SoFi has used a mixture of internal development and external partnerships to rapidly expand the services offered to its clients

Business Strategy & Outlook

SoFi targets young, high-income individuals who may be underserved by traditional full-service banks. The company is purely digital and engages with its clients exclusively through its mobile app and website. Unlike existing digital banks, which generally have limited product offerings, SoFi offers a full suite of financial services and products that includes everything from student loans to estate planning. The intent is that this will allow its customers to structure the entirety of their finances around SoFi, and the company’s reward structures are designed to encourage its clients to do so. By acting as a one-stop shop for its customers’ finances, SoFi intends to create powerful cross-selling advantages that will reduce its cost of acquisition and give it a competitive advantage. In order to meet this goal, SoFi has used a mixture of internal development and external partnerships to rapidly expand the services offered to its clients. The use of partnerships has allowed SoFi to build out its product offerings with impressive speed, transforming SoFi from being a student and personal loan company into a one-stop shop for financial services in just a few years.

While SoFi has offered its clients banking services for some time, the company itself has only recently become a true bank. Having successfully gained a national banking charter in early 2022, SoFi is now able to retain deposits into its SoFi Money accounts and use them to support its lending operations. Prior to SoFi obtaining a charter, deposits into these accounts were swept out to SoFi’s partner banks, leaving SoFi to finance its lending arms entirely though external financing. Access to these lower-costs funds will give SoFi the opportunity to drive net interest income growth as the firm leans into its unique model for digital banking. Since receiving its charter, SoFi’s deposit base and loan book have grown rapidly, with total deposits reaching over $4.9 billion at the end of September 2022 from just over $1 billion at the end of March 2022. SoFi’s success in deposit gathering has supported significant net interest income growth, helping to offset the negative impact of student loan forbearance.

Financial Strengths

With a strong balance sheet and modest credit risk from its lending operations, SoFi is in a good financial position. During its SPAC merger, SoFi raised $1.2 billion through PIPE financing, which came in addition to the $800 million in liquidity that the company acquired during the SPAC merger itself. At the end of September 2022, the firm had over $1.1 billion in unrestricted cash and investment securities, giving it ample financial resources. SoFi does not pay a dividend or make any kind of shareholder returns. This is expected given where SoFi is in its corporate life cycle. SoFi will not commit itself to making dividend payment or to repurchase shares at any point in the immediate future as the company is far more likely to reinvest any excess capital into its business. Additionally, the company’s financial reserves should be more than sufficient to cover any credit losses it may experience. SoFi either sells or securitizes the loans it originates. While historically SoFi has retained some of the securitizations it has made, recently the company has moved away from this practice and many of the loans it has on its books are “float” from its lending business. In other words, loans that have been made but not yet sold through. Because these loans are recently originated, SoFi experiences limited credit losses, and the company’s write-off expense is low relative to the size of its balance sheet. With low credit losses and substantial financial assets at its disposal SoFi is in a good position financially and should have plenty of flexibility to invest in its business as it sees fit. While SoFi is unprofitable and will likely remain so for the near future, the firm is in a good financial position to withstand future losses.

Bulls Say

SoFi has managed to rapidly launch an impressive array of products and services, and the company remains the only firm offering a digital full-service model.
SoFi has enjoyed rapid growth driven by the introduction of new products and broader adoption of digital banking.
The company’s acquisition of Galileo was likely a major win as the number of accounts using Galileo’s platform has risen sharply since the purchase.

Company Description

SoFi is a financial services company that was founded in 2011 and is currently based in San Francisco. Initially known for its student loan refinancing business, the company has expanded its product offerings to include personal loans, credit cards, mortgages, investment accounts, banking services, and financial planning. The company intends to be a one-stop shop for its clients’ finances and operates solely through its mobile app and website. Through its acquisition of Galileo in 2020 the company also offers payment and account services for debit cards and digital banking.

(Source: Morningstar)

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