Inside SoFi’s (expensive) customer acquisition push

SoFi, which recently confirmed it had 500,000 members, is on a customer acquisition push. The 7-year-old personal finance startup is about to launch bank accounts for U.S. citizens and residents, a move that opens up SoFi's customer benefits to a much wider pool of customers. The company, which initially offered student loan refinancing for high-earning top-tier graduates and has since expanded its offerings, differentiates with VIP-style "member" benefits. These include access to events, dinners, career coaching and other perks. While opening up membership to a wider customer base has cost implications, it's part of a longer-term strategy to build lifetime value for a loyal customer base that's excited enough about the brand to take up other products. SoFi's foray into bank accounts is part of a bigger plan to go beyond lending to become a "personal finance operating system" for customers annoyed with high fees and clunky digital interfaces, Meron Colbeci, SoFi's svp of product management, said when the company first announced its banking product plans. CEO Anthony Noto recently outlined a product roadmap that goes much farther than loans, including building out its wealth management product, a digital and physical advice platform, brokerage and crypto. Credit cards are also in SoFi's plans, with Bloomberg reporting Monday that the company hired an ex-Citi executive to help build a branded credit card. "SoFi's main business is lending, so once they've got customers in the door, loans are very profitable," said PayGility Advisors partner David True. "You can transition them to something; they've likely calculated 'if x percent of customers borrowed x amount over five years, this would happen" -- subsidizing the costs of acquisition and keeping customers tied to the brand throughout their best earning years. It's a customer-for-life strategy other digital banking upstarts are pursuing. Luvleen Sidhu, CEO of BankMobile, recently told Tearsheet that a "customer for life" strategy is underpinned by the reality that "every customer is a potential customer," with product offerings tailored for different life stages. SoFi has been known to pay a high price to gain customers; last year, it reportedly acquired customers at $756 apiece. The non-financial member services are valued at $795 per customer, according to the company. But SoFi's experiential benefits have another advantage compared to dollar-for-dollar point-based loyalty programs: a high perceived value relative to the cost the company pays. By arranging events or career services for a larger number of customers, it can cut down on the unit cost, True suggested. "SoFi is coming up with rewards that aren't as costly dollar for dollar -- airline rewards are expensive because the company has to pay hard dollars to the trip provider every time the customer redeems," he said. So, for example, events aren't incremental costs based on attendees who show up, so the ratio of the costs compared to the benefits offered to customers is favorable to the company, he added. SoFi declined to comment on whether it plans to create membership tiers to manage an onslaught of new customers. But that doesn't mean there is no barrier to entry. A company spokeswoman said customers will need to set up a direct deposit of at least $500 per pay period in order to be eligible for SoFi’s benefits. Expanding rich loyalty benefits to a larger customer group isn't necessarily tied to a hard return on investment compared to acquisition costs; it can be part of brand development. Last year, SoFi spent $170 million on marketing and reportedly plans to spend $200 million this year. "At the end of the day, many financial institutions are implementing loyalty programs to remain relevant -- this isn't an issue of ROI but rather survival," said Current CEO Stuart Sopp. "Many loyalty programs that we are seeing in the space recently are strategic attempts to differentiate themselves and their products that have, broadly speaking, already been refined for decades."