SOFI has been on a meteoric rise. What began as a small fintech startup aimed at helping American students tackle their student loans has grown into a massive financial institution with its name on a Football Stadium. CEO Anthony Noto spoke at Lendit 2020 on why the company continues to be a standout and a go-to choice for the next generation.
During a discussion titled “Where is Fintech Going and How SoFi Will Be Central to its Future” Noto delved into the company’s success and why he believes it’s poised to at the tip of the innovation speer as the future of banking becomes a reality. He told this story through the lens of recent events like the pandemic and PPP loans and why he believes the future of banking will be defined by business strategy, not just technology.
On Business Strategy: Banks have always been built on a simple premise: relationships. The idea is to offer customers simple products like a savings account, then be there as their financial needs become more complex and then provide mortgages or investments. But over the last 20 years, as banks changed, the focus on relationships has changed with them. SoFi aims to get back to basics. The company’s mission or “number one goal” is to help its members get their money right. At the root of this mission is the significant difference in strategy; Incumbent banks focus on a Return on Equity and make significant business decisions on what’s best for shareholders. Sofi believes in reality, what’s best for shareholders is what’s best for stakeholders and instead focuses on a Return on Relationship.
On the Pandemic and PPP Loans: If COVID-19 has shown us anything, it’s the value of digital infrastructure. Without taking a side, several critics have said the big banks failed when it came to PPP loans. Whether it was prioritizing customers with existing debt to sure up their books or not being prepared to review the mass-volume of loan applications digitally, those same critics will say companies like SoFi, Kabbage, BlueVine, and other online lenders came to the rescue. Noto says it’s a live case study in the importance of digital distribution, the digital-first systems and of digital lenders, and the simple fact that digital lending is what they do… notice a trend?
On the Future of Banks and Banking: While SoFi has evolved into a massive company, based on Noto’s comments, it’s clear the company hasn’t lost its startup mindset and operates as such. Many of their older competitors first approached digital banking as a trend, then dipped their toes in the water, and quickly backed out (remember Finn by Chase?). Still, now after seeing the difference between how a digital company and a traditional bank approached the same loan program, according to Noto, the markets gave the big banks a clear directive to rethink their technology stacks and change the way they operate.
On Being “Best in Breed: Noto used the term “best in breed” several times. To explain, he focused on SoFi’s business and how the company is working to deliver on its mission. The company recently applied for a full banking charter and is making moves to become a one-stop-shop. According to Noto, “People spend 1/3 of their financial lives digitally, and people want to have the convenience, they want to have better content, they want to have it fast, and they want it to be easy to use.” This is illustrated through the company’s suite of services, including the following:
- Borrow – A range of loans, including student loan refinancing, private student loans, personal loans, and home loans.
- Invest – Services for all levels of investors including Active investing, Robo Advising, ETFs, Cryptocurrencies, Fractional Shares, and others along with Investing 101, which provides the education first-time investors need
- Spend – Sofi Money (banking services) and a PFM tool, Sofi Relay
- Protect – A suite of insurance products -renters, homeowners, auto, and life.
- Business – Small Business Financing, and Sofi at Work, a suite of financial education tools for companies to offer their employees and
Noto’s comments followed the theme of the event thus far. The idea that the pandemic and the level of social change taking place has accelerated the digitization of several industries and pushed consumers to look beyond the usual suspects. He also pointed out a fact that could bode well for companies like SoFi, a majority of Americans have more than a bank account. With fee structures at traditional banks reaching all-time highs and increasing financial hardship, SoFi and its people-focused strategy could be the elusive the “bank of the future” that everyone from CEOs to Journalists and Analysts are trying to nail.