The Customer Effect

Dating, schmoozing and booze: SoFi is trying to make online lending more social

  • SoFi invests in building a community whose members act as brand ambassadors.
  • SoFi co-founder and CEO Mike Cagney said the goal is not to replace the banks, but to change the way the industry offers services.
Dating, schmoozing and booze: SoFi is trying to make online lending more social

Last month, a talk at New York City’s Times Center by bestselling author and CNBC host Nicole Lapin drew lines out the door. At first sight, it would seem like any other talk at a storied venue that hosts conferences, some that involve wine and schmoozing afterwards — and there was plenty at this one, too.

But this was different: it was a “social” hosted by online lender SoFi, which wants to make finance more social — hence the moniker. Through a community-building approach, the company, a six-year-old startup, differentiates itself among its competitors that are both startups and banks. SoFi holds over 200 events for its customers (which it calls members) across the U.S. each year. They run the gamut of financial therapy sessions, happy hours, home-buying workshops, and even dating.

“It was interesting — I went there by myself,” said Reetu Sharma, a 34-year-old New York City-based member, about a SoFi singles event. “It started off with cocktails, where you could just mingle with whomever, and then every ten minutes they would ring a bell and you would go to the next person and start talking to them — SoFi had an incentive that if you found someone you liked and went out on a date with them, they would pay for your dinner, so that was really cool.”

The sense of community that SoFi has built is an added benefit, said Sharma.

“It shows that they’re investing in our future, and they want us to have good, well-rounded lives — there’s a lot of good financial benefits that come from being in a relationship, and there’s also financial hurdles that you have to go through that SoFi is wiling to help out with, like buying a house,” she said. “They can tell that everything is interrelated and that they can be a part of people’s lives even when the loans are paid off.”

Through events and community connections, customers’ attraction to the SoFi brand is how it grows its reach.

“If you go back to our core value proposition, it’s around speed, transparency and alignment,” said co-founder and CEO Mike Cagney. “Speed is about mobile-enabled finance, transparency is the fact that we have no fees and deal in a very straightforward manner with members, and alignment is the community piece — we have a vested interest in the success of our people.”

The company, which was founded in 2011 as a peer-to-peer lender between Stanford alumni and graduates, has since evolved to offer lending products (underwritten by the company, and then sold to institutional investors) as well as wealth management and insurance offerings. To get approved for a loan, the company considers factors like cash flow, income, education and professional history, rather than just FICO scores and debt-to-income ratios. It has raised $1.9 billion in equity funding and has originated $19 billion in loans since its inception, and almost $5 billion just this year. While SoFi wouldn’t confirm revenue numbers, it reportedly will earn $200 million on a pre-tax basis in 2017 on revenues of $650 million.

Despite the cost involved in running the events (SoFi wouldn’t share exactly how much), Cagney said it’s worth the investment in a getting a loyal following. The company currently has 300,000 members nationwide.

“We have a huge competitive advantage relative to banks in cost of acquisition,” he said. “We’re all priced roughly at the same rate, it’s not like one of us is much cheaper or more expensive, but we acquire members at a fraction of the cost that banks acquire customers, and we attribute this to what we’ve done on community service and product design.”

With SoFi’s intent to apply for an industrial loan company (ILC) charter (a bank license that allows a non-bank to offer services a bank would provide), the company will be branching out into other product offerings, including bank accounts.

“The ILC is for delivering bank accounts to my members,” he said. “It’s frustrating that today we can’t be a place to deposit your paycheck so this is the step to get to that point.”  And even without a banking license, the company intends to have a SoFi deposit bank account through their broker-dealer, which will be launched later this year.

For those who observe the evolution of industry, SoFi’s foray into other business areas is a smart move.

“There’s plenty of evidence that unsecured consumer lending is pretty risky and there’s a number of good reasons why that market might decline going forward as regulatory steam picks up,” said Celent analyst Stephen Greer.

The company is putting more emphasis on new areas, including wealth and asset management, insurance, and international expansion, Cagney said, noting that he hopes SoFi’s growth will fuel change in the banking industry.

“At some point SoFi is going to go public,” he said. “It’s not that SoFi is going to supplant the banks, but we will drag the banks into a different type of service model that’s more mobile, that’s technology based and has high service and high community value — people will start to understand that what we’re doing is really the way the next generation wants financial services delivered.”

Photo: “Raise Week” event at New York City’s Times Center, courtesy of SoFi

 

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