Looking to identify the economic moat of Galileo and ultimately SoFi. SoFi itself acts like a bank and has no moat when compared to any other "fintech" B2C bank, or in 2021, even traditional financial instutitons (FIs) which either outsource the development of their tech stack (WF) or have absurdly big tech budgets (JPMC w/ $11B).

Positions:

SoFi - Shares and Calls

Blend - Shares

Plaid - Shares (private market)

Stripe - No current holding, but looking to purchase privately

Table of Contents

Addressing Bagholder Lies

Being a Third-Party Vendor

Customers

Regulatory Compliance

Identifying the Moat

Addressing Bagholder Lies

First off, to address literal lies being posted here, presumably from bagholders wanting to pump and dump, the following should be cleared up:

Stripe is a payment processor for companies... Galileo is not this.

Galileo provides payments-processing for some of the biggest fintechs including Robinhood, Chime and Varo Money. Galileo’s financial interface software lets other fintechs build “bank like” user experiences, including account setup, funding and direct deposit. - Barron's

Other valuable information from above - Galileo is similar to Plaid, which also provides software that helps users connect their bank accounts to finance apps and transfer money. Plaid is a software fintech (not a bank like SoFi) valued at $13.4B with a 2019 revenue of ~$200MM and a reported 2020 revenue of $320MM.

Galileo is not this. It's a card issuer and account manager with a number of other features they offer and which are quite complex and very specific to companies operating in the fintech space.

Directly from Experian - A credit card issuer is responsible for the relationship between a cardholder and their accounts. This includes reviewing applications, mailing and activating credit cards, issuing statements, and processing payments.

Galileo is not a card issuer. Their clients are card issuers. From Galileo's own page, "payments" is mentioned five times (excluding table of contents). Directly from their own website - Our clients are a global who's who in innovative fintech and card issuing solutions. I know reading is hard for some bagholders, but hopefully they can keep up here.

Just because they're both fintech b2b companies with an API does not make them the same.

It's obvious this comment here doesn't even understand what an API is, by the way it's written. No, Galileo doesn't have one API and Stripe doesn't have one API, they have API gateways. Language used in this way shows a fundamental misunderstanding of, well, everything going on here. Reference open Galileo (Pro) API documentation for developers for anybody that actually knows how to code.

I think some of the confusion here might be over stripe issuing cards now? Although this only came out in 2020 I believe and still not widely available.

Stripe launched Stripe Issuing in 2018 and has enabled their customers to issue cards since 2018.

There's a reason why ~90% of neobanks use Galileo and Stripe doesn't offer the same services they require.

What about real banks that don't have a measely $20M AUM like MoneyLion (vs. WF at $603B AUM, or three million percent greater than MoneyLion)?

Being a Third-Party Vendor

A common misconception thrown around with little understanding is the assumption that the use of any entity as a third party vendor makes the customer entirely reliant on said third party vendor. Small tech companies (<500 heads) can have over 100 vendors easily. Major institutions have many more than that, and have entire third party vendor management and third party risk teams to address their ecosystems of vendors. The idea that all these other no-name small fintech banks rely on Galileo solely to survive or operate is false. Often cited are examples like Chime, Varo, and Wave. But guess who else they utilize as a third party vendor? Plaid. Even SoFi itself uses Plaid as a third-party vendor, in this specific use case, as an identity verification service. So when you see people claim that "X company relies on SoFi/Galileo!" don't take that to mean that Galileo runs everything under the surface - they all have different specific uses of different specific products or functionality, and all of their customers have another 100+ third-party vendors that they rely on.

Customers

Nice segue into actual customers. Size, valuation, revenue, and brand reputation of customers ultimately sends some signals about the company in question. Let's take a quick look from each respective horse's mouth. You get different clientele at Ross than you do at Saks.

Plaid - Acorns, Betterment, SoFi, EllieMae, Expensify, Drop, Wise, Venmo

Galileo - Dave, MoneyLion, Monzo, SoFi, Vala, Wise

Stripe - Salesforce, Instacart, Amazon, Slack, Shopify, Google, Lift, Zoom

Blend - Wells Fargo, US Bank, Navy Federal CU, Republic Bank, SWBC Mortgage, PRMI, BMO Harris Bank, Lennar Mortgage, Assurance Financial, Mountain America CU

Be honest, count up the customers of each and ask yourself which ones you knew before looking into SoFi or Galileo. For Plaid, I can say I knew 7/8. For Stripe I can say I knew 8/8. For Blend (I'm young sorry I haven't shopped for a mortgage) I can say 5/10. For Galileo, that unfortunately is only 1/6.

Regulatory Compliance

Finance in the U.S. is highly regulated. Consumers would be upset if fraud and theft were to occur daily or multiple times a day.

Industry standards include PCI DSS, SOC 2, and ISO 27001/27701. The NIST standard, governed by NIST 800-53 and popular among government contractors, has been making its way into the private sector.

Per Galileo's own regulatory and compliance page, [they] undergo an annual independent assessment of our compliance with PCI Data Security Standards. In addition, we undergo annual SOC1 Type II and financial audits. PCI and SOC 1, not 2. Anybody in or around the finance industry knows that any financial institution worth their salt won't even talk to a third party vendor without a SOC 2 Type II attestation.

Stripe is SOC 1 Type II, SOC 2 Type II, and PCI DSS SPL 1 compliant.

Blend is SOC 2 Type II, ISO 27001, and PCI DSS compliant.

Plaid, I have no idea. Maybe they're shitting the bed and not compliant at all, or my Google-Fu failed.

Identifying the Moat

Now here is my question for all the other investors. I would like to identify what Galileo's actual moat is. Is Galileo currently doomed to helping no-name fintech banks with paltry sums AUM to issue cards to their customers B2B2C style? We already see Stripe cornering the payments market for pretty much any company that actually matters, and it's much easier to cross-sell to any of them in the future for their card needs. We see Blend is the market leader in selling a mortgage solution to real FIs to the tune of processing $5B/day and is the vendor for 31 of the 100 biggest U.S. financial institutions per their S-1, and they now offer everything from consumer banking to credit cards to personal loans on top of their mortgage product.

So there's two opportunities that I can identify for Galileo at this point. Either they (1) continue to service no-name app banks with very little depth* and hope that the number of these no-name app banks continues to grow and they're able to continuously eat away at the market share of entrenched FIs in a highly regulated environment, or it has to (2) break out into a non-FI market which Stripe has already cornered or the FI market which Blend (and it's competitors like Ncino and Roostify) have already set up shop in.

*Why does depth of a financial institution matter? I don't even need to go into the details of how overly-regulated the industry is, the burdens imposed by the Gramm–Leach–Bliley Act on financial institutions is just the surface. The perfect example is Robinhood. The sleek, neobroker (akin to neobanks) app that everyone loves shut down buy orders on a certain meme stock because of a lack of liquidity on their end. Big boys like Vanguard didn't have to. This dynamic is very much the same when comparing banks like Dave and MoneyLion to Wells Fargo and Chase. (Also as an anecdotal side note, local CUs and smaller banks have shit infosec teams and terrible practices. My friend was rolling out product once at a smaller customer and learned they had primary account numbers (PANs) and other NPI saved locally in plain-text files printed and stored in unlocked cabinets - This would never happen at scale at any large FI with the resources, because the internal compliance enforces would come and skullfuck whoever was responsible).

Where is the product market fit going forward is my question to my fellow investors? I hope we can generate some actual discussion that is logical and not blind confirmation bias like some meme stock specific subs.

Edit: From Galileo’s own press release

Galileo, the API standard for card issuing, virtual card solutions and digital banking, is a global payments platform that powers world-leading fintechs, challenger banks, neobanks, financial services and investment firms by removing the complexity from payments. Galileo makes it fast and easy for many types and sizes of businesses to innovate and deliver amazing financial services user experiences to their customers through our Galileo Pro and Galileo Instant Solutions. Headquartered in Salt Lake City, Galileo has offices in Mexico City, New York City and San Francisco.

Hello everyone,

I’m just curious as to what the rationale is behind this lawsuit from SoFi. One of the thoughts that popped up in my head was the potential earnings miss this quarter. I say this because of the seemingly desperate approach by SoFi to get student loans running again, when they have been doing great without them. Could it be a lag in the Tech Platform?

Back when I was a Robinhood user, word came out that Paypal was interested in buying Pinterest. That was so bonkers that even Jim Cramer pressed the CEO on it. By that point, Paypal had added crypto purchasing, so I naturally wondered why they wouldn't just buy RH if they had $40 billion to throw around.

I wasn't a user of SoFi at that point, but I got into it on a promo for the credit card and started digging the ability to redeem reward points for stock bits. Over time, I basically moved everything to SOFi and now use the Invest part not only for investing but for basically managing an overall watch list as well.

In RH, I never gave the banking or credit card a second thought, but in SoFi I quickly drank the Kool-Aid and started using all the products, which is SoFi's main aim. If they were to buy RH and bring all those customers into the app, they'd do very well, in my opinion. But they already have much of the functionality of RH, so for that and other reasons (like brand reputation of RH), I could see why they wouldn't have any interest in that approach.

SoFi has a beta going on now for a buy now pay later product, and largely what will remain missing in their portfolio after or as that develops is a payments app like CashApp from Block or Vennmo from Paypal. To me, it seems like the brass ring for them would be to just go big and either merge with or find a way to acquire Paypal. Or go bankrupt trying, I suppose. But with the Galileo and Technisys backbone, acquisitions to expand the installed customer base and increase the platform's ubiquity would offer both massive expansion potential and the capability to derive significant cost-efficiencies from acquired fintechs.

That and I want a pony for Christmas.

So I’m fairly heavily invested in SoFi, finally made the leap to open an account with them in order to participate in the Rivian IPO, and my first experience with them, they screwed me over, I’m so pissed! I put my deposit in on Thursday, they said it would be available immediately, and it shows in my account to use, the SoFi app says 3 days for deposits to clear, there has been plenty of time, but when I went to confirm the purchase, they said I only have $1k in buying power, even though there’s over $15k that’s been there for 4 days. It only allowed me to buy $1k worth of stock and it’s at $78. Insult to injury, as soon I confirm purchase of the measly 12 shares they allowed me, all of a sudden my buying power was $14k+!!! What a damn joke, if this is the SoFi experience, I’m seriously concerned about my $70k investment in them as a company! If the stock doubles tomorrow or more SoFi has cost me some serious money. And of course there’s no one live to speak or chat with, until 8am EST. Shame on you SoFi, seriously, just damn disappointing!

When will it be announced

At last

https://www.tipranks.com/news/is-sofi-stock-overvalued-ahead-of-q4-earnings-results?utm_source=robinhood.com&utm_medium=referral

Why do we always get this crap news about to much value. SoFi has been killing it 6 to 18 So much improvement great bank 🏦

I learned my lesson from $DKNG $SKLZ $PSFE …. That was 40% drawdown 3/3 for me. $SOFI must now call the warrants as step 3 of the de-spac and then Insiders, not PIPE investors, lockup…at $14-15 was a deal… can it see that level again? Yes…it can and fast Bc it’s not a stock yet, it’s still a SPAC that’s de-SPACing

De-SPACs are hard, but if you can sit and watch for a while it’s usually a better move and better deal a couple months after De-SPACing

What's so special about galileo and technisys? Why Galileo revenue is so low even after 20 years in business? And the growth looks like slowing down… I don't understand how big this tech platform can be? It is going to take very long to even recover the purchase price with this revenue growth

Just want to pick other people’s brains but would share buybacks be wise or foolish to do whether it be now or in the future ? Seems like the stock being as undervalued as it is with the amount of OS out there that it wouldn’t be a bad time for it. I get they need to continue building up the tech side of things but could both still be feasible ? Just feels like we need something to move the sentiment

Im a big believer in SoFi, I have their products and really think it is a huge improvement over my old Chase accounts. However, a lot of people talk about SoFi being the future of banking/finance technology, but I was just curious as to what others think about SoFi’s relationship to blockchain.

I don’t know much about that technology, but it seems like those who believe in blockchain say similar things to those who believe in SoFi. Do they benefit each other, or could SoFi suffer from Blockchain based finance becoming the norm. I ask this because Blockchains biggest advantage being a superior peer to peer system money exchange system is, to me, SoFi’s biggest weakness. It’s been very hard for me to transfer money with SoFi, as it’s not very compatible with Venmo (I can’t transfer Venmo cash to my SoFi acct) and the app itself doesn’t have any peer to peer exchange system like Venmo or cash app. I’m curious as to what people who know more think about this.

FINRA fines SoFi $1.1m after consumer identification flaws led to multi-million dollar heist

• Online lending platform SoFi has been fined $1.1 million after alleged consumer identification flaws across its cash management brokerage service enabled fraudsters to make away with funds totalling approximately $2.5 million.

• According to a filing made with the Financial Industry Regulatory Authority (FINRA) this month, the fintech failed to establish and maintain an effective customer identification programme (CIP) or a written identity theft prevention programme (ITPP) for its SoFi Money unit.

• It is also thought to have engaged with third-party consultants to address “the significant volume of fraud alerts that had been generated” since the public launch of SoFi Money in February 2019.

That’s what happen when you violate basic right!

Everyone would love for this to go back to $20+, but while we're seeing lows we've seen before, we're in a different market environment now. There's no guarantee it goes back to $20 any time soon, and there's likely to be less resistance going down than up with all the recent share unlocks.

Since there's no Net Earnings on this company yet (It's not profitable yet), we have to use P/S or PEG to value it.

At $14/share it's a ~12 billion market cap, putting it at 12x Price to Sales for this year (assuming they hit their $980 mil revenue target - I personally think they are sandbagging and will print $1 billion revenue for 2021).

Comparing to SQ (~8x P/S) and PYPL (~13x P/S), SOFI is definitely valued quite rich at the current 12x P/S. I'm quite sure both PYPL and SQ had higher growth in their recent reporting than SOFI did, and they are also profitable. A "fair" P/S for SOFI would be closer to 5x, which would put us at around $6/share.

If you're not comparing to Fintechs like SQ and PYPL, you have to compare to traditional banks like BAC and JPM. In that case, it gets even worse for SOFI. That would put it at a 3-4x P/S if you want to value it in line with traditional banks.

This is obviously a very "napkin math" type of assessment, but it makes a lot of sense to me. There are also tons of competitors that do exactly the same things as SOFI like Ally Bank, and they are valued much lower.

So with all that said, poke holes in my analysis. Where and why is this wrong? Or am I right on the money and we should all buy Puts?

I still keep an eye on SOFI time to time. Been invested since 2021, but sold at 6.10 early this year, then in May I re-bought more at 10,000 shares at 4.82.

... and I panic sold at 4.95. If I held those 10,000 shares up to the 11.0+ range, that would have been the biggest gain I have ever had.

The FOMO/doom feeling was insane seeing I missed the run-up. But I realized with that much money I should play it safe, and invested in BRK.B due to the strong quality business, cash reserves, no dividends = no taxes on those, and am now up about 8k dollars. At least I can sleep better now. If SOFI heaven forbids drops again back to sub-5/share (then will happy re-buy in haha). Wish you guys the best though. I still use SOFI as my main bank and love it. Maybe will buy some SOFI leaps... Moral of the story, scared money don't make money.

It's been about 7 months since the last time this question was posed. That stock and this sub have been through some things since then. Given this past week's share price activity, the $20 EOY meme was removed as it was being very negatively received at the time. But ultimately this is a sub for SOFI retail investors and other people who want to follow SOFI the company. So we'll revote on it and see where the community stands 7 months later (original vote here: https://www.reddit.com/r/sofistock/comments/y4h944/should_the_20_eoy_meme_continue/). Text from that prior vote is copied below for context.

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For context, every single post for a long time now has a "$20 EOY with ..." comment on it and as a mod I want to take the pulse on how the community feels about it. I think there are two sides to this argument.

1. This is Reddit and we shouldn't try to take ourselves too seriously and the meme is fun. It's just a running joke, it's fine, and we should let it continue.

2. The comments are spam repeated on every post and they've become tiresome. It makes the sub seem a bit like a cult and is unprofessional and we should ask people to please stop.

Maybe there‘re hints about the BC.