Having started as a student loan platform, Social Finance Inc. – better known as SoFi – aims to be the medium for all personal finance while making its way onto the public markets.
Led by an action group that helped turn Twitter Inc. TWTR,
into a global hub for information and worked in technology investment banking at Goldman Sachs Group Inc. GS,
SoFi already provides personal and home loans, investment services, small business financing and other financial products. The ultimate goal is to get customers to sign up for more than one financial offer, which the company argues will help reduce its customer purchase costs while at the same time creating a more peerless experience for those who use the product.
Noto’s past experiences across the tech and finance world gave him the impression that “no one had really built financial services knowledge on a single digital platform and used data to drive high value,” he told MarketWatch.
The financial services company is expected to go public shortly in the coming weeks through a merger with Social Capital Hedosophia Holdings Corp. V IPOE,
corporate purpose-built, or SPAC. The agreement, announced in early January, is expected to raise up to $ 2.4 billion in cash flow – which includes a $ 1.2 billion private investment in public equity, or PIPE, directed. by Chamath Palihapitiya, chief executive of Social Capital – and assigned $ 8.65 billion in postpaid valuation to SoFi.
The SPAC track has been very popular over the past year, though not as popular for SoFi-sized companies with little name recognition. Noto told MarketWatch that the SPAC merger made sense for his company as it allowed SoFi operators to “provide a more holistic view of where the company is going in the short term compared to the long term” when talking to potential investors.
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Here are five things to know about SoFi as it prepares for its first public tour.
All things financial
SoFi offers a range of financial services, including bankruptcy and investment accounts, various loan offers, credit card and financing for small businesses. The company’s target customers are those known as “high earners who are not well served,” or people who have issued financial offers from multiple banks.
The company argues that there is a “lack of a unified one-stop shop on a single digital platform” when considering what traditional banks can offer, according to a sliding deck included in a statement SPAC union. SoFi positions itself as the only company that offers a range of different financial services in one place.
SoFi’s view is that customers will be better served when dealing with a single provider for different aspects of their financial life, because money decisions are often interconnected. “If we help invest and don’t help buy a house, [members] they could dig a hole and take out too much debt, ”Noto told MarketWatch.
Of course, this strategy has advantages for SoFi as well. By marketing additional offers to existing customers, these new product sales will be more profitable. Nearly a quarter of SoFi product sales are made to existing customers, led by home loans at nearly 70%.
SoFi’s strategy is similar to that seen in China, where companies such as Ant Group have built financial “super-apps” that combine several elements of financial services into one offering. A real super-app hasn’t appeared in the U.S. yet, but companies like SoFi and PayPal Holdings Inc. PYPL,
trying to expand their abilities to be like them.
Tech mind set
Just as social media companies talk about growing their daily usage, SoFi is also trying to be a daily staple in people’s financial lives.
The company provides financial information that Noto enjoys in the news feeds on Twitter and FB Facebook Inc.,
platforms. SoFi has its own podcast and daily newsletter, and also includes third-party content, using data to determine what’s most relevant to a particular user.
SoFi customers, known as members, have access to benefits such as free coaching from a qualified financial planner or free estate planning services for those wishing to draft a will. More than 1.7 members had borrowed through SoFi or used their SoFi Money bankruptcy product as the disclosure of the company’s SPAC contract, and SoFi is targeting 3 million members by the end of 2021.
“As soon as you become a member, you are always a member because we want you to come back every day,” said Noto. That way, consumers may be more likely to consider SoFi for additional financial return once they hit new lifecycle milestones.
SoFi is led by Noto, who took over as chief executive officer three years ago after becoming chief operating officer on Twitter, co-head of technology investment banking group Goldman Sachs, and chief financial officer of the Football League National.
Bank on
SoFi is among a handful of fintech companies that have expressed a desire to delve deeper into financial services by obtaining a bank charter.
The company plans to acquire Golden Pacific Bancorp Inc., a small community bank, to make that effort. SoFi had already obtained prior approval from the U.S. Currency Regulator’s Office for a national bank card back in October, but was still awaiting another approval. By taking over a small bank, SoFi can apply for its card through a “change of control” process, which is usually quicker than applying for a new card.
SoFi currently has to partner with existing players to provide Federal Investment Insurance (FDIC) Corporate Insurance and offer current interest rates, according to Noto, thus by obtaining a card bank allows the company to take these actions on their own and achieve a lower rate. cost money.
“By being a bank, we will be governed by fewer organizations in a more uniform way at a national level,” said Noto – SoFi is currently governed by states with different rules.
Growing income, expanding losses
SoFi generated a net loss of $ 141 million on revenue of $ 394 million in the first nine months of 2020, after losing $ 117 million on revenue of $ 378 million in the first nine months. months of 2019.
The company expects to lose again next year, to $ 238 million from an estimated $ 220 for 2020 as a whole, before narrowing to $ 13 million in 2022. SoFi estimates that be profitable on a GAAP basis by 2023, predicting $ 200 million in GAAP net. income in that year.
While most of SoFi’s revenue comes from lending, the company expects the industry to be more equitable by 2025 with more revenue from services finance and the company’s technology platform.
A rising tide
SoFi is in a position to benefit from a broader move towards digital banking through its Galileo platform, which uses an application programming interface, or APIs, to allow companies to build financial services offerings . The APIs enable account positioning, financing, direct investments, money transfers, bill payment and other capabilities, SoFi said in a press release announcing it acquired Galileo for $ 1.2 billion in April last year.
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“By building for SoFi, we know what it takes,” said Noto, so that SoFi can accelerate the Galileo platform for itself while also offering participants API functions.