Funding Costs Separate Fintech Lenders With Bank Charters From Those Without

A structural divide is emerging among consumer fintech lenders: companies that lend to similar borrower populations face sharply different economics depending on whether they hold a bank charter and can fund loans with customer deposits.

Most nontraditional lenders lack a federal bank charter, which means they cannot accept deposits. To originate loans at scale, they partner with third-party banks that issue the loans on their behalf. That arrangement comes at a cost — partner banks typically charge a fee or take a share of the interest income generated on each loan. Over time, that revenue split weighs on margins and limits how much of the lending economics the fintech actually keeps.

The contrast is starkest with chartered players. SoFi Technologies, which operates lending, technology platform, and financial services segments across the United States, Latin America, Canada, and Hong Kong, can use its deposit base as an internal funding source. Loans can be made directly from deposits, eliminating third-party funding fees and allowing the company to retain the full interest income on its originations.

Shares of SoFi closed at $18.22, down 1.35% from the prior close of $18.47, valuing the company at roughly $20.69 billion. The stock trades in the financial services sector within the credit services industry — a classification that reflects how far the company has moved from a pure software-style fintech profile toward traditional banking economics.

For unchartered lenders, the path to deposit funding isn’t straightforward. Obtaining a federal bank charter involves a lengthy regulatory approval process, and the applicant must demonstrate it can meet the capital, compliance, and risk-management standards that come with it. Until then, the partner-bank model remains the standard workaround — and the associated fees and interest-sharing agreements remain a persistent drag on profitability.

The funding question matters beyond margins. Deposit-funded lenders have a cheaper, more stable source of capital that can help sustain originations when wholesale funding markets tighten, while partner-dependent lenders are exposed to the willingness of third-party banks to keep issuing loans and to the pricing of those partnerships.

What to watch

• Whether other consumer fintech lenders pursue or receive federal bank charters, which would reshape competitive funding costs across the sector.
• Upcoming quarterly results from SoFi, including deposit growth and net interest income trends in its Lending segment.
• Any changes to partner-bank funding arrangements among unchartered lenders, which could signal shifting economics in the loan origination supply chain.

Source: original release