SoFi Is Trying to Build a New Kind of Financial Services Company

Even when you’re dealing with a “friendly” bank, it sometimes feels like you’re on opposite teams. Whether you get caught on hold or wind up paying a fee because you didn’t read over the fine print closely enough, the experience can be frustrating. SoFi is an online financial services company that’s trying to change that type of relationship. They offer some financial products that might sound familiar, such as mortgages and personal loans. But they also host in-person events, such as cocktail parties and community dinners, for their members — not so common for a traditional brick-and-mortar bank. Later this year they may launch their first checking account and credit cards could soon follow.

We spoke with Dan Macklin, the vice president of community and member success at SoFi, about the company’s past, present, and future.

Louis DeNicola: Could you start with a quick overview of the different products that SoFi offers?

Dan Macklin: We began SoFi in the lending space, and today we have three primary lending products.

We have student loan refinancing, which allows people to take their existing student loans, consolidate those, and importantly refinance them at a new rate that's reflective of who they are today. Typically, our members are refinancing five or six different loans into one SoFi loan, and they're bringing their interest rate down on those loans by a couple percents. This leads to an average savings of around $22,000. Student loan refinancing has been around the longest, for five or six years, really since we began.

About three years ago we added personal loans and mortgages.

Personal loans are a more regular, unsecured loan. With student loan refinancing, we're only refinancing existing debt. But with this personal loan, you can take out new debt use the money for home refurbishment, a honeymoon, a holiday, or in many cases paying off expensive credit card debt.

Our rates are extremely competitive, and people are, in many cases, halving the cost of their debt

Credit card debt can have a 20- or 25-percent interest rate, and they're bringing their rate down to the high single digits.

We offer new mortgages and mortgage refinancing. The mortgage market is a highly competitive market, but the SoFi product is doing very well for a number of reasons. One of those is a priority in terms of fees — we do not charge any fees. In an industry that's beset by confusing fees and confusing terminology, that's an important thing.

We also allow people to take out a mortgage with as little as 10 percent down. In the mortgage industry, typically with that kind of down payment, you need to pay private mortgage insurance, and we do not require that. Our underwriting can also help you qualify for more financing than traditional lenders offer, even on jumbo loans.

We also have non-lending products. With our wealth management product, you can figure out your risk tolerance, invest money, and we’ll create a portfolio of bonds and stocks. You can easily log in and track your portfolio.

More recently, we introduced a term life insurance product as well. We've heard from our members that it's an area that they would like to look into, but they don't know where to begin. So we created a product to help them get started.

You’ve mentioned SoFi members. Other companies might call people customers or clients, why do you call them members?

SoFi stands for Social Finance. Going back to the days when we started the company, it was always the intention to build something that was more than just a regular finance company. We believe it takes more than just money for someone to prosper. We think it takes a real partner, driven by a real purpose, and that it involves a community of like-minded, ambitious people with potential. At SoFi we help put those people together. We certainly want to be a partner to our customers, but we deliberately call them members because we see that we're in this together.

For too long, finance has lacked speed, transparency, and alignment with customers’ interests. We started the company to change that

We interact with our members in very different ways to a bank traditionally would. As well as just lending you the money, we offer access to other things essential for success. Whether that's career support, help negotiating a pay raise, or helping you to find a job if you lose yours. We also have an entrepreneur program that helps members who are starting companies connect with investors, suppliers, and other important partners.

We host events for our members too. We're holding more than 500 this year in close to 70 cities across the country. These give our members an opportunity to meet each other and learn something interesting, it’s something you won’t normally get from a finance company.

Which SoFi product attracts the most new members?

We have over 260,000 members, and it's a real mixture right now. Student loan refinancing was our first and biggest product, but now about 50 percent of our lending is for personal loans and mortgages. Mortgage is the fastest growing product category.

What does SoFi look for when you're reviewing an application for loans or refinancing?

It's not one thing.

Whether somebody is creditworthy, who's been paying their bills on time, that is certainly a factor. We look at applicants’ credit history, but we don't just look at FICO scores.

The most important factor is free cash flow. We look at how much money you have coming in, primarily your occupation, and all the expenses you have. We're doing a calculation to see if you have enough money at the end of every month to pay us back.

It seems simple, and it seems obvious to say, but that's not typically how lenders make these decisions. It is an innovative approach. It's a new approach. We're also considering your background, and your experience, and the career that you're in today. It's a well-rounded group of variables.

Are wealth management, life insurance, and career counseling available to anyone?

Wealth management and life insurance are available to anybody. If you use our wealth management service or purchase life insurance through us, you’ll become a brand new member.

The career strategy team helps all of our members, but generally they help people in two buckets. There's one bucket of people who are in a job now that need help to advance in that career. Maybe it's to get a promotion, or it's to navigate a difficult boss, or it's just to think about a potential career change. Then the other group of people are in a slightly more urgent situation and may have recently lost their job. Therefore, they're looking for real, tangible, quick help to find a new one.

Our career counseling services can help members in both of those situations, and the benefit is available to any SoFi member.

What differentiates your student loan refinancing from competitors’ offerings?

I think the main reason to come to us for student loan refinancing is to save money by reducing their interest rate. The ease of the applications, the speed of the application process, and the clarity in that decision that we give you. It’s an easy, intuitive process. You can do it on your phone, with very little information, and without needing to speak to anybody if you don't want to speak to anybody. If you’re approved, we show you loans with different terms and rates.

Refinancing allows people to reduce the interest rate on their student loans by two or three percent, saving over $22,000 on average.

That's why somebody would come to us.

In terms of the market for student loan refinancing, we probably have about 75 percent of the market. I think we're the most well-known student loan refinancing company out there.

I think the other stuff we do — career support, the entrepreneur program, and the events — is the icing on the cake. They help people feel like they’re part of something bigger than just another boring lending company.

We're trying to create a community of people that get enjoyment from being in that community. For example, we have a private Facebook members page where our members ask each other questions and give each other advice on matters relating to finance, careers, and many other things. You don't get that by becoming a customer of a regular main street bank.

I read SoFi recently acquired Zenbanx, which could give you the ability to offer bank accounts or credit cards, is that what's next for the company?

Yeah, definitely. In the future, we’d like to able to help you with all your personal finance needs. We are acquiring Zenbanx because they have built products and services that we don't have today. We're now moving one step closer to becoming the center of our members’ financial lives by adding a checking product and eventually credit cards.

We don't have an exact timeline, but the checking account will certainly become available later this year.

Is there anything else you'd like to share?

We launched SoFi at Work a few months ago. It's an employee-benefit program that can help reduce student debt and build financial wellness. We realized that many of our members worked at the same companies, and many of them were in the dark, so to speak, about the opportunities that were available to them. By working with the HR departments of employers, we can help educate employees.

Student loan refinancing and education are some of the most sought-after benefits that companies can offer. About 90 percent of job seekers with debt think that their company should offer student loan repayment as a part of their benefits package. But typically, employers provide healthcare, 401(k)s, or other traditional benefits.

We're working with more than 600 companies already, including tech giants, startups, and top law firms and financial services firms. We help businesses offer student loan education and refinancing to their employees and help manage benefits programs that let employers pay down employees’ student loans.

Louis DeNicola Enjoys delving into complex topics and specializes in credit scoring and cards, student loans, and practical money-saving advice

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