Five things to know about SoFi when it is published
After starting out as a student loans platform, Social Finance Inc. – better known as SoFi – aims to be a hub for all things personal finance as it moves into public markets. .
Led by an executive who helped transform Twitter Inc. TWTR,
in a global clearinghouse and worked in technology investment banking at Goldman Sachs Group Inc. GS,
SoFi already offers personal and home loans, investment services, small business finance, and other financial products. The ultimate goal is to get customers to subscribe to more than one financial offering, which the company says lowers its customer acquisition costs while creating a smoother experience for those who use the products. .
Noto’s past experiences in the tech and financial worlds gave him the impression “that no one had really built a financial services experience on a digital platform and used the data to drive great value.” , he told MarketWatch.
The financial services company is expected to go public in the coming weeks through a merge with Share capital Hedosophia Holdings Corp. V IPOE,
a special purpose acquisition company, or SAVS. The deal, announced in early January, is expected to generate up to $ 2.4 billion in cash proceeds – including a $ 1.2 billion private investment in public stocks, or PIPE, led by Chamath Palihapitiya, the director. General of Social Capital – and awarded $ 8.65 billion in post-currency valuation to SoFi.
The SPAC route has proven to be popular over the past year, but less so for companies the size of SoFi who have some brand awareness. Noto told MarketWatch that a PSPC merger made sense for his business because it allowed SoFi executives to “provide a more holistic view of where the business is going in the short term versus the long term” when they were talking to potential investors.
Here are five things to know about SoFi as it prepares for its public debut.
Everything related to finance
SoFi offers a range of financial services including brokerage and investment accounts, various loan offerings, credit card, and small business finance. The company’s target customers are those it calls “high income underserved” or people who have taken out financial offers from several banks.
The company argues that there is a “lack of an integrated one-stop-shop on a digital platform” when considering what traditional banks are able to offer, according to a slideshow included in the announcement of the SPAC merger. SoFi is positioned as the only company offering a variety of financial services in one place.
SoFi’s view is that consumers are best served when dealing with a single vendor for various aspects of their financial lives, as decisions about money are often intertwined. “If we are just helping to invest and not buy a house, [members] could dig a hole by removing too much debt, ”Noto told MarketWatch.
Of course, this strategy also has advantages for SoFi. By marketing additional offers to existing customers, these new product sales become more profitable. Almost a quarter of SoFi’s product sales are made to existing customers, primarily mortgage loans at nearly 70%.
SoFi’s strategy is similar to what can be seen in China, where companies like Ant Group have built financial “super-apps” that combine multiple elements of financial services into a single offering. A true super-app has yet to emerge in the United States, but companies like SoFi and PayPal Holdings Inc. PYPL,
try to expand their abilities to be like them.
A technological mindset
Just as social media companies talk about increasing their daily usage, SoFi also strives to become a daily staple in people’s financial lives.
The company provides a financial news feed that Noto compares to the news feeds on Twitter and Facebook Inc.’s FB,
platforms. SoFi has its own daily podcast and newsletter, and it also contributes third-party content, using data to determine what is most relevant to a particular user.
SoFi clients, known as Members, have access to perks like free coaching from a certified financial planner or free estate planning services for those looking to draft a will. More than 1.7 members had borrowed through SoFi or used its SoFi Money brokerage product by the time the company’s SPAC deal was announced, and SoFi is targeting 3 million members by the end of 2021.
“Once you’re a member, you’re still a member because we want you to come back every day,” Noto said. This way, users can be more likely to consider SoFi for an additional financial product once they reach new stages in the lifecycle.
SoFi is led by Noto, who took up his duties as Managing Director three years ago after serving as COO of Twitter, Co-Director of Goldman Sachs Technology Investment Banking Group, and CFO of the National Football League.
Bet on it
SoFi is one of a handful of fintech companies that have expressed a desire to go further in financial services by obtaining a banking charter.
The company plans to acquire Golden Pacific Bancorp Inc., a small community bank, continuing this effort. SoFi had already received preliminary approval from the United States Office of the Comptroller of the Currency for a national banking charter in October, but it was still awaiting further approvals. By taking over a small bank, SoFi can apply for its charter through a “change of control” process, which is usually faster than requesting a new charter.
SoFi must currently partner with existing players to provide insurance to the Federal Deposit Insurance Corporation (FDIC) and offer interest rates currently, according to Noto, so obtaining a banking charter would allow the company to assume these functions itself and achieve a lower rate. cost of funds.
“By being a bank, we will be regulated by fewer entities in a more uniform manner nationally,” Noto said. SoFi is currently regulated by states which may have different rules.
Income growth, loss increase
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 during the first nine months of 2019.
The company expects losses to rise again this year, to $ 238 million, from an estimated $ 220 for all of 2020, before declining to $ 13 million in 2022. SoFi predicts it will will become profitable on a GAAP basis by 2023, projecting $ 200 million in net GAAP. returned that year.
While the bulk of SoFi’s revenue comes from loans, the company expects the business to become more balanced by 2025 with higher revenue coming from the company’s financial services and technology platform. .
A rising tide
SoFi is positioned to benefit from a broader shift to digital banking through its Galileo platform, which uses application programming interfaces, or APIs, to enable businesses to build financial service offerings. APIs enable account setup, funding, direct deposits, money transfers, bill payment and other capabilities, SoFi said in a statement announcing its acquisition of Galileo for $ 1.2 billion in last April.
“By building for SoFi, we know what is needed,” Noto said, so SoFi can leverage the Galileo platform for itself while also providing API functions to partners.