The Customer Effect
SoFi, Fannie Mae, and the fintech partnership economy
- Fintech lenders are trying to distance themselves from traditional lenders.
- But the partnership economy is doing good things for both types of lenders and their customers.
It’s tempting to divide U.S. lenders into two distinct groups. On the one hand, you have the New Lenders, fintech offerings like Quicken Loans’s Rocket Mortgage, P2P lenders such as Prosper and Lending Club, and student loan products by companies like SoFi and CommonBond. All of the above are careful to brand themselves as nothing like the incumbents. SoFi, for example, is adamant that in spite of the many bank-like services it provides, it is not a bank. On the other hand, there are the Old Lenders, U.S. banks and traditional mortgage lenders like Fannie Mae and Freddie Mac, who may be using fintech but who aren't yet defined by it. Of course, the imaginary line drawn in the sand between New and Old Lenders is just that -- imaginary. In reality, fintech lenders and incumbent lenders are realizing the benefits of partnering up. SoFi and Fannie Mae's full-on relationship is a good example of how the two camps are finding out each others' good qualities. The two first publicized their budding romance in May 2016, when Fannie Mae approved SoFi as a seller and servicer of mortgages. More recently, on November 2, SoFi and Fannie Mae announced a joint program to refinance mortgages to pay down student debt. Dubbed the Student Loan Payoff ReFi, homeowners can refinance mortgages at a lower rate and pay off existing student loans. “SoFi is a new customer of ours and we approached them to learn about student debt refinancing and the student debt market in general," said Jonathan Lawless, Fannie Mae’s vice president of product development and affordable housing. The idea for the Student Loan Payoff ReFi evolved out of those discussions. "We saw this as a good time to partner on solutions given the increasing focus on student debt as an obstacle to homeownership and an overall weight on the economy,” he said. On the micro level, SoFi and Fannie Mae are undoubtedly addressing a real need. Experian data found that the average homeowner with outstanding cosigned student loans has a balance of $36,000 on those student loans, and those with outstanding Parent PLUS loans have $33,000 in student debt. On the macro level, however, SoFi and Fannie Mae's romance is a reminder of the benefits that both incumbents and upstarts derive from the partnership economy. Fannie Mae gets access to and builds awareness among U.S. millennials, at least 30% of whom are outside the traditional banking system to begin with. SoFi, on the other hand, gets to expand even further into the mortgage market. It's a win win situation. "The Student Loan Payoff ReFi is a great first product that combines SoFi's experience in student loans, as a pioneer and leader in the industry, with Fannie Mae's commitment to supporting homeownership," said Michael Tannenbaum, svp of mortgage at SoFi. For upstarts, even ones that've raised over a billion dollars in capital like SoFi, the partnership economy is essential to growth. "For now, there's very few options other than to partner," said Ash Shilkin, CEO and founder of digital banking service provider ChimpChange. "It kind of has to be a partnership today. So long as each one of those partners recognizes the other's skills, it can be quite a happy relationship." Still, partnering with traditional lender Fannie Mae has its branding risks for SoFi, which risks losing its alluring New Lender title and at least seeming more like a traditional finance company. For now, however, SoFi and Fannie Mae's partnership could be tagged with the newly available hashtag #StrongerTogether.