Alternative Finances

Why SoFi Has Changed Its Tune

Will Social Finance shed its upstart ways and become more like a bank?

The Wall Street Journal reported on Tuesday (July 12) that the online lender, commonly known as SoFi, with $10 billion in student loans and mortgages across its books, may be forced to don more traditional financial services garb as the online lending sector is buffeted about by negative headlines and looming regulations.

Lending Club is only a marquee name among players that are beleaguered by concerns over consumer defaults and fickle investors. Avant and other firms have trimmed staff by double-digit percentages. WSJ reported that SoFi itself had a spate of negative publicity after not responding to applicants in a timely manner.

One avenue for rebounding from the vagaries of online lending would be, said WSJ, a move for approval for SoFi to grab a state banking charter in Utah. Management, including CEO Mike Cagney, is considering offering up other financial products, such as credit cards, and even linking up with larger, traditional financial firms through partnerships.

All of these actions would be tantamount to a variance of strategy that attracted the interest and backing of SoftBank, which put $1 billion into the startup, valued at $4 billion at the time. The model has been predicated on getting paid for extending student loans to the tune of about $80,000, with interest rates in place at about 6 percent. The business model, which charges for loan servicing, also relies on investors rather than funding deposits. The firm itself said that, at the end of May of this year, only 22 of more than 72,000 individual borrowers had defaulted. That has been enough to garner a triple-A rating.


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