Shooting for $16B with SoFi's Michael Cagney | Disrupt NY 2017 | Summary and Q&A

Summary

In this video, Mike Cagney and Aria Burrows from SoFi discuss the unique approach of their lending and financing company. They emphasize their focus on the consumer, offering products that people want and delivering through mobile platforms. They also highlight the importance of building a true community and providing services beyond just loans, such as networking events and dating programs. The conversation also touches on student loan debt, financial literacy, algorithmic lending, and the possibility of obtaining a banking license. The video ends with a discussion about the departure of a key executive and the future plans of SoFi, including a potential IPO.

Questions & Answers

Q: What sets SoFi apart from other lending and financing companies?

SoFi differentiates itself by putting an emphasis on the consumer and focusing on speed, transparency, and alignment. They create products that people want, such as student loan refinancing, and deliver them through mobile platforms. SoFi also prioritizes customer service and community-building, offering networking events, dating programs, and an entrepreneur program to help individuals succeed.

Q: How did SoFi start and what was its initial focus?

SoFi was started out of Stanford and initially focused on addressing the issue of high student loan debt. They noticed that graduate business school students, despite having a low default rate, were still paying high loan rates. This prompted them to create a better value proposition for students by offering student loan refinancing. While they initially focused on students, they expanded their reach to the wider millennial market.

Q: Is the student debt issue a crisis or an opportunity?

While the student debt issue is unfortunate, SoFi sees it as an opportunity to provide a better solution. They believe that there is a lack of financial literacy in the lending system, with students often not understanding the implications of the debt they are taking on. SoFi aims to address this by providing financial education and empowerment. They also mentioned the possibility of working with universities to provide financial literacy from the start.

Q: Does SoFi's algorithmic lending model cater to a specific type of borrower?

SoFi's lending model moves away from traditional underwriting methods like FICO scores and debt-to-income ratios. They take into account free cash flow and assess applicants based on their income, taxes, bills, and living situation. This approach allows them to provide better rates to those with higher cash flow. SoFi has expanded beyond Stanford to other universities and regardless of the school, the same process is applied.

Q: Are there plans to expand lending to other demographic profiles, such as public educators?

SoFi sees an opportunity to do more for professions like public education, which may not be high-earning but are socially important. They mentioned the possibility of providing debt relief or lower rates for such professions. They are also exploring partnerships with mission-driven organizations to offer innovative solutions and lower rates for segments like foreign students.

Q: How does SoFi balance its online-only approach with the need for human interaction?

While SoFi allows customers to complete processes online without talking to anyone, they also recognize the importance of personal interaction. They receive thousands of inbound calls daily and have a call center to provide assistance. SoFi believes in offering the option to interact offline and organizes networking events, dating programs, and other offline activities. They view themselves as a combination of money, career, and relationship services.

Q: Will SoFi become a bank in the future?

SoFi is considering applying for a banking license, specifically an industrial loan bank license, to provide deposit accounts, debit and credit cards, and other banking services. However, they also mentioned exploring alternatives to the traditional banking system. They aim to deliver the services and products to their members without having to go through the traditional banking process.

Q: Is SoFi planning to raise more funding or go public?

SoFi has raised $1.9 billion and is valued at over $4.3 billion. They are currently profitable and have no immediate plans to raise more capital. The possibility of going public exists, but they will assess the market and the right timing before making a decision.

Q: How does SoFi approach risk-taking and discomfort in their business?

SoFi believes in taking risks and embracing discomfort. They aim to do what is right for the consumer and are willing to be wrong in the process. They view being uncomfortable as a sign of growth and progress. They see the banking industry as resistant to change but believe that they will lead the industry into the next generation.

Q: Does SoFi have plans to expand on their investment vehicles and securitizations?

SoFi's investment vehicles and securitizations have been successful, but there is a current supply constraint in meeting investor demand. They plan to do more but will need to overcome this supply limitation. They have no immediate plans to raise more capital.

Q: How does the departure of a key executive impact SoFi and its future plans?

The departure of Nino Fanlo, who played a significant role in SoFi's growth and strategy, leaves a vacancy that will be filled through a regular search process. Steve Fryburg has stepped in temporarily to handle the finance side of the company. SoFi plans to find a world-class CFO to help them reach the next stage, potentially as a public company.

Takeaways

SoFi differentiates itself in the lending and financing industry by focusing on the consumer, providing innovative products, and building a strong community. They are committed to empowering individuals through financial literacy and offering services beyond traditional loans. While addressing the student debt crisis is a priority, they see it as an opportunity to make a positive impact. SoFi's algorithmic lending approach and emphasis on cash flow allow them to offer better rates to a wider range of borrowers. They are considering obtaining a banking license to expand their services, but are also exploring alternatives. SoFi is profitable and not currently raising capital, with potential plans for an IPO in the future.