SoFi is a lending platform that specializes in providing student loans with low interest rates. SoFi has expanded into financial services in addition to loans, credit cards, investment management, and insurance.
The company generates revenue primarily through transaction fees and debt securitization.
SoFi makes money from the difference between the interest rate at which it borrows money and the interest rate it lends money to its approximately 2.3 million members. It is called the NIM (Net Interest Margin).
The business model of SoFi is based on charging interest rates on the loan it provides to students and users.
Table of Contents
- What is SoFi?
- How Does SoFi Work?
- How Does SoFi Make Money?
- What is the Funding and Valuation of SoFi?
- What is the Revenue of SoFi?
- SoFi Business Model
- Value Propositions of SoFi
- Channels of SoFi
- Client Relationships of SoFi
- Key Activities of SoFi
- Key Partners of SoFi
- Key Resources of SoFi
- Cost Structure of SoFi
- Revenue Model of SoFi
- Key Takeaways from SoFi Business Model
What is SoFi?
Social Financial, or SoFi, offers a broad range of financial products, including banking, lending, investing, and insurance.
SoFi makes money through transaction fees, loan securitizations, referral fees, interest earned on funds, and sweepstakes.
SoFi is a leading FinTech startup based in San Francisco that was founded in 2011. The firm has received venture capital funding across 14 rounds totaling $2.5 billion so far.
How Does SoFi Work?
SoFi, short for Social Finance, provides businesses and individuals with a variety of personal finance solutions.
Their products fall into five major categories: Borrow, Invest, Spend, Protect, and For Business.
The Borrow side of SoFi offers a variety of consumer loans. The various types of loans available include (private) education loans, personal loans, and home loans. It is possible to originate or refinance loans. Sometimes, SoFi collaborates with a third-party lender to originate loans (for instance, Zillow for mortgages).
SoFi Invest members have access to equities, exchange-traded funds (ETFs), cryptocurrencies, and a Robo-advisor, as well as a Roth IRA or traditional IRA managed by SoFi.
Consumers can sign up for a SoFi-branded credit card (which offers rewards at certain partners), a debit card, as well as a credit score, and a money tracking app.
SoFi Protect enables subscribers to purchase a variety of insurance products offered in collaboration with third-party suppliers. Lemonade powers homeowners and renters insurance, whereas Root powers vehicle insurance.
Its For Business program offers businesses tools and training materials for improving their employees’ financial knowledge.
You can find tools like a student debt navigator, suggestions for 529 college savings plans, and emergency vaults to help you manage student debt.
SoFi also provides several instructional resources to help its members improve their financial literacy.
SoFi offers its products via its website and mobile phone applications (available for Android and iOS). Over 1 million members visit its platform each month.
How Does SoFi Make Money?
SoFi makes money from peer-to-peer lending, securities leased to other financial institutions, insurance policies, and processing fees for debit and credit cards issued by the company.
SoFi earns money through various ways, including loan securitization, FDIC sweep programs, payment processing fees, and referral fees.
Let’s take a closer look at each of these revenue streams in further detail below. I’ve removed revenue earned by previous SoFi acquisitions (such as Galileo) to keep things simple.
SoFi was founded as a social lending marketplace that connected students with alumni looking for loans.
The loans were issued and backed by alumni. The graduates received interest income as a result. SoFi earned money by charging alumni an administration fee of 0.75 percent.
It collaborates with other lenders (Zillow for mortgages) or manages its loan applications for its newer lending products, like personal loans and mortgages.
SoFi generates revenue from these loans through a method known as entire loan sales. In this case, SoFi, Lenders pool their loan portfolios and sell them to institutional buyers (such as insurance or pension funds).
These buyers pay a premium to SoFi upfront in exchange for future cash flows generated by these loans. Because SoFi’s borrowers rarely default, their loan bundles are regarded as highly secure, allowing them to command premiums above the industry norm.
SoFi Invest offers its members a range of investment options. The company offers its members the ability to trade stocks and exchange-traded funds (ETFs), purchase various cryptocurrencies, buy stock pieces, fund retirement accounts, or have funds invested automatically.
SoFi allows members complete control over how they invest their money. It only costs $1 to become a member. Users can freely transfer funds between the investment product and the deposit accounts because the investment product is directly linked to the deposit accounts.
There is a maximum backup amount of $500,000. Stocks, stock pieces, and ETFs can all be purchased and sold for free. SoFi aims to entice members to diversify their financial portfolios.
The Investments program of SoFi does, however, provide SoFi with additional revenue streams. A bank collects funds initially from securities lent to other institutions (which require share purchases) as well as from FDIC-insured sweep programs.
SoFi also earns revenue by partnering with other order execution providers, as they give rebates to SoFi for being their execution partner. SoFi works in collaboration with Apex Clearing to manage the clearing procedure.
Lastly, SoFi earns a 1.25 percent commission on every cryptocurrency transaction on its platform.
SoFi offers a variety of insurance solutions through its SoFi Protect branch. SoFi Protect offers the following insurance policies to its members:
- Auto Insurance
- Life Insurance
- Renters Insurance
- Homeowners Insurance
SoFi partnered with other insurance operators due to the industry’s capital-intensive and complicated nature. Lemonade (for homeowners and renters), Root (for automobiles), and Ladder (for life) are some of our partners.
SoFi will earn a referral fee as the mitigator anytime one of these insurance products is sold through its platform. Its earnings are based on the premium paid and the duration of the policy (i.e., expected customer lifetime value).
SoFi offered debit (SoFi Money) and credit card products in 2018 and 2020. The cards were issued in collaboration with Mastercard, the processor of payments.
You can sign up for a free account. The account is free of account fees, including overdraft and ATM charges. Consumers can earn interest on their cash balances instead. Moreover, SoFi rewards members with cash back at certain partners.
SoFi’s mobile application allows users to access their accounts. SoFi members can check their balances online, send money to other members, deposit checks, and pay bills through the app.
The deposit products that SoFi offers help generate revenue in a variety of ways. Whenever an account holder uses the card for a purchase, a payment processing fee is assessed (charged by the merchant).
A typical percentage is around 1%. SoFi keeps a percentage of revenue and splits the rest with Mastercard.
Second, SoFi invests its customers’ money in capital markets instruments, like bonds, equities, and index funds. The profits are retained and used to pay interest to members.
SoFi will earn a commission if users use their SoFi cards for purchases. Two companies that partner with DoorDash are Netflix and DoorDash.
Users are motivated to use certain services by the benefits they receive from them. The cashback partners receive a referral fee for each payment sent their way.
What is the Funding and Valuation of SoFi?
Crunchbase reports that SoFi raised a total of $2.9 billion in venture capital funding between 15 rounds.
Some prominent firm investors include RPM Ventures, SoftBank, GGV Capital, Manhattan Venture Partners, the Qatar Investment Authority, and Bracket Capital.
SoFi went public in January 2021 via a SPAC (Special Purpose Acquisition Company) with Social Capital.
SoFi was valued at $8.65 billion by Social Capital Hedosophia Holdings. SoFi plans to expand its user base across the market and invest in acquisitions and other growth strategies.
What is the Revenue of SoFi?
SoFi is a private corporation and is not required to disclose revenue or profit figures to the public. SoFi’s revenue should be made public once it enters public markets.
SoFi Business Model
The SoFi business model caters to students, former undergrads, young professionals, and consumers in general.
Consumers looking for a flexible, easy-to-manage alternative to traditional loan providers can take advantage of this program.
Furthermore, the Company provides services to organizations and exchange associations and their representatives and members.
Value Propositions of SoFi
SoFi’s finishing products are attractive because it does not charge for credit establishment or prepayment services. Moreover, SoFi offers discounts on repayments and other assistance and services that are not offered by traditional lending institutions.
This includes organizing industry events, offering career counseling, and offering 24-hour support.
The company states that its clients save an average of $18,936 on student loan refinancing.
You can access SoFi’s services online by visiting the Company’s website. Furthermore, its loan customers are offered discounts on wealth management services.
Channels of SoFi
You can access SoFi’s services by visiting www.sofi.com. Customers may apply online for products and services with the support of the Company’s sales and marketing team. The Company is also reachable by telephone.
Client Relationships of SoFi
SoFi operates on a primarily self-benefit basis, with shoppers able to apply for various things through a progression of structures made accessible on the Company’s website.
Consumers can reach the company via online visits or FAQs and take advantage of its promotional offers.
SoFi has web-based social networking accounts on Facebook, Twitter, Instagram, Pinterest, and LinkedIn to keep clients informed of updates and enhancements.
SoFi’s wealth management services offer clients a higher level of individualized attention, with advisors assessing their individual needs and preferences.
Key Activities of SoFi
SoFi is a nonbank lender that offers an alternative to traditional advance and renegotiating organizations. It provides a wide range of products and services, including credit and house loan renegotiating for undergraduate students, parent advances, individual advances, MBA loans, and home loans.
SoFi’s financial services include asset management, which includes investing in various assets to satisfy the needs of individual clients. Furthermore, the company offers computerized speculation and admonitory exchange services online and remotely.
Key Partners of SoFi
SoFi collaborates with various institutions, including insurance companies, money-related service providers, exchange affiliates, and professional groups. SoFi offers two types of organizations based on its business and revenue model: standard associations and standard loan contributions.
Employees of individuals can get discounted SoFi credit and access to career benefits and system administration seminars with the primary. Furthermore, SoFi’s associates have access to benefits that are unavailable to traditional moneylenders, including job security and career guidance.
The second enables associates to leverage typical obligations to the understudy to advance repayments to employees or persons, with SoFi giving reduced payments.
SoFi has partnered with several organizations to develop its business model, including protection supplier USI Affinity, the American Academy of Pediatric Dentistry, the Pennsylvania Bar Association, and investment company Institutional Venture Partners. According to SoFi, it has upwards of 400 of these types of partners.
Several other national and territorial associations collaborate with the organization, including the National Association of Student Financial Aid Administrators and the National Council of Higher Education Resources.
Key Resources of SoFi
SoFi’s primary assets include its employees, partners, IT infrastructure, and relationships with other exchange associations.
As a pro-active and fiscally prudent administration service provider, the Company relies on its employees and its network of contacts and associates. SoFi’s online accessibility reinforces this, with all services and support available via the company’s website.
The Company is accounted for as profitable, but its financial sponsor also refers to critical assets.
Cost Structure of SoFi
In SoFi’s business model and revenue model, the actual costs are employee maintenance, organization and affiliation administration, maintenance of its IT infrastructure, and incident resolution costs.
SoFi must pay to maintain its expert loan officers’ team and expansive support and consultative services, teams.
The Company’s seven locations throughout the United States allow it to collect settled expenses such as leases and utilities.
Revenue Model of SoFi
SoFi does not earn revenue from prepayments or advance starts. Instead, the company earns all of its revenue from its financial expert services and wealth management segments through administration expenses and charges.
SoFi charges its wealth management clients $5 for every $100,000 invested each month, according to its website.
SoFi charges a small service fee to its clients as part of its business model. SoFi states that it has been generating income since its inception. It does not publish its annual and monthly revenue, but it appears to be a profitable organization.
Key Takeaways from SoFi Business Model
SoFi is a San Francisco-based internet loan company started in 2011 by four Stanford graduates. The organization was founded on a shared objective of providing students with cheap education financing.
SoFi now provides a whole suite of financial services, including loans, credit cards, investment management, and insurance. Consumers often see the organization as an alternative to high-cost lenders. SoFi’s primary sources of revenue are interest and referral fees.
The company also earns income from free payment processing, free referrals, and loan securitization. The company also offers FDIC-insured sweep programs that allow investors to transfer cash balances to (and be insured by).