Student loans

Product diversity helps SoFi navigate student loan downturn

SoFi Technologies is experiencing steady growth in its technology, lending and other financial services businesses as the company continues to invest in new products, retain and grow its base of high-income borrowers and to take advantage of its banking charter.

The San Francisco-based fintech, which started refinancing student loans, counted on personal loan originations and fees users of its Galileo and Technisys technology platforms to generate revenue, the company said during its third-quarter earnings call on Tuesday morning. Even as its original student loan refinancing business declines in demand, SoFi beat analyst forecasts and raised its fiscal 2022 revenue forecast.

“The strength of our results underscores once again how our full suite of differentiated products and services is the foundation of a uniquely diversified business that can withstand market cycles,” CEO Anthony Noto said during the call for results.

SoFi offers student loan refinances, personal loans, home loans, and credit cards; other banking products; investment services; and insurance.

SoFi’s acquisition of Golden Pacific Bancorp earlier this year provided a low cost of financing for loans (with deposits), which is increasingly important as macroeconomic conditions reduce demand for refinancing student loans and home loans.

The company’s third-quarter net revenue was $419 million, up 51% year-over-year and marking the sixth consecutive quarter of record adjusted net revenue. SoFi also attracted nearly 424,000 members during the quarter for a total of 4.7 million members, up 1.8 million members from the third quarter of the previous year. SoFi saw its stock rise 5.3% on Tuesday, closing at $5.73.

SoFi management raised its fiscal 2022 revenue forecast to $1.517 billion to $1.522 billion from $1.508 billion to $1.513 billion.

A report from equity analysts Jefferies said third-quarter fintech earnings outperformed across all segments, including lending, technology and financials, and gave the company a buy rating. The the company’s various products are a godsend for companies, Wedbush equity analysts said in a report after the earnings call.

SoFi said its “strict credit standards” are also driving revenue growth. Fintech primarily serves high-income, high-FICO-scoring customers, who have suffered less from record inflation levels. Noto added President Biden’s student loan forgiveness plan, which could provide $10,000 in debt relief per borrower subject to income caps of $125,000 per individual and $250,000 per household, is unlikely to applicable to many SoFi members and target demographics.

“We have made it clear that we support targeted forgiveness programs, and the announced programs the administration has released align with what we believe to be a fair and balanced targeted view of the programs,” Noto said. “We think the addressable market for student loan refinancing is quite large.”

The company plans to launch a new buy now/pay later product called “pay in four” in the coming months that could serve low- and middle-income consumers, Noto said.

SoFi is on a mission to be “the AWS of fintech,” Noto has repeated many times in the past. Earlier this year, the company acquired and integrated Technisys, a cloud-native banking infrastructure technology provider. Technisys’ technology works with SoFi’s existing Galileo platform and can support checking, savings, deposits, loans and credit cards. The Wedbush report mentions that SoFi’s integrated technology platform with Galileo and Technisys provides a competitive advantage over other neobanks.

The company is also using Galileo and Technisys to expand geographically in Latin America, and Noto noted on the call that SoFi is also starting to move away from just business-to-consumer offerings and serve more business customers.