SoFi (NASDAQ:SOFI) stock is in focus today following a warning from Acting Comptroller of the Currency Michael Hsu. The Office of the Comptroller of the Currency (OCC) is a major U.S. bank regulator. Essentially, Hsu believes that the popularity of fintech services and digital banks could warrant financial risks in the long term.
Fintech companies have risen in popularity in recent years, offering more features and higher annual percentage yields (APYs) on savings deposits than traditional banks. Some fintech companies have also created partnerships with banks, something which Hsu believes creates complexity and “de-integration” across the space. He adds that a continuation of fintech services could lead to a “severe problem, or even a crisis.”
Here’s what SOFI stock investors should know moving forward.
SOFI Stock in Focus Following OCC Warning
In recent years, banking and technology companies have teamed up to provide services for customers. As a result, regulators have had more difficulty in distinguishing the differences between a banking and technology company. With the valuation of fintech companies falling this year, these companies are also only increasingly teaming with banking partners.
Earlier this year, SoFi also received a charter to become a bank holding company. The charter allows it to lend at more competitive interest rates and provide a higher APY in savings and checking accounts. Steps to receive the charter began when SoFi acquired Golden Pacific Bancorp in 2021.
Hsu believes that this kind of phenomenon could create risks concerning information security and customer protection. He explains:
“I worry increasingly about the ‘unknowns’ and am concerned that the less familiar risks of this digital transition are unlabeled and thus unseen. As we learned from the 2008 financial crisis, risks that are unseen have a tendency to grow and later to be the source of nasty surprises.”
Like Hsu, former Comptroller of the Currency Gene Ludwig believes fintech companies could create financial risks as well. Ludwig cautions that regulations for fintech companies are much more lax than regulations for banks. He also warns that non-banking companies “will get us into the next financial crisis if we don’t do something about it.”
On the other hand, fintech companies like SoFi offer services, such as stock and crypto trading, that traditional banks do not provide. SoFi also offers an easy-to-use interface for financial beginners. The company seeks to be an all-in-one financial app that covers every financial aspect a customer needs.
Looking forward, it’s likely that SoFi alone does not hold the power to cripple the financial system. However, a combination of several fintech companies may pose risks, at least according to Hsu and Ludwig.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
