by Canadian-American investor Chamath Palihapitiya, SoFi said it planned to accelerate its mission to help people achieve financial independence through its vast ecosystem of loans, credit, investing and insurance products.

“The new investments and our partnership with Social Capital signify the confidence in our strategy, the momentum in our business, as well as the significant growth opportunity ahead of us,” SoFi CEO Anthony Noto said in a statement, which also noted the secular acceleration in digital-first financial services.

Noto will continue in his role as CEO which he has held for three years since arriving from Twitter in 2018, where he was COO, and prior to that the NFL, where he served as CFO.

The SoFi deal marks at least the third such transaction done by the Social Capital SPAC, Palihapitiya said in a televised interview on CNBC, adding that the deal was driven by the fact that banking infrastructure isn’t currently meeting the needs of U.S. consumers.

“What I did was just kind of systematically try to figure out what was broken in banking and then try to figure out which company was best representative of the solutions that people wanted,” Palihapitiya said, “which I can basically tell you is three things; people want low to no fees, they want fair and transparent lending and they want a full suite of products so that you can basically have a one stop shop.”

The Path Of The Neobank Supermarket

To be sure, SoFi — or Social Finance as it is officially called — has come a long way since its debut 10 years ago, when it was launched by four Stanford University grad students as a provider of cheaper education loans.

Since then the company has gone through multiple rounds of fundraisings and private equity investments that have allowed it to pursue exponential client acquisition and product growth, as well as multiple executive turnovers, several strategic acquisitions and now most recently, a surprise backdoor listing via a reverse IPO.

Earlier this year, SoFi acquired payments firm Galileo for $1.2 billion, and also expanded internationally by purchasing Hong Kong-based investment app 8 Securities.

Today, SoFi’s suite of products includes 11 different offerings including a no-fee bank and savings account, debit and credit cards, student loans, mortgages, investments, auto/life/homeowners/renters insurance, as well as lending and planning services for small businesses.

As a result, SoFi has a lot of so-called enemies out there that it competes against, including many of the biggest, best-known financial companies in the world.

To address that perceived name recognition mismatch, in 2019 SoFi signed a record 20-year, $600 million stadium naming rights deal for the brand-new facility that is home to both the Los Angeles Rams and Chargers football teams.

Although the $5 billion SoFi Stadium complex was officially opened last September by billionaire Stan Kroenke, it has been left “fan-free” due to the coronavirus.

The FinTech IPO Market

As recently as a month ago, Wall Street and SoFi’s early stage private investors were planning for — perhaps even salivating over — the prospect of a FinTech IPO this year alongside United Wholesale Mortgage and Blackstone-owned Finance of America, which are also expected to go public in the coming weeks and months.

Assuming the SoFi-Social Capital merger closes as planned in the first quarter, investors will still have an opportunity to purchase a piece of the company, which now claims $50 billion in funded loans, more than 1 million members and over $22 billion in paid-off debt — a far cry from the $2 million student loan pilot program it launched in 2011.

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