Problems Faced by The Current Generation

SoFi, short for Social Finance, is changing the way we bank because millenials do not favor brick and mortar experiences and traditional banks have not addressed student loan debt, which is one of the biggest problems facing this current generation. This matters because there are 83.5 million millennials in the United States, and by 2022, they they will make up 44% of the workforce, and by that time they will likely have already made a banking decision. Around 70 percent of college graduates leave school with college debt, averaging $30,000; and, some are like me with more than $100,000 of student loan debt.

Collectively, American students are burdened with $1.3 trillion in student loan debt.

Currently, there are limited options for students to repay their loans, such as public service repayment programs or through company-sponsored student loan assistance programs. At the same time, 70% of millennials have delayed life decisions like buying a home, buying cars, getting married and having kids because of student loans, contributing to the lag in the U.

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S. economy. Launched in 2011, SoFi is a fintech (technology used to support or enable banking and financial services) startup that is addressing the student loan debt problem in the United States by refinancing student loans while offering professional advice and entrepreneurship courses to millenials.

SoFi describes itself as a “community [that] works to empower...members to accomplish the goals they set and achieve financial independence as a result.” According to Fortune, SoFi now has more than a half million members and orginiates $1 billion in credit per month.

In September 2015, the company raised $1 billion from SoftBank Group, and in 2017 raised an additional $500 million to expand into deposits and asset lending in Australia. Differing from traditional banks, SoFi is an online platform that defies the normal procedures for approving, funding, and servicing clients. They look at clients’ professional experience, monthly income vs expenses, financial history, and education. There are no application or origination fees or prepayment penalties.

SoFi has low-rate offerings and includes unemployment protection. SoFi can do this because they are a non-bank lender, and are not bound by the same regulations that govern traditional banks. According to Si-Fi’s co-founder, Mikey Cagney, the, “want to be the central point of your financial life.” Now holding $1.9 billion in capital, they are the largest online financier of student loans; and, as of 2017, only 4 borrowers have defaulted, all due to the borrower’s death. Since millenials do not trust traditional banks, one big bank has attempted to acquire SoFi as a source of lead generation. Cagney says “[th]e problem [at banks] isn’t the lead generation, it’s the product offering,” he says“[p]eople want speed, transparency and alignment.”

The average age of SoFi's client is 33 years old and although many of them qualify as a prime or super prime client now is the time to capture them as customers. According to the Millennial Disruption Index (MDI), created by Scratch, an innovation group within the multinational media company Viacom, banks are most likely to be disrupted by millennial consumer preferences. The MDI, a three-year study that includes over 10,000 surveys from 73 companies in 15 industries concluded: 71% of millennials would rather go to the dentist than the bank, all 4 of the leading banks are their least favorite brands, in 5 years 68% of them believe the way they access their money will be totally different, and nearly half are counting on tech-startups to overall the way banks work.

Although SoFi is capitalizing on these trends, and being named by CNBC as a 2018 Disruptor 50, professional services firm Deloitte is not convinced. In their 2018 Banking Industry Outlook, Deloitte mentions 3 barriers that fintech’s like SoFi must jump in order to become market leaders. Those barriers include regulatory barriers to enter, inertia of customers to switch, and the capital to absorb, partner with, or replicate fintechs. Deloitte does recognize despite these barriers that companies like SoFi are changing the ecosystem of banking by setting higher bars of user experience and that traditional banks can learn from fintech.

SoFi is not without competitors and risk. Outside of traditional banks, SoFi competes with another online platform, CommonBound. SoFi has opened up its service offerings while CommonBound is solely focused on refinancing student loan debt. Both company have competitive rates but CommoonBound will only refinance up to $500,000 while SoFi has no maximum amount. Recently, SoFi broadening its business to mortgage refinancing has left them vulnerable to market volatility and rising interest rates but his hasn’t slowed down the company looking to introduce cryptocurrency investing into its platform by next year, backed by the heavy load of 'heavy demand' for student loan refinancing that is the backbone of SoFi.