SoFi is rolling out checking accounts without a banking license, demonstrating the new reality that a company doesn’t have to be a bank in order to bank customers.
By partnering with the Wilmington, Delaware-based WSFS Financial, SoFi will roll out a fee-free checking account and debit card this spring in a bundle it’s calling SoFi Money, designed to address the pain points customers have with day-to-day banking products, like high fees and clunky digital interfaces, executives said at a media gathering in New York Tuesday morning. SoFi Money will include peer-to-peer transfers between SoFi customers, mobile check deposit and high yield interest rates on deposits (0.75 to 0.85 percent). It will be available first to current SoFi members before the broader rollout.
“Our ambitions are much broader than just student loans,” said Meron Colbeci, svp of product management. “We want to be the personal finance operating system of the future for our members, where everything you do works better because we’re creating a better experience.”
The beleaguered San Francisco-based company previously said it would apply for a banking license but backtracked on that plan amidst a sexual misconduct scandal that led to ex-CEO Mike Cagney’s exit in September. Twitter’s chief operating officer Anthony Noto will take his place in March, SoFi said today. At the end of 2017, SoFi funded $25 billion in loans with a membership of 430,000.
SoFi is using deposit accounts as way to cross-sell and keep SoFi members in the SoFi ecosystem, said Denise Valentine, a senior analyst at Aite.
“[It’s] about building a pipeline. Historically they’ve been engaged in paticular markets, but to hit economies of scale you need a large population, so if you have the right technology and bank partnership, you can accumulate assets under management,” she said.
SoFi, which initially marketed itself to students and recent graduates looking to refinance student loans, has been making moves to expand its capabilities and as a result broaden its customer base since it began offering wealth management services to non-members last spring. By opening a checking account, new customers will also become SoFi members, meaning they’ll have access to member events and perks like virtual and in-person career counseling and job-finding assistance. SoFi also said it will drop $100 in checking accounts and investment accounts, each, if customers set up direct deposits.
It’s an expensive investment. The non-financial member services alone cost $795 per customer, according to Libby Leffler, SoFi’s vp of membership. SoFi has also marketed aggressively for spots on city buildings, public transportation and during the Super Bowl. SoFi will continue making money from originating loans and providing refinancing services, but it isn’t clear how else they’ll generate revenue. It’s possible they can make money with a little bit of investor help to finance broader customer acquisition goals, Stephen Greer, an analyst at Celent, suggested.
“They could be going for the Chase Sapphire Reserve-type strategy,” in which Chase ate the cost to gain new clients, Greer said. “It was a huge loss for them but they acquired millions of customers in the process and now they’ve backed away from those offers and they have those customers.”