SoFi settles its card book in its own coin
The first national bank to issue a stablecoin is now using it to settle its card programme across Mastercard. The token matters less than the fact that the bank issuing it holds the money on both sides.
Simon Kadula via UnsplashStablecoin settlement has mostly meant a payments company paying a card network in someone else's token. The version SoFi switched on this week is a bank paying in its own.
SoFi Technologies and Mastercard said on Tuesday that settlement for SoFi Bank's debit and credit card programme now runs in SoFiUSD across Mastercard's global network, according to SoFi's announcement. SoFi is moving the whole programme, which it expects to carry more than $25bn a year, and says it is the first national bank to go live with stablecoin settlement on the network.
SoFiUSD is issued by SoFi Bank, N.A., which is supervised by the Office of the Comptroller of the Currency. It is redeemable one-for-one for dollars and backed by reserves the bank describes as consisting primarily of cash. The release is careful to add that it is not FDIC-insured, not guaranteed by the bank and not legal tender. The coin has been available in SoFi's app since May.
What matters is where the money sits. When a payments company settles in a third-party stablecoin, the liability belongs to the token's issuer and the reserves sit with that issuer. SoFi's arrangement shortens the chain: the token is a claim on SoFi Bank, the reserves sit with SoFi Bank, and the card programme being settled is SoFi Bank's. The bank is not renting a settlement asset from anyone. It is using a claim on itself.
The merchant side of the pitch is where the strategy shows. SoFi says merchants can receive settlement funds instantly in a SoFi Bank account and withdraw to cash around the clock at no cost, without holding stablecoins themselves. That is a faster way to get paid, and it is also a way to open accounts: a merchant who wants the speed has to bank with SoFi. The company says it is in talks with large US merchants, from multinational retailers to technology platforms. It names none.
"In six months, SoFi and Mastercard took stablecoin settlement from an idea to a live product that materially improves how money moves," said Anthony Noto, SoFi's chief executive. Sherri Haymond of Mastercard said stablecoins "become meaningful when they solve real problems that businesses face every day." The two companies say they will look next at cross-border payments and remittances.
Some things are missing from the announcement. It does not name the blockchain the settlement runs on, does not say how much of the $25bn has moved so far, and gives no figure for the saving. "Materially improves" is the chief executive's description, not a measurement. SoFi's shares rose about 3 per cent on the news, Investing.com reported.
The deal also fits a wider pattern. Payments companies are buying the settlement rails underneath them, because owning the rail is where the margin sits. SoFi has taken a bank's version of that route. It owns the charter, the token and the reserves, and now a network that settles in them. Settling its own card programme in its own coin is an internal efficiency. The real test is the merchant list: if merchants choose to be paid in SoFiUSD, the float moves to SoFi Bank's balance sheet, and that is a change in who holds the money.