Upstart, Affirm, and SoFi All Lend to the Same Borrowers. Only One of Them Funds With Deposits.

One of the challenges for nontraditional fintech lenders has been the expense associated with lending.

Because most of them do not have bank charters, they must partner with a traditional third-party bank to fund their loans. However, they must pay a fee or provide a cut of interest income earned on every loan they make using a third party. That eats into their profits.

A federal bank charter would allow the fintechs to take deposits, because without one, they cannot. The deposits serve as an internal funding source, as loans can be made from the deposit base. With an internal funding source, these fintechs do not have to get third-party funding for loans, which, in turn, allows them to save on fees and collect all of the interest income.

Since fintechs started popping up more frequently over the past five or six years, federal regulators have been reluctant to grant bank charters to fintechs, imposing stringent requirements. But that has changed over the past couple of years as restrictions have eased. There has been a surge in the number of fintechs applying for, and getting, bank charters.

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It is a development that could have a significant effect on the banking industry, as many of these fintechs are digital lenders with lower overhead costs. Plus, because they have lower overhead, they can offer higher deposit rates and lower interest rates on loans, thus attracting more customers. Many have partnerships or customers through their technology platforms that could provide them with an extensive reach.

Three of the largest and most successful fintechs -- SoFi Technologies (NASDAQ: SOFI), Upstart (NASDAQ: UPST), and Affirm (NASDAQ: AFRM) -- occupy different niches within the banking and payments universe, yet only one has the advantage of a full bank charter, at least right now.

The SoFi advantage

On Jan. 18, 2022, SoFi was one of the first fintechs to get a bank charter. It did so by acquisition, buying a small California bank, Golden Pacific, and then applying for the bank charter through it.

That was a pivotal moment in the history of SoFi, as it could begin taking deposits, funding its own loans, and expanding its business. It came, unfortunately, at a time when inflation was rising, the market was crashing, and interest rates were skyrocketing. It was a difficult environment for all banks -- fintechs and traditional -- so SoFi didn't get any immediate boost from it.

The bank charter was more about the long-term effect for SoFi rather than a short-term boost. Just look at its growth since then. In the quarter when SoFi got its charter, first-quarter 2022, it had already attracted $1.2 billion in deposits. In the latest quarter, second-quarter 2026, it had $45.5 billion in deposits. It had 3.9 million active customers or members using 5.9 million products in Q1 2022. This latest quarter, it had 15.8 million members using 24.4 million products.

Additionally, SoFi went from operating at a net loss of $110 million with earnings of -$0.14 per share four years ago to net income of $156 million, or $0.12 per share, in Q2 2026.

Upstart and Affirm

SoFi stock has struggled year to date, down about 36%, despite surging revenue, earnings, and membership growth. Some of this stems from a short-seller report that questioned some of SoFi's accounting practices, but a lot of it has to do with SoFi's high valuation. However, its valuation has dropped as investors have sold off, or perhaps taken profits after three straight huge years. SoFi stock returned 116% in 2023, 54% in 2024, and 70% in 2025.

SoFi's valuation is back down to a much more reasonable level, trading at 34 times earnings and 21 times forward earnings. It is starting to look like much more of a buying opportunity at these valuation levels.

As for Upstart and Affirm, they have both applied for national bank charters. Upstart got conditional approval for a bank charter in July, and it is expected to get final approval in early 2027.

Buy now, pay later provider Affirm applied for an industrial loan bank charter in January. It has not yet been granted any approvals. But if and when these two fintechs do get bank charters, it could be equally transformative for them, so keep an eye out for that.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.