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.”

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

 

SoFi prepares to become a bank

Online lender SoFi is making an about-turn from its “Don’t Bank. SoFi.” tagline by actually becoming a bank.

CEO Mike Cagney’s announcement this week of the company’s intention to apply for a industrial loan company charter — a bank license that allows a non-bank to offer services a bank would provide — is a move that puts the financial technology company in a better position to go head-to-head with the big banks.

The time is ripe for the online lender to move forward with an application, following the acquisition of mobile banking startup Zenbanx, and $1.9 billion in venture capital funding. The industrial loan company (ILC) license would allow it to take FDIC-insured deposits, letting customers open bank accounts, credit cards and undertake other day-to-day banking services that were once only the preserve of the incumbents.

“The fact that we don’t have a deposit product means that we really can’t offer a ‘fire your bank’ proposition,” Cagney told The Financial Revolutionist in March. “[The license] allows a non-bank parent to have a captive bank subsidiary. The reason why that’s important for us is around marketing and brand. It also relates to things that are intrinsic to SoFi that you can’t do as a bank holding company.” SoFi would not comment for this story.

While some may interpret SoFi’s decision to proceed with an ILC as a turning point for the industry, Brian Knight, a senior research fellow at the Mercatus Center at George Mason University, said he doesn’t expect a rash of financial technology company applicants, as a bank license doesn’t suit all business models.

Analysts say the ILC charter is the only surefire way to become a bank, given the uncertainty whether the OCC Charter for Fintech Firms will weather the departure of Comptroller of the Currency Thomas Curry last month and a challenge from state regulators.

“With the ILC, there’s no question about the legality of the charter,” said Knight. Since a moratorium on ILCs initiated on the heels of the financial crisis expired in 2013, no companies have pursued it in a decade.

From a startup perspective, SoFi’s entry into the banking space should concern big banks wary of the competition.

“I think the big banks are worried, almost all of them are identifying fintech as something to watch out for and most of them are trying to innovate,” said Brion Nazzaro, group compliance director at WorldRemit, a financial technology company that offers a digital money transfer service. “Many banks will partner with fintech companies to keep their products and services at a lower cost or offer more value for the consumer.”

Others argue that it’s too early to tell if the growth of financial technology companies will truly present a challenge to the banks — if a firm poses a threat, they can just buy it. Pockets are big enough, as shown by BNP Paribas’ acquisition of digital bank Compte-Nickel last month for 200 million Euros ($217 million) or Ant Financial’s purchase of eye-scan firm EyeVerify in 2016, reportedly for $100 million.

“[The banks] are watching every one of these companies, and they know who’s going to try to pick their pockets, and if they think it’s a good idea they’re going to acquire the company,” said Gerald Blanchard, senior counsel at Bryan Cave.

 

Hi 5! The top five fintech stories we’re following today

top 5 weekly fintech stories

Digital wallets: lacking growth, getting creative

Accenture’s recent report that POS digital payments haven’t grown at all confirmed what we already knew — namely, the technology is ready, but users aren’t. Still, there’s some movement on the mobile payment horizon. Apple is making a conscious effort to get users comfortable using Apple Pay in ecommerce, and not just in retail. Meanwhile, Walmart’s isn’t twiddling its thumbs, and is now in talks to integrate other digital wallet options into its newly launched retail app.

Online lending’s blurred lines

We’re sometimes quick to draw distinctions between the incumbents and the upstarts. But in online lending, things are getting a bit blurred. A new partnership between Fannie Mae and SoFi shows how fintech partnerships can work. Partnering is starting to look more and more attractive, given that OnDeck is primarily using its own balance sheet to fund growing originations, while Lending Club investors continue to shrug off more losses.

What will those incumbents think of next?

Incumbents partner up with fintechs, they acquire them, they launch innovation labs, and sometimes they do what Bank Leumi did — disrupt itself from within with its new digital bank, Pepper.

Industry leaders share insights on success and fintech trends

It’s rare that fintech CEOs get the chance to really open up about the challenges and delights of their jobs. Tradestreaming’s smooth-talking Josh Liggett got them to share their CEO highs and lows. Other industry experts spoke of the major trends they see impacting fintech and finance.

Software, APIs, and SDKs

If you want to see just how banks, with more open systems and established software connectors, can evolve, here are 7 examples showing the power of banking APIs. Citi is one of the more recent incumbents to join the API fray with its new global API developer hub. In payments, CardFlight chose not to reinvent the wheel. The company built its tech on top of existing payment infrastructure, rather than building out something new. And finally, WTF are SDKs, and why you should care.

 

SoFi, Fannie Mae, and the fintech partnership economy

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.

SoFi’s Joanne Bradford: ‘Money is the last taboo subject’

sofi interview digiday podcast

This interview originally appeared on Digiday.

Joanne Bradford has a long history in digital media, with top jobs on the sales side at Microsoft, Yahoo and, most recently, Pinterest.

Following her departure from Pinterest last June, she opted out of the sell side of media and instead entered the hot space of “fintech,” where technology businesses are trying to barge into the stodgy and lucrative world of financial services.

Last year, she joined SoFi as chief operating officer. While SoFi is not yet a household name — 10 percent know it, according to Bradford — it has big plans: $1 billion financial backing to become a one-stop shop for financial services (and even a few dating options) for promising and responsible people. In order to do that, Bradford’s challenge is to build a strong and widely known brand from scratch.

“Money is the last taboo,” she said on this week’s Digiday Podcast. “Procter & Gamble made it OK to talk about having a happy period. Trojan made it OK to talk about having sex. People will still not talk about money. They’re uncomfortable with talking about how much they make, how much they save, what they can do with it.”

Below are lightly edited and condensed highlights from the conversation.

Fintech is hot right now.
Silicon Valley’s sights have gone far beyond consumer electronics and media to embrace changing pretty much every large sector of the global economy, from agriculture to transportation to health care. It’s no surprise then that companies like SoFi, Lending Club, Affirm and others are focused on the trillions spent on financial services.

“There’s a lot of underserved consumers,” she said. “Most people do not like to pull into a parking lot to go and stand in line to sign some papers. That’s one of the things we’re trying to solve for people: Convenience.”

SoFi wants to build a community.
SoFi started with student loan refinancing, but it has branched out to provide further financial products with the idea that it can become a trusted partner for people as they advance in life and accumulate wealth. The key to doing that is to think beyond finance products, Bradford said. That’s why SoFi hosts member happy hours, dinners, provides career counseling and even dabbles in dating.

“I don’t think today you can build a brand without a community, no matter how techie you are,” she said. “I don’t think it’s a Silicon Valley thing only. The people of Warby Parker love their Warby Parkers. The people of SoFi love SoFi. They love benefits it gives them, the access it gives them, the commonality they have.”

SoFi marketing is about experimentation.
The Silicon Valley ethos is test and learn. SoFi did a happy hour to thank members, had 150 show up and decided to hold dozens of these gatherings. This year it will put on 250 events across the country, Bradford said. In all of its marketing activities — even running a Super Bowl ad — the brand wants to stay experimental.

“The experimental partnerships we’ve worked on that have gone south, I can correlate them to a lack of account management,” she said. “The ones that have gone well have someone who is not incentivized as a salesperson but is really working and optimizing day to day.”

The media world is not going all programmatic.
Bradford has deep experience with digital media platforms that rely on self-serve advertising products. The rise of programmatic ad systems and the promise of automation is seen by many as a foregone conclusion. But Bradford doesn’t see programmatic eating the media world whole anytime soon.

“It works until it doesn’t,” she said of programmatic. “I look at the word programmatic as cheap and can’t be sold other places. I get very different things from Google, Facebook, different platforms. My biggest challenge is cobbling it together and figuring out how to get people over the inertia of a financial discussion.”

FICO-free zone? Traditional credit scores aren’t going anywhere

FICO credit scores aren't going anywhere

It’s a familiar memory for many people who grew up in the 1980s or early 199os: Upon finishing high school or enrolling in a four-year university, you would receive an advertising packet from Visa, MasterCard or AMEX offering a student credit card with a low credit ceiling, coupons for discount concert tickets or airfares, and automatic approval. Using the card responsibly and paying off the balance every month was an important step into adulthood and virtually the only way young adults could establish a solid credit score. They were almost essential for securing the loans people would eventually need for the high-cost demands of the modern world: like, car loans and mortgages.

But as adulthood creeped up, the credit scoring provided by FICO somehow became more opaque. The company provides credit analytics to banks and traditional lenders on over 90 percent of loans made in the United States, but most people were unaware of the exact components that went into FICO’s determination of an individual’s credit worthiness.

To address this issue, FICO has just released a rating estimator to shed light on the process for potential borrowers. The predictor leads the user through a series of 10 questions focusing on current and past credit history, including number of credit cards, number of outstanding loans, and negative financial indicators such as defaults and bankruptcies.

But like most of FICO’s scoring products, the credit estimator cannot evaluate risk or issue a credit score without a credit card history of at least six months. That means the company cannot rate a 2012 college graduate with a solid job, no outstanding debt, a history of paying bills on time and $30,000 in savings, for instance. Or a 28-year-old with a solid employment history and savings but who spends responsibly and pays for goods and services in cash or with a debit card. Turning to lenders who rely solely on FICO scores, both of these individuals would be hard pressed to obtain a car loan or mortgage.

The demise of FICO?

That hole has led some to predict the demise of traditional credit ratings that consider only a person’s credit card history, and even of FICO itself. In January, a death knell was sounded for the company’s backwards-looking method of analyzing credit worthiness, a view seemingly shared by the Wall Street Journal. The publication noted not only that FICO’s scoring mechanism considers a range of credit history data before issuing a detailed report and credit score, but also the fact that the final ranking does not consider relevant information about a borrower’s current status – factors such as age, salary, occupation, title, address, employer, date employed or employment history.

At first glance, the prediction seems to have merit. Some online lenders, such as Social Finance, say they have abandoned FICO scores altogether. Others, like Avant, say they have significantly reduced their reliance on FICO in favor of a more holistic view of credit reliability. And alternative credit evaluators such as PRBC (Pay Rent Build Credit) and Ecredable stand to further disrupt the credit market by considering metrics such as phone, gas and electric, insurance, cable and daycare payments when evaluating a loan request.

The rise of alternative credit evaluators would indeed appear to pose a challenge to a company that primarily offers analysis of a potential borrower’s credit card use, especially given the additional fact that many millennials no longer see credit cards as a necessary facet of life. As many as 63 percent of adults under 30 years old don’t have one, according to a survey commissioned by Bankrate, in contrast to just 35 percent of adults over the age of 30 who don’t have credit cards.

“If I had the option of cash flow or FICO [when evaluating applicants], I’ll take cash flow every single time,” Mike Cagney, the chief executive of Social Finance, told The Journal in January.

On the other hand, marketplace lending giants Funding Circle, Lending Club and Prosper (not to mention the enormous traditional lending industry) continue to rely on FICO scores to evaluate loan requests.

FICO counters with a new score

Even more significantly, in 2015, FICO, together with LexisNexis, and Equifax, announced a pilot, FICO XD, to incorporate alternative data such as property records, telecommunications and utility information when evaluating risk and providing credit scores. That will likely open up credit approval for as many as 53 million Americans who wouldn’t be approved for loans using traditional credit card-based ratings, either because they do not yet have mature credit profiles, they choose not to use debt or because they have been shut out of mainstream lending due to a negative credit event, such as bankruptcy or foreclosure.

One cannot overstate the significance of this final point. Whereas doomsayers have tried to portray FICO as an outdated has-been with little to offer a new generation of borrowers and lenders, FICO XD neatly illustrates the company’s ability and willingness to innovate and respond positively to current trends in the credit market. It’s a point that investors have apparently internalized as well: FICO’s stock price has climbed nearly 500% since September 2011.

Ultimately, then, predictions that FICO is going the way of the open outcry options trading pit would appear to be overstated and simplistic. With a market cap of $3.33 billion and a market share of 90 percent of the lending market in the United States, the company is well positioned to meet the challenges posed by technology upstarts that promote new models of risk assessment.

[podcast] Thiel Capital’s Phin Upham on investing in tomorrow’s financial giants

Phin Upham of Thiel Capital on investing in fintech

We’ve been conducting a bit of a series here on the podcast. We’ve been talking to some of the top fintech investors around. Guys like Caribou Honig of QED, Charles Moldow of Foundation Capital. Last week, we interviewed Canaan’s Dan Ciporin. We’ve been listening and learning how these investors size up opportunities in early stage finance companies and what they’re looking for next to add to their portfolios.

Phin Upham of Thiel Capital on investing in fintech
Thiel Capital’s Phin Upham

Next up, we’ve got Phin Upham. Phin is a principal at Thiel Capital, famed-fintech investor Peter Thiel’s investment office. Peter is a renown entrepreneur (founded PayPal and Palantir) and an equally talented investor. Phin’s experience helping to deploy Peter’s capital and his own has given him a ringside seat into identifying, investing, and growing some of today’s top fintech firms (names that include SoFi, OnDeck, and Avant). Phin’s perspective on his own and Thiel’s investment mandate is really interesting. Also, I was blown away about the student loan market and the opportunity it provides for new technology-driven entrants.

We discuss whether many of the unicorns he’s invested in are truly revolutionary or merely evolutionary, migrating existing businesses online. We chat about where the financial industry is headed and where the opportunities are for innovation. I’m confident you’ll really appreciate my conversation with Thiel Capital’s Phin Upham.

Phin just wanted it to be clear that his comments are his own and aren’t necessarily representative of his firm.

Listen to the FULL episode

In this episode of the Tradestreaming podcast, we cover:

  • why he and his firm have invested in fintech firms like SoFi, OnDeck Capital, and Avant
  • the one question he asks prospective entrepreneurs before he makes an investment
  • SoFi’s positioning and why the firm started lending with a student loan product
  • how a student loan offering forms a long term customer in a way that isn’t being addressed by other marketplace lenders
  • why Phin thinks the opportunity for disruption in financial services comes in super-prime or sub-prime flavors
  • Peter Thiel’s theory of building in competitive margins to a startup as a form of innovation
  • how SoFi is an inherently different firm than LendingClub
  • the challenge of customer acquisition for fintech companies and some ways to address the challenge of building a customer base
  • whether Phin would invest in SoFi again
  • the parts of the finance industry that he’d stay away from and where he still sees opportunity
  • whether fintech is revolutionary in nature or just a set of new players doing the same, old things

More resources

Even more resources

 

The Startups: Who’s shaking things up (Week ending March 13, 2016)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming newsletters.[/alert]

Startups raising/Investors investing

Alibaba’s Ant Financial raising new funding at $60b ahead of IPO (TechCrunch)
Ant Financial, the Alibaba affiliate that manages hugely popular payments service Alipay, is raising a new round of financing that could value the company as high as $60 billion ahead of a much-speculated public listing.

Property Partner lands £15.9m to scale up real estate crowdfunding platform (TechCrunch)
The online real estate investing market is getting more competitive every month.
In any conversation I have about London’s fintech space, property crowdfunding platform Property Partner is almost certain to come up. The startup which lets you invest from as little as £50 in residential property — or the so-called ‘buy to let’ market, as it’s called here in the U.K. — has, by all accounts, been growing at a clip.

Launched just over a year ago it claims more than 6,200 customers who have collectively invested more than £24 million across 166 properties. To further scale up the platform, including increased marketing spend, new products, and growing the team, Property Partner has closed an investment round totaling £15.9 million.

Citi leads $4.2m Selerity funding round (Finextra)
Selerity, a startup that monitors unstructured data and delivers personalised alerts to investors and traders, has raised $4.2 million in a funding round led by Citi, which is also using the firm’s algorithms to provide recommendations to clients through its Citi Velocity platform.

Solar crowdfunding investment platform, Wunder announces $3.6m round (Medium)
Wunder Capital, an online lending platform that connects investors with large-scale solar projects across the United States, announced today a $3.6 million investment round led by Techstars Ventures, Fenway Summer Ventures, and FinTech Collective, alongside existing seed investors.

Online insurance manager CoverWallet raises $2m (Finextra)
CoverWallet announced it received $2 million in seed funding from Two Sigma Ventures, Highland Capital Partners, Founder Collective and a list of strategic angel investors.
The startup, which was in stealth mode until this week, provides small businesses with a concierge-like service that helps businesses deal with the complex, and often confusing, intricacies of commercial insurance.

Former Thomson Reuters chief Glocer invests in Algomi (Finextra)
Former Thomson Reuters CEO Tom Glocer has invested in, and become a strategic advisor to, fixed income liquidity discovery start-up Algomi.

The Startups: Who’s shaking things up

Meet Forcerank, the FanDuel for stocks (WSJ)
The set-up is similar to FanDuel and DraftKings, which let people bet real money with fantasy sports line-ups. Estimize’s new app, called Forcerank, allows players to rank a group of stocks in the order of how they expect them to perform.

But the real reason for the app is far more interesting: the data. Leigh Drogen, chief executive of Estimize, said in an interview with Moneybeat that the idea for Forcerank was inspired by a profitable hedge-fund data program that was shut down by the New York Attorney General several years ago.

Online lender SoFi to run its own hedge fund (MarketWatch)
The unusual move by SoFi is an attempt to get around waning investor interest that is threatening online lenders’ growth. The sector lacks the deposits needed to fund its loans like traditional banks, so it relies on being able to sell the loans to investors to free up capital to make new ones.

Bloomberg’s Matt Levine has his own interpretation on SoFi’s move:
SoFi’s name is “Social Finance,” not, like, “Captive Hedge Fund Securitization Finance.” Lending Club is a “club.” You can witness ontogeny recapitulating phylogeny. A social club for regular people to lend money to other regular people becomes a securitization platform with its own in-house hedge fund while you watch. The whole history of modern finance recurs, sped up, right before your eyes. It is kind of beautiful.
Turns out, SoFi is looking at various ways to ensure capital formation and that is has enough dry powder in the future to keep funding loans. Bloomberg reported that the firm was also sketching out plans to start a real estate investment trust that would buy the mortgages the startup lender makes.

Roofstock is a marketplace for investing in leased single-family homes (Crowdfund Insider)
Just launched this week, Roofstock claims the title of the first marketplace for investing in single-family rental homes. Roofstock matches buyers with sellers in a completely digital transaction. Roofstock states it offers a proprietary inventory of leased, certified, professionally managed homes that generate immediate cash flow.

The Startups: Who’s shaking things up (Week ending December 6th, 2015)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming weekly newsletter.[/alert]

ApplePie Capital’s Denise Thomas on enabling investors to lend money to the right franchises, franchise owners (Tradestreaming)
Online lending marketplaces are changing the way capital is deployed and ApplePie has an interesting approach: small business loans to franchisees.

Cookies Wants To Become The Venmo Of Europe (TechCrunch)
Cookies is all about paying your friends without any fees. And now it intends to massively expand in Europe.

Trulioo’s Stephen Ufford: “Missing element to provide financial services for the 2.5 billion unbanked lies in a digital footprint” (Tradestreaming)
User identification is a seemingly simple problem, yet it stands in the way of truly opening up fintech applications. Until now, doing it well has remained elusive. Trulioo is trying to change that.

Number26 Launches Its Bank Of The Future In 6 New Countries (TechCrunch)
If you don’t like your current bank, Number26 may appeal to you. The German startup has been trying to reinvent the average banking experience in Germany and is now expanding throughout Europe.

Wealthsimple acquires online brokerage pioneer ShareOwner (Newswire)
Largest Canadian roboadvisor ($400M), Wealthsimple acquires online brokerage, ShareOwner.

SoFi’s Mike Cagney on valuation (Business Insider)
SoFi CEO Mike Cagney thinks the company could be a $30 billion business. Will he be right?

Startups raising/Investors investing

Australian Fintech Tyro Payments Raises $72M Led By Tiger Global (TechCrunch)
Australian financial tech company Tyro Payments plans to challenge the country’s leading retail banks after scoring AUD $100 million (about $72 million).

Bee Raises $4.6 Million to Deliver Banking Services (WSJ)
Banking startup Bee (which provides bank accounts, debit cards and financial services aimed at people who live in low- and middle-income neighborhoods) secures investment capital.

Clearpool secures $8 million investment (Finextra)
The electronic trading software development and agency execution business announced it has received an $8 million investment from growth equity firm, Edison Partners.

SMB Lending Technology Provider Mirador Secures $7M (Let’s Talk Payments)
Lending as a service getting more traction…and more money. Companies like Mirador help banks compete in online lending.

Q2 Acquires Social Money in $10 Million Deal (Finovate)
Formerly known as Smarty Pig, Social Money helps financial services companies better engage their customers by offering them savings solutions such as GoalSaver, a customized, bank-audited goal-saving system.

Startup Tracker’s Jeremiah Smith on how Twitter is a great distribution medium for his complement to CrunchBase (Tradestreaming)
Startup Tracker is changing the way investors and competitors research startups.

Prosper’s BillGuard Unlocks Premium Features for All Users (Finovate)
On the heels of being acquired by Prosper, the expense-management and fraud-tracking application made some of its most popular premium features available for free.

Green Dot to Enter Lending Space with Loan Marketplace (Bank Innovation)
Prepaid player Green Dot is stepping into the lending game with a marketplace for loans. The move will happen in 2016, CEO Steve Streit announced this week.

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