How SoFi is developing its financial services offerings

SoFi does a lot of things: career resources and networking, dating events and a dating app, online lending. But what it wants is to be millennials' go-to partner for everything, and that means extending its financial products to deposits and credit cards. SoFi has always been as much about culture and brand as product and tech. Now that it's postponed its initial public offering in December (it raised $500 million in private funding shortly after) it has the luxury of time to develop its financial services offerings. “While we run positive contribution margins around our credit products… it pales in comparison to what the lifetime value of that relationship is worth,” CEO Mike Cagney said at Fortune’s Brainstorm Tech conference in Aspen, Colorado Wednesday morning. “Not having that deposit product means that the bank, if it has that deposit product, is going to constantly try to cross sell [customers] and pull them back to the bank. That introduced this vulnerability in the business.” SoFi started with the premise that the services millennials get from their banks is not what they want; that they would be the anti-bank and “be everything to these members,” Cagney said. Last year it ran a 45-second Super Bowl ad introducing “the beginning of a bankless world” with their slogan, “Don’t Bank. SoFi.” Now, the company has two new strategies it hopes will help it capitalize on the lifetime value of customers. In December it bought mobile banking startup Zenbanx. “A lot of people didn't understand why… they thought we were trying to get in the payment space,” Cagney said. And last month it applied for a bank charter. “Theres a lot of irony in us applying for an [industrial loan company] license,” Cagney said. However, he specified that “the only ambition we have to put in the bank: deposits and credit cards. Our unsecured lending, our mortgage business, our wealth -- all that stays outside the bank.” There are also no branches planned for the non-bank financial services company, he confirmed, citing that in the 40 SoFi events he’s hosted and attended almost all other attendees have said they haven't walked into a branch in the last five years, he claims. Cagney said SoFi would be offering customers a sweep account, where funds are automatically managed between a primary cash account and secondary investment account, by the fourth quarter of this year. It’s FDIC approved, but SoFi, he maintained, isn’t a bank in providing it. The charter is a way for it to offer this type of bank product and still do all the things it considers core to the value of our business and the brand -- like dating events and career resources -- that it “couldn't do in the confines of a bank holding company.” SoFi is also in the exploratory stages of how to use alternative data like cell phone data for credit scoring as well as distributed ledger technology for title insurance. But making $2,500 on a student refinancing transaction or $15,000 from a mortgage account is nothing compared to the $50,000 to $100,000 to $150,000 SoFi could make over the lifetime of a customer relationship. Cagney said he is confident that adding deposits to the business can get it to the tens of billions of dollars in valuation. U.S. banks are valued at between $2,000 and $100,000 per customer. SoFi currently has 250,000 members today and anticipates 500,000 by end of year. Cagney said it’s not unrealistic to get two million customers at “$25,000 to $50,000 per customer, which gets us in the $50 to $100 billion valuation range.” That’s why investing first in dating, schmoozing and booze -- if all goes according to plan -- fits so well with SoFi’s brand, the everything-to-millennials non-bank company. It’s also why it doesn't just partner with a bank or sell to one. “But to get there, we have to have a diverse product set and that includes deposit products. It’s not just from a revenue standpoint, it’s from a defensive standpoint,” he said. The company is still making sense of when it could be ready to finally go public. Cagney only said that it’s “opportunistic” about the when factor and “there’s no urgency” to do it. Right now people still largely know SoFi as the online lender -- which might be part of the reason the company postponed its IPO. In the spring of last year Lending Club, then the darling of the marketplace lenders, fired its CEO amid questionable lending practices and a conflict of interest in one of his personal investments. The events cast a heavy cloud over the online lending market and SoFi hasn’t said whether it’s waiting for that cloud pass or if it’s trying to shift its image away from online lending before going public. But it’s very clear on something: an IPO is in its prospects. That, Cagney said, presents a "branding exercise" for the company. And the key to its brand is its culture of committing to its customer. “You can think of it as technology or as product but the reality is… You can have an immediate impact on technology but ultimately, it can be replicated; product can be replicated,” he said, pointing to SoFi's disruption of student loan refinancing. “There are a lot of fast followers.” “The issue is around culture and whether you have a commitment in culture to deliver value into your customer base. If you don't have that its not going to work… The reason the industry is so vulnerable right now is they don't realize that the model they have isn't going work for that next generation of consumer.”