Q1 Earnings Show Lending Platforms’ Digital Path to Financial Wellness

mobile banking, consumer finances, personal finances

Over the last several months, PYMNTS Intelligence data has revealed in separate reports that tens of millions of consumers would opt for a single point of access to manage banking and spending — through an everyday app.

They’re using a number of digital conduits to gain a holistic view of spending and saving, budgeting their daily cash and credit outlays, including digital wallets. As PYMNTS reported earlier this year, digital wallet users spend 31% more across a range of everyday purchases than those who do not use digital wallets.

For platforms such as SoFiLendingClub and Block that marry spending, savings and lending products and services ­— sometimes with a bona fide bank embedded in operations — the flow of cross-pollination opportunities can help improve financial wellness while building self-contained ecosystems.

The natural progression may be one where use of an initial offering or two solidifies consumers’ comfort in using ancillary offerings. Direct deposits lead to increased use of other options, such as high-yield savings accounts or personal loans — or vice versa — while spending activity through debit (and more recently credit) also takes place across the platform.

SoFi’s Cross-Buying and Direct Deposit Momentum

SoFi bought Golden Pacific Bancorp in 2022. In its most recent earnings, reported late last month, the company noted that total deposits were up 16% year over year during the first quarter to $21.6 billion. Ninety percent of SoFi Money deposits (inclusive of checking, savings and cash management accounts) came from direct deposit members. In terms of spending, debit transaction volumes exceeded $1.9 billion in the quarter, up 20% from the fourth quarter of 2023 and 150% year over year.

CEO Anthony Noto said on the call that the “increasingly diverse product relationship with our members is what maximizes the power of the financial services productivity loop,” adding that within lending, student loan originations grew 43% year-over-year to $752 million and home loan originations increased 274% year-over-year to $336 million.

Management commentary noted on the call that personal loan borrowers’ weighted average income is $169,000 with a weighted average FICO score of 746. And of the model itself, Noto said during the call that “we’re uniquely positioned to be able to provide an attractive APY on the deposit business given the fact that we’re an originator and we can match up what we’re lending at versus what we’re paying out from a depository standpoint.”

In the bid to build the company’s credit card business, Noto said, with 8.1 million members, “we can market our credit card to known members with known credit profiles, known spending capabilities, cash flow and capacity.”

LendingClub’s Rolling Out Financial Wellness Tools 

LendingClub, for its part, bought Radius Bancorp in 2020, and this year exited the standard operating agreement for a new bank with the Office of the Comptroller of the Currency.

More recently, the company last month detailed that in its latest quarter, deposits of $7.5 billion represented an increase over the $7.3 billion in the prior quarter, primarily due to an increase in high-yield savings and certificates of deposits. Loan originations of $1.6 billion were comparable to the prior quarter.

CEO Scott Sanborn said during the call that consumers’ appetite to consolidate and refinance their debt, particularly credit card debt, has been strong.

“Refinancing credit card debt through a LendingClub loan provides substantial savings and has been shown to increase a borrower’s credit score by an average of 48 points,” Sanborn said during the call.

New and ongoing initiatives as the company broadens its reach include a greater emphasis on giving members additional financial wellness tools, including debt monitoring solutions being tested with select members that will have broader rollouts.

Sanborn said during the call that the tests presented enrolled members “with visibility into their credit profiles, current debt and cost of that debt,” and that those members were visiting LendingClub up to 50% more often than those not enrolled.

Block Builds on CashApp

“Cash App, with its bank partners, is focused on a three-part strategy, introduced last quarter: banking our base, moving upmarket by serving families, and building the next-generation social bank. Our primary focus in the near term is banking our base by driving paycheck deposit adoption and increasing inflows per active,” Block CEO Jack Dorsey wrote in his latest shareholder letter. “We were able to bring new banking products to market quickly by leveraging existing Cash App infrastructure, as we have focused on creating more connections between our ecosystems.”

The company, where banking services are provided by the banking affiliate Square Financial Services, reported the number of Cash App Card monthly active users increased to 24 million, up 16% year on year.  Paycheck deposit actives as of March grew quarter over quarter, the company noted.

During the conference call with analysts, CFO Amrita Ahuja said that “our top strategic priority for Cash App is banking our base, which is about bringing more financial services to our 57 million monthly actives. Banking is not a new concept for us, but it is one that we started prioritizing in a more meaningful way recently. The last few years, we’ve been seeing organic adoption of direct deposits. Now we’re focusing our efforts on driving this higher and winning that longer-term relationship with our customers.”

And as Ahuja said later during the call, “we’re hearing from our customers that they want to achieve their financial goals. That’s initiatives around card spending insights, around our savings initiative, around Afterpay on Cash App Card. From a go-to-market perspective, with all of these products, and as we bring them together, we’ll be looking to package these products in a way that makes it easier for customers to discover and understand our offerings through the app. That’s bundling,” she told analysts.