SoFi: Friend or Foe

At first an online alternative for student loan refinancing–but now moving into consumer lending and mortgages–SoFi has been making waves in the fintech industry. The company even ran a commercial during the Super Bowl, which could be taken as a sign that its has big ambitions.

The Good:
SoFi CEO Mike Cagney (who sneakily once worked at megabank Wells Fargo & Co.) has declared that “Our average borrowers are around 32 years old, they’ve got a 780 FICO, they make a $150K a year pre-bonus, over $5,000 a month of free cash flow.” As you can imagine, this make SoFi’s customers very desirable—and it also makes SoFi very attractive to investors, including banks and other large players that want to buy their loans.

For consumers, the rate that SoFi charges for loans is much cheaper than most traditional banks, and it doesn’t charge an origination fee like other website lenders such as Lending Club. And unlike a traditional bank you can apply online. In addition to the loan itself, SoFi also provides career counseling, wealth management services and even social events. It offers help if you are laid off, and says it wants to “be there” for their customers in time of need.

The Bad:
For a bank, it should be noted that Cagney has been very outspoken about his desire to lure consumers away from their banks, and if numbers speak the truth, the fact that they have funded over $2.5 billion in loans up through April of this year certainly shows some solid traction in the marketplace Cagney has said that he hopes to have his customers only rely on SoFi in the future, not just “in addition to” their primary institution. It is rumored that SoFi is looking at expanding into direct deposits and more, but it is important to note that these will not be backed by the FDIC, nor will they use deposits to fund their loans.

As of May 4, SoFi also announced that its subsidiary, SoFi Lending Corp also became an approved service/seller by Fannie Mae in the mortgage industry. This is just another step into the millennial market, as they offer greater speed and convenience throughout the entire process.

Our Verdict: Foe
As SoFi is starting to operate in other areas of lending, banks should certainly be taking note. If a fintech company can create a bond with millennial consumers at the beginning of their financial lives—such as when refinancing their student loans or buying their first home–the goodwill will certainly carry over. It’s not just that banks risk losing millennial customers to fintechs like SoFi—they might never get them in the first place.