Ask and ye shall receive — with interest.
A few years ago, SoFi Technologies (SOFI) asked people a simple question.
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“When we talk with our members about what they want from a financial partner, they tell us they want to work with someone who rewards them for good choices, doesn’t charge them fees, and makes it possible to do everything on your smartphone,” Chief Executive Anthony Noto said in a 2019 statement.
As a result, Noto said, the fintech created SoFi Money and SoFi Invest, which he described as “cornerstone products in making SoFi the only place you have to go to get your money right.”
SoFi Money is a high-yield online-banking account that combines a checking and savings account into one, with features like no account fees, competitive interest rates on both checking and savings balances, fee-free ATM access, and a debit card.
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SoFi CEO cites capital investments
Since that time SoFi Money has grown considerably and was featured prominently in Noto’s comments during the San Francisco company’s first-quarter-earnings call.
“Our strong financial performance is the direct result of our continued investments in brand building and product innovation, Noto told analysts in April.
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“These investments attract new members and clients into our digital one-stop-shop ecosystem and lead them to adopt more products over time,” he said.
Financial services was the company’s fastest segment in the quarter, pulling in $303 million in revenue, which SoFi said was driven by strong adoption of SoFi Money, rapid expansion of the loan platform business, and innovations in SoFi Invest.
“To scale this business as rapidly as we have, we’ve invested significant capital to build the strong operational and regulatory capabilities that are required to have a nationally regulated bank with insured deposits as well as earn the trust of our members,” Noto said of SoFi Money.
“The investment, while not always obvious externally, has been transformational for our business,” he added. “Given the performance of SoFi Money, we expect it to become our second billion-dollar-revenue business.”
Noto said that another key contributor to growth in financial services was the company’s loan platform, where SoFi produces loans on behalf of third parties.
“In less than a year, we’ve grown the business to an annualized run rate of over $6 billion of originations and more than $380 million of additional high-margin, high-return fee-based revenue,” he said. “And we continue to see strong demand for these loans.”
Financial services revenue per product totaled $88 in the quarter, up from $59 a year ago.
“That’s up nearly 50% and we see continued upside as newer products mature,” Chief Financial Officer Chris Lapointe said,
Revenue from SoFi’s loan platform business increased to $96.1 million from $10.7 million last year, Morningstar reported.
Fintechs a promising sector: Consultant
The global fintech industry is entering a new chapter, according to Boston Consulting Group, “one defined by the coming of age of a class of scaled fintechs, the emergence of new technologies and business models (especially [artificial intelligence]), and an intensified focus on profitable growth.”
Last year “marked a turning point,” the firm said. “Funding and valuations stabilized, and fundamentals improved sharply. Fintech revenues grew 21% year-over-year, up from 13% in 2023, and outpaced the 6% growth in the broader financial services sector.”
Related: Veteran trader turns heads with SoFi stock price target
Margins based on earnings before interest, taxes, depreciation and amortization for public fintechs increased by 25%, and 69% of the companies achieved profitability, up from less than half the year before, Boston Consulting said.
“Fintechs have only scratched the surface in lending, with $500 billion in outstanding fintech-originated loans globally compared to approximately $18 trillion in US household debt alone,” the firm said.
“While banks retain a funding advantage in the form of low-cost deposits, fintechs are gaining traction with more seasoned customer data and maturing underwriting models.”
Truist: ‘Mixed feelings’ about SoFi
SoFi’s stock is down 13% since January but have nearly doubled (up 94%) from a year ago.
Truist analyst Matthew Coad initiated coverage of SoFi on June 2 with a hold rating and $14 price target, according to The Fly. The target indicates 5.3% upside from the May 30 closing price.
The analyst said he had “mixed feelings” about the company.
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Coad is bullish on the financial-services segment. He views SoFi’s “loan-platform business positively” and expects continued expansion in average revenue per user.
However, he said, companywide 2026 and 2027 growth expectations need to be reset lower.
Coad said he was also worried that the credit risk in the business model may not be fully factored into the stock’s valuation.
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