Y Combinator Startups Prove SOFI Stock Is Really a Big Deal

  • A fifth of Y Combinator’s summer batch is working on improving fintech, putting SoFi (SOFI) in the spotlight.
  • The tech accelerator’s batch includes 11 neobanks.
  • Shares of SOFI stock are down more than 55% year-to-date, but this bodes well for the company.
SOFI stock - Y Combinator Startups Prove SOFI Stock Is Really a Big Deal

Source: Michael Vi / Shutterstock

Shares of SoFi (NASDAQ:SOFI) have slumped by more than 55% this year, but it’s clear from technology startup accelerator Y Combinator’s (YC) summer activity that fintech companies are here to stay. In YC’s summer 2022 batch, a fifth of the 240 companies are working on improving financial technology. Naturally, this bodes well for battered SOFI stock.

Payments are the most popular sector within these companies, while neobanks come in second. Neobanks, like SoFi, seek to offer improvements over the traditional banking process, offering more services and features than traditional banks. During the first quarter, SoFi received a charter that allowed it to become a bank holding company. The charter grants SoFi the power to lend at more competitive interest rates and provide a higher annual percentage yield for checking and savings accounts.

SOFI Stock In Focus Following Y Combinator Summer Activity

YC’s summer 2022 batch includes 11 neobanks, while the firm’s winter 22 batch included 18 of these companies. In 2020 and 2021, each batch only included one to two neobanks. Roughly half of the neobanks in the current batch are based in the U.S., while the remaining half are spread across various countries like the United Kingdom, India and Switzerland. India is a hotspot for YC investments, and eight of the 21 startups based in the country with YC backing are involved in fintech.

Meanwhile, fintech funding has accounted for about 21% of all venture deals year-to-date as of Q2. This comes as several public fintech companies, like SoFi and Affirm (NASDAQ:AFRM), have seen their valuations and market capitalizations slashed. While funding for fintech supports SoFi’s potential growth prospects, it also opens the door for increased competition. Still, as a publicly traded company, SoFi has a head start and is able to acquire funding more readily and easily.

On the other hand, Acting Comptroller of the Currency Michael Hsu isn’t too optimistic about the future of fintech. 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.”

Hsu is concerned the proliferation of fintech could lead to risks relating to information security and consumer protection. Other “unseen” risks could lead to a “severe problem,” according to Hsu.

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.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.

Article printed from InvestorPlace Media, https://investorplace.com/2022/09/y-combinator-startups-prove-sofi-stock-is-really-a-big-deal/.

©2023 InvestorPlace Media, LLC