October 1, 2022
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SoFi Technologies Inc. (SOFI) 2022 Goldman Sachs Communacopia + Technology Conference (Transcript)

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SoFi Technologies Inc. (NASDAQ:SOFI) 2022 Goldman Sachs Communacopia + Technology Conference Call September 12, 2022 6:45 PM ET

Company Participants

Anthony Noto – Chief Executive Officer

Conference Call Participants

Michael Ng – Goldman Sachs

Michael Ng

Hey, everybody. Welcome to the SoFi presentation at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing Anthony Noto, CEO of SoFi. Anthony joined SoFi in 2018 as CEO after serving as CFO and COO of Twitter, the Co-Head of Global TMT Banking at Goldman Sachs and the CFO for the NFL. We’re going to have a wide discussion today covering several topics, including SoFi’s missions to become the AWS of fintech, its value proposition for its members and the current state of demand for lending products. My name is Mike Ng. I cover SoFi and fintech here at Goldman. We have 40 minutes for today’s session, inclusive of audience Q&A and we’ll leave about 5 or 10 minutes for that. First, Anthony, thank you so much for being here with us.

Anthony Noto

Thank you for having me.

Michael Ng

So SoFi is off to a really strong start this year with over $2.7 billion of deposits after only closing on the acquisition of Golden Pacific Bank in February of 2022. Origination volumes seems solid despite macro challenges and the company closed successful acquisitions, including Galileo in May of 2020 and Technisys, in March of 2022.

To start things off, would you just help us tie the vision together in success? What does SoFi look like? Is it a consumer app? Is it a banking as a service provider, is both?

Anthony Noto

Sure. At the core of what we do is we’re always going to be a consumer technology company that delivers digital financial products to consumers. Our mission is to help our members achieve financial independence to realize their ambitions which means they get to the point that they have enough money to do what they want. They’re overachievers that have done very well professionally. They’ve done well academically and they need to find financial ways to have the home that they want, the [indiscernible] that they want, the career they want, live where they want, retire when they want, provide for the family in the way that they believe they’re accustomed to. In order to do that, we have to help them borrow better, save better, protect better, invest better. And we want to be a one-stop shop for them.

We want to be there for all the major financial decisions they make in their lives and all the days in between. In order to do that and to do that in a differentiated way with best-of-breed products, we need to own the end-to-end technologies. As we’ve built the company, we’ve learned that when we wait for a partner to help us innovate or we wait for a partner to help us drive change, we lose time. We lose the ability to lead our members to where they want to go.

We have a very ambitious strategy. Others have talked about becoming a one-stop shop but they’re nowhere close to getting there. And one of the reasons why they’re nowhere close to getting there is they don’t own the technology. We believe we can innovate for not only SoFi but as we use those technologies to accomplish our objectives and our mission, we can then allow others to use those same technologies. We’re building technologies before other people realize they need them. But when they do, they’ll be available for our partners to use.

We keep the two companies separate on a day-to-day basis because we want our partners of Galileo and Technisys, to feel the trust and reliability of those platforms. And at the end of the day, if they can deliver more value for their partners, then their partners can deliver on their own or with someone else, that will be a technology that we continue to get a return on and the industry benefits on. So first and foremost, a direct-to-consumer technology company but the technologies we need, no one else is building and so we have to build them ourselves. Very much similar to Amazon and how Amazon Web Services will build over years to provide their differentiation with the consumer.

Michael Ng

Great. That’s a fantastic overview. And I’d love to go over a couple of your business segments one by one. So maybe just starting with the Lending segment. There certainly have been a lot of headlines in the news recently that could impact SoFi’s student loan purchase and refinance volumes, including the end of the federal student loan moratorium at the end of this year, plans for student loan forgiveness. Could you talk a little bit about your expectations for the student loan business over the mid- to long term as well as the potential impacts from some of those things that I just mentioned?

Anthony Noto

Sure. The student loan refinance product was the company’s first product. And the idea behind it was someone goes off to undergrad or they go off to business school or medical score or law school and they take out a federal student loan. And that federal student loan is at the same interest rate for everyone that gets approved. But then that person graduates and they get a job and they start to achieve a credit rating that’s above average. And that credit rating would allow them to refinance that federal student loan at a lower interest rate. As an example, they could have gotten a student loan at 6%. And in a normal course of time, they could have refinanced with SoFi at 3%. No different than refinancing of mortgage when rates go lower. Great products, great way to create connectivity with consumers and help them to borrow better. That business was really booming for us.

When I joined in 2018, we rightsized it. We made sure it was a product that would be durable through a financial cycle by making sure it was generating 40% to 50% variable profit margins per loan. And in the fourth quarter of 2019, we actually generated $2.4 billion of origination volume in the student loan refinance business. We got to March 2020, the pandemic hit, the President of the United States said, if you owe the federal government, a student loan, you do not have to make payments for the foreseeable future. 2.5 years later, that more term was still in place. Well, that more term existed, those people that were refinancing their federal student loans into private lower-cost loans, basically, that demand went away.

So the announcement at the end of the moratorium at the end of 2022 should result in a return to demand of people refinancing their student loans. Just to give people a relative perspective, when we did $2.4 billion in student loan origination in Q4 of 2019, the federal funds rate at that point was around 1.6%. For that whole year, we averaged each quarter about, call it, $1.7 billion of origination volume and the average Fed fund rate during that time was over 2%.

Michael Ng

Okay. Shifting gears to talk about home loans so far as a strategy to gain market share in home loans get somewhere close to 1% over the next several years. Could you talk a little bit about your progress there as well as your progress in diversifying beyond refinance? SoFi seems to have an opportunity to grow countercyclically because of the opportunity to cross-sell to members. Could you talk a little bit about that?

Anthony Noto

One of the benefits of being a one-stop shop for our members’ financial needs is that it results in a diverse set of businesses. Some businesses that do really well in a low rate environment, some that do well in a high rate environment. One of the reasons we entered the home loan business is that we fundamentally believe we have to be there for our members’ most important and likely most emotional decision financially which is buying a home and financing that home.

It is a business that’s hard to make money through the cycle but we are determined to build a product that’s there for our members for their needs but also drive shareholder value. When we originally launched the business after closing it down when I arrived at SoFi, we launched it with a partner in the business was doing quite well, making great profits and also driving great demand. About 60% to 70% of our home loans was from our existing members, reinforcing the fact that our members trusted us and when they needed to make that big purchase that was emotionally important to them, they came to us. That’s still the case today but we’ve moved from a refinancing market to a purchase market.

And so our need to deliver value for them is now condensed within 30 days and partnering has been more challenging. And so we’ve been working with our partners to reduce the time to fund, to drive better NPS and to really deliver on that product. We’re confident that we understand how to do that in a more constructive way and we’re making the changes to get there. But in the most recent couple of quarters, we faced headwinds because we’re not where we need to be on the operational side of the equation yet.

Michael Ng

And just as a follow-up to that, as you mentioned in the last couple of quarters, still there are some headwinds because of operational constraints. Where are we relative to that today? And do you have visibility into when that should improve?

Anthony Noto

We just launched a recent change a week ago on the POS that’s having a causal impact, meaningful impact on our ability to take inquiries from our partners and our members and process them more quickly and more efficiently and more effectively. There are a number of other changes we have to make on the closing side of the equation with a different partner to make sure that’s being done in an expeditious time schedule. So we meet the needs on the purchase side of the equation. So it’s baby steps but we’re moving in the right direction.

Michael Ng

Yes, it’s great to see the progress there. So rounding out the Lending segment, personal lending seems like a product that should benefit from a rising rate environment, particularly as individuals refi, variable debt into fixed rate SoFi personal loans. Could you talk about any trends within personal loans that you’re seeing? Are you seeing those benefits yet?

Anthony Noto

Yes. I mean this is a good point to bring up the benefits of certain businesses from higher rates. So as rates go higher, we saw in 2018 and ’19, a huge tailwind to the unsecured personal loan business. Our growth is quite frankly, really gated in this business by how much we want to spend on marketing. We have a very strict credit box. We try to underwrite our loans to 7% to 8% life of loan losses. So that 680 FICO score and higher. Our average FICO score is in the 750 range.

The average income of our personal loan borrower is close to $150,000. We’ve been able to gain a lot of market share there. The reason why people like that product in a rising rate environment is because they’re consolidating their debt from variable rate debt into fixed rate debt. They’re terming out over a longer time period. There’s also a new use case of home improvement when rates are higher, there’s less purchases of homes. There’s more remodeling of homes. So we have a great use case in home improvement. We also see people doing things from an energy efficiency standpoint and helping to fund solar installations, et cetera. So it’s a great product. We’re at about 5.5% market share of our demographic of 680 and higher and we think there’s a large opportunity for us to continue to gain share. That said, we are making sure that we’re cognizant of the macroeconomic environment and we have many leading indicators that we follow to drive our underwriting processes there.

In a more tougher environment, we’d likely be more conservative in the current environment, our loans are performing quite well and are still better than they were at normalized rates in 2019 which we suspect they’ll go back to. So great product, really low market share and continue to grow the business.

On the student loan side with the monetary amending at the end of this year, we could see a really nice benefit of the tailwind from the student loan business. There’s $1.7 trillion of unfinanced student loans with an average cost of about 6% for graduate loans, that coming – that demand coming back, combined with still strong trends on personal loans will be the first time in a number of years, almost three years that we’ve had both of those businesses doing well with tailwinds.

Michael Ng

That’s great. And we’re looking forward to seeing that volume come through. Just on the lending portfolio as a whole. Could you talk a little bit about what your hedging strategy is? Obviously, there have been really strong gain on sale margins inclusive of hedges, naturally, investors want to know whether or not that’s sustainable?

Anthony Noto

In our personal loan businesses, we’re targeting 40% to 50% variable profit margins on a per loan basis and we want to maximize variable profit dollars in that range. And so when we think about our ability to drive that variable profit per loan, we have to start with what are our benchmark rates, what are our life of loan losses, what are our cost of fundings and what weighted average coupon do we need to charge the consumer for that loan against those costs to get to that margin. So as benchmark rates go up and spreads go up, we ultimately have to pass on those costs and a higher coupon to the consumer. And we’ve been able to do that. As we do that, as that loan is underwritten, we want to lock in that variable profit dollars. So we’ll hedge the rates that we charge that consumer in case benchmark rates keep going up.

If we didn’t hedge our assumptions after we finance the loan and that loan sat on our balance sheet and benchmark rates continue to go up, the value of that loan would go down because the yield the buyer would get – would be lower. And so the hedge is simply put there to lock in the variable profit that we’ve engineered the product to be and we only do it on the produced volume that we’re generating. We’re trying to match that up on a daily basis. So it could be off a little bit here and there but it’s not meant to be a bet. It’s meant to be a hedging strategy against the profit we had already designed.

Michael Ng

Right. The hedges are put in place at the time of origination, so you’re just locking that in. Okay. Great. Switching over to the bank charter. You’ve talked a lot about the incremental benefits from being a bank, including a lower cost of funding, the ability to hold loans for longer, more funding to originate more loans. At the time SoFi went public, the company outlined about $200 million plus of incremental annual EBITDA from 2023 to 2025 from the bank charter. Could you talk a little bit about those benefits in deposit funding and holding the loans on the balance sheet for longer?

Anthony Noto

Sure. All the benefits that you mentioned are benefits that we are currently seeing in our business. It all got delayed by a year because the bank license was delayed by a year. But let me walk through them one at a time. First, lower cost of funding. It’s about 100 basis point advantage to us to finance offer deposits, even with a 2% interest rate on checking than it is to use our alternative sources of funding. We also have our own equity capital.

So today, we use 3 sources of funding. One, the deposits which is 100 basis points, more efficient for us than our warehouse facilities which is a second source of funding, then third is our own equity. In addition to being able to fund off of 3 different vehicles, we now have 3 different ways to monetize loans. We could securitize them and sell them in the securitization market. We can sell them in whole loan form to asset managers, hedge funds as well as banks in addition to holding loans ourselves.

So we use those 6 variables as a way to maximize our ROE. And in our most recent quarter, we reported positive GAAP net income in the bank and the ROE on that was around 12.5%. And that’s with the bank having an equity asset ratio that’s in the 30s and it can be as low as 11%. So real evidence that we’re driving economic value creation and that we’re moving down that efficient frontier and ROE equation based on those 6 variables.

In addition to that, we can actually give consumers a really attractive interest rate. Before we were a bank, we had to rely on someone else to set that interest rate. And so our thinking behind the bank when it came to the checking saves account product is that we can provide a very differentiated product unmatched for anyone else. So 2 percentages on checking, no minimum balance, no restriction on spending, no restriction on how much you get the 2% interest on in addition to the fact that you get too early paycheck, free roundups, bill pay, person-to-person payments, all on your phone. And if you want to be old school and have a check sent physically, we’ll do that for you as well.

So it’s really unmatched in the marketplace. And the funny thing is even when we give the consumer 2%, we’re 100 basis points better off as a company than if we finance their warehouse facilities. So it’s been a real home run there and it’s helped drive direct deposit accounts which also spend more and we’ve seen the benefit of that interchange on the checking account, debit interchange revenue stream.

In addition to that, there are a bunch of other benefits that are really hard to anticipate at that point in time. In our in-school business, we now run more of the schools lenders less than we were before because we’re a bank when it comes to in-school loans.

In addition to that, having a bank license complement Galileo. Galileo was focused a lot more on B2B partners and driving adoption of them. Many of those B2B partners need a sponsor bank. SoFi can be that sponsor bank and don’t have to worry about the implications of the Durbin bill. And we’re just seeing more and more opportunities from the benefits of the bank license. Not to mention we could hold loans a little bit longer, double our NIM per loan and increase the profitability of that as well.

Michael Ng

Great. Yes, that 2% rate I know has — is really attractive and a lot of members of my team, in particular, have taken advantage of that. But moving beyond checking and savings, let’s talk about SoFi’s broader suite of consumer financial services. How do products like SoFi Invest that enable trading for stock, IPO and crypto and SoFi credit card which also has a very attractive cash back. How does that work in contributing to SoFi’s financial services productivity loop. And how does it play into your broader strategy?

Anthony Noto

Our invest product is really critical to our members. Many of our members were novice or beginning investors and they don’t really have access to investing in the way they needed to in their 20s or even in their 30s. And so they’re pretty far behind of getting the benefits of compounding. And if you want to be able to reach the point that you have enough money do — you want, you absolutely need to invest as early as you can dollar cost average in a diversified way and get the benefit of decades of compounding.

So when we architected the product, we took the same one-stop shop approach that we’re taking for the overall company to invest. So SoFi Invest is the only place that you can buy single stocks without commissions, fractional shares which we pioneered and others have now copied. We provide a number of road accounts or automatic investing accounts. We’ve created some ETFs to uniquely make investing more accessible for our members. So we launched 2 $10 price point ETFs that were made up of over 500 different stocks. And we did that so that our investors could diversify in one unique investment with this small dollar amount relative to having to pay $250 for a normal or more for normal S&P 500 ETF.

In addition to that, we provide the ability to buy and sell 30 different cryptocurrencies. And last year, we introduced IPOs and we’re the only retail distribution arm for the Rivian IPO and we have a great pipeline of IPOs and we’ll add additional selection there as well. So it’s a very differentiated product. The only place you could buy all those outset classes in one place with the fee structure that we have.

It’s been a very nice growing business for us. We — there’s still some table stakes products we haven’t offered like options. We recently introduced margin. Hopefully, we’ll launch options by the end of the year and we’ll round out that portfolio of products and services that our members want. It’s also a great business. We generate revenue not directly from the consumer on everything other than crypto and crypto, we do charge a fee on the way in and the way out. If you do recurring investments within crypto to encourage people to dollar cost average, we waive the fees.

Michael Ng

Great. Also within the Financial Services segment is some of your referral revenue. And I think SoFi has mentioned in the past that only about 30% of the personal loans are approved and funded by SoFi and the other 70% or so is sent to partners, I think like Pagaya. I think it’s certainly fair to characterize your borrowers as higher credit quality and this is one way that you helped to achieve that. Could you talk a little bit about your outlook for referral revenues and you have partners like Pagaya, change their demand for some of these loans that are outside of your credit parameters at all?

Anthony Noto

Yes. I mean there’s 2 ways that we capture the 70% of people that we do not approve for unsecured personal loan. One is we simultaneously run a credit model of a partner and soon to be partners in the decision engine that we have. So SoFi’s models running and partners’ models run alongside that.

If SoFi does not approve the loan and the partner or partners approve that loan, they take on the credit risk. They take on the financing risk. We do the servicing. That person becomes a member of SoFi and we can cross-sell them other products and services. If your SoFi or its partners in the decision engine approve the loan, then it does go to the original [ph] marketplace. In that case, we just get a lead generation fee. The loan is underwritten in someone else’s name and that person does not become a SoFi member. There is definitely a pendulum that swings from time to time in that business but those 2 businesses complement each other and keep a pretty stable revenue stream there for us.

Michael Ng

Great. Let’s shift gears and talk a little bit about the technology platform which as a reminder, is a product of the Galileo and the Technisys acquisition. Maybe just starting out with Technisys. At the time of the acquisition, you talked about $500 million of cumulative revenue and $75 million to $85 million in cumulative cost savings through 2025 from the timing of acquisition. First, on the revenue benefits, could you talk a little bit about the trends you’re seeing in cloud core banking services? How is this offering resonating with your existing customers? What’s the value proposition? Why does somebody switch over to Technisys?

Anthony Noto

Sure. For those that are not familiar, Galileo is a payment processing platform that’s built out APIs for partners to build their apps on top of. And it’s primarily for checking and savings type for customers on the consumer side. So we’ve built out account opening APIs, direct deposit APIs, 2-day early paycheck APIs, instant funding and so provisioning APIs. In addition, it serves B2B clients very well. One of its top 10 customers is a large child care payment provider with states as an example and it’s adding more B2B partners over time. But it has the functionality to do payments broadly defined.

Galileo does provide a core technology and a ledger to its partners. What it doesn’t provide is a multiproduct core technology. So far, uniquely because we have more than one product, we need more than one core technology as well of one product core technology. And it so happens because we blitzscaled our way into the marketplace that we have a core technology we built for ourselves in lending. We have a core technology for checking and savings that we license from somebody. We have a core technology in credit cards that we license from a different partner. And then we have a core technology for invest that was licensed from a fourth partner.

So we have 4 different cores. Over time, we want to have one core. We want to have one multiproduct core that not only serves our current products but it also allows us to expand to new products we don’t have today on that exact same platform. As we were looking for that technology in either partnering or building it ourselves, we found Technisys and 2 other companies. But when we started to engage with Technisys, it became obvious to us we should talk to Galileo to see if they would be interested in also having a multiproduct core that is extensible for its partners.

Most of those partners are only in one product. We came to realizations. This was a technology that everyone needed not just SoFi, not just Galileo’s partners but all the traditional financial institutions and banks as well. And that was the motivation behind the acquisition of Technisys. Since we bought it, it’s been a — an asset that I’m super happy we bought. It’s been able to bring to the table for us all that we hoped it would. We’ve now introduced Galileo to Technisys partners which are primarily outside the United States. We’ve introduced Technisys to Galileo’s partners that are deep in conversation.

I think the biggest surprise is the number of inbounds that we’ve gotten and those interested in talking to Technisys and Galileo together from large financial institutions that sort of validated our thesis that they needed this technology as well. In terms of big wins, the pipeline is pretty rich. We hope to have some wins as we go into 2023 to share with investors. But at this point, we’re deep in conversations with a number of partners. In terms of the product sets, we’ve already had partners adopt some of Technisys products, including SoFi that they weren’t previously using and we anticipate continuing to see that trend.

And then, the last element that’s something that’s now coming to fruition, is Technisys and Galileo together going to new greenfield partners that we haven’t had connectivity within the past.

Michael Ng

Great. That’s really exciting to hear. And just as a follow-up on the move to taking all of SoFi’s cores onto a single one which presumably will help generate a lot of those cost savings. Where are we in the progress there? What is the time line for that integration look like? And what does the road map look like?

Anthony Noto

Sure when we announced the acquisition, we went out of our way to say transitioning SoFi’s products onto the Technisys platform would happen over a 2- to 4-year time period. it doesn’t take that long to do it. We wanted to prioritize the go-to-market strategy externally first to make sure we had big client wins and we solidified the road map of the businesses together before we spent time on transitioning SoFi products over. What we will specifically transition over time will be our core technology for checking and savings as well as processing of our credit card on Galileo and the credit card in the core on Technisys, as well as some of our other lending products. The first product that will come to market from both Galileo and Technisys, we’ll be paying for. So the ability to do buy-now-pay-later, both Technisys and Galileo will soon be able to enable that for all of their partners in addition to SoFi. But in terms of our existing products, those are gated over the next 2 to 4 years, so we don’t distract the current go-to-market. We’re not in a rush to have to do that. They’re on good cores now. We want to simplify it over time and make sure we don’t miss the execution of bringing the 2 companies together and crushing out in the go-to-market.

Michael Ng

Right. That’s great to hear. Let’s just ask one question on Galileo specifically. Could you talk about whether or not you’ve seen any customer churn or issues following the acquisition. Naturally, some of Galileo’s legacy customers were neobank customers does it matter that it’s potentially competitive now? What are you seeing there in terms of customer activity on the platform?

Anthony Noto

Yes. I mean the competition question was something that we and the Board talked about back in March and April of 2020. And my thesis to the Board and what’s played out is as long as we can create more value for Galileo’s partners that they can create on their own or someone else, you’d be foolish for them to leave Galileo. And so our objective from the very beginning was to make sure we were increasing that value for Galileo’s partners and we’ve developed a number of products and services that have shown the dedication to investing in the product pipeline and allowing them to continue to innovate.

We’ve rolled out a secured credit card on Galileo. We’ve introduced the ability to do direct deposit switching on Galileo. We’ve built a new dynamic fraud engine for use on Galileo. They’re providing instant provisioning into a digital wallet now. They provide instant funding now. And as I mentioned, its coming to market soon, is paying for. In addition to rewards platform with Technisys, that’s on our road map. So that differentiation above and beyond just cost and stability has been there. The other big investment that we’ve made is we’ve moved from on-prem into the cloud.

And we’ve made a significant investment over the last 2.5 years in running both of those environments. And by the end of this year, we can put it into the cloud which provides further stability as well as an ability for our partners at Galileo to invest in micro services on top of the cloud experience that are unique to them which is something they wanted from a customizable standpoint.

So super happy with the progress Galileo has made in the value proposition has delivered on what we said to the Board. The other piece of the equation that’s not entirely clear to people is there’s still a massive transition from physical payments to digital payments in the B2B space and one that Galileo’s also capturing both in the United States as well as in Lat Am.

Michael Ng

Great. That’s really helpful. Before I open it up to audience Q&A, I’ll just sneak in a couple more on financials. [Operator Instructions] Just longer term, how should we think about EBITDA margins? You’ve talked a little bit about 30% incremental EBITDA margins in the past. Is that still a good way to think about it? And where do you see the key investment opportunities in your business as you manage to that 30% incremental margin?

Anthony Noto

Yes. I would say over the last 20 years and covering companies as a research analyst, as a banker and as an operator at Twitter and SoFi, I thought it was important when we went public to establish our commitment to balance both investment and growth as well as improvement in profitability. And so in an expansionary time period and a recessionary time period, our message is the same. We want to deliver 30% incremental EBITDA margins through the cycle. We want to reinvest 70% of incremental revenue back in the business as long as our growth rate is very strong at 20% plus, because we want a compound growth for decades. Similarly, we do have to show that the business can drive a return and can have attractive return on invested capital and return on equity and return on assets. And that’s why we’re committed to the 30% incremental EBITDA margin. Do we have more things to invest in than that?

Absolutely. The only thing gaining our growth since I’ve been at the company that I’ve seen is our ability to invest in that growth. Should we invest all of the incremental revenue? No, because I think that would leave us in a situation where investors would ask us where our long-term profitability would be. It’s much easier for us to say we’re delivering 30% incremental EBITDA margins, that’s a leading indicator of 30% long-term EBITDA margins and the types of returns we think we can deliver. So we’re trying to balance those 2 things through the cycle in a prudent way.

Michael Ng

Great. That’s a really helpful framework. So just on the guidance for this year, SoFi has guided to full year revenue of $1.5 billion to $1.15 billion of revenue, an EBITDA of $104 million to $109 million. Could you talk a little bit about how SoFi is pacing towards those goals? Is there anything that makes you more excited or more cautious?

Anthony Noto

We’re not going to update our outlook for the quarter, intra-quarter. I say the team is executing. I love the position that we have strategically, the benefits to our business from the investments that we’re making are ones that we continue to benefit from and we will share the full quarter’s results and we’ll report after the quarter ends.

Michael Ng

Okay. Totally fair. [Operator Instructions] Just on the capital allocation front. Obviously, SoFi has been fairly acquisitive with 2 $1 billion-plus deals with Galileo and Technisys, in addition to acquiring Golden Pacific Bancorp. Could you talk about your positioning on more M&A deals? What does the fintech M&A environment look like today? And how does M&A play as a part of SoFi’s expansion strategy from here on out?

Anthony Noto

Yes. M&A over the last 30 years has played a huge role in value creation for direct-to-consumer technology companies. If you look at the value that was created by eBay buying PayPal and Google buying YouTube and just Priceline buying Bookings.com which became the name of the company and there’s many others I could talk about. We have to keep our eyes open to opportunities, they present themselves but we also have to balance executing versus the distraction of M&A. And I think we’ve done a great job with that at this point. We’ve been very strategic in our choices as it relates to large M&A.

Right now, we’re absorbing the acquisition of Technisys. We love what the business does for us from a strategic standpoint, what it does from an operational standpoint and technology standpoint and we want to continue to execute against that. So unless something presents itself that’s so game changing as the last 2 acquisitions and is super attractive and it’s a must do type of thing, we’re going to keep our heads down to execute. There are small things we could always do less than $100 million to improve our execution and our capabilities. But I’d say right now, we’re heads down and executing on our strategy and delivering on the 2 deals we’ve already done.

Michael Ng

That’s great. We’ve got a couple of questions over here.

Unidentified Analyst

Could you talk about customer acquisition costs recently? I imagine with so many fintechs now struggling that should look a little bit better.

Anthony Noto

Yes. In our results, you’ll see that our acquisition costs have continued to be stable to down. Some of that is due to mix shift to lower cost products. When I think about them on an apples-to-apples basis by products, they’re relatively stable, they’re right where we want them to be. We’ve worked really hard at trying to build a product that’s very differentiated, figuring out the right marketing channels and the right unit economics for those products and we’ve done that for each one of our products. And now it’s just a matter of building trust and awareness in our products.

And so the customer acquisition costs have been very stable and very predictive of the spend and growth that we expect from that spend. So quite happy with them. On the checking saves account side of the equation because we have the bank now, those customers have greater lifetime value. So we’ve been a little bit more aggressive there and we’ve seen great response rates when we’ve been more aggressive. So pretty happy across the board.

Michael Ng

Great. And just as a follow-up to the success that you’ve had gathering deposits, right, $2.7 billion plus customer deposits at the end of the second quarter, to your point, an incredibly attractive rate. Can you talk a little bit about what the momentum of that has been? I know in the past, you’ve talked a little bit about a monthly deposit pace. What’s the progress there? And how does the direct deposit requirement help to improve the durability of that deposit base?

Anthony Noto

And Chris has shared this before but about 80% of our deposits are from direct deposit customers which is high quality. The added benefit of that as they spend more with us and that drives the revenue stream within checking and savings for dividend interchange. In addition to that, we get very rich data. We can see if they’re sitting on a lot of excess cash that should be invested and we could offer them a certified financial planner call. We could see if they’re overspending and paying off or paying credit card payments and offer them a personal loan, we can see if they have a student loan that could be refinanced at a lower rate, et cetera.

So the interest rate is important to drive the deposits and those trends remain positive relative to what they have been in the past and on the right trajectory. But we’re getting all the ancillary benefits from that spending and data that we have as well. Good thing about the direct deposit customers that we’re driving is that their average FICO score is over 700 which is also positive for our lending business and creating future borrowing customers on the lending side. And we’ve continued to see really strong cross-buying rates, as you’ve seen in our reported results when you compare products reported versus members.

Michael Ng

We just have a couple of minutes left. So just a closing question, a 2-parter. What aspects of SoFi’s strategy are you most excited about? And what indicators are you monitoring as a measure of continued progress?

And then secondly, football seasons around the corner, you have the SoFi Stadium sponsorship. How do you expect that to play out in customer acquisition costs and other intangible benefits that you might see?

Anthony Noto

Yes. And I’ve said this to our company. I’ve said it to our Board, the only thing standing between us and 20 million members now is us. Our ability to drive trust, reliability and awareness. Every day that we market our products, we build more awareness. When people give us their money, they have to trust us. We have to maintain that trust. So it’s just a matter of building the awareness, building in the trust and the membership should follow. And the reason why I say the only thing between us and 20 million members is us is because we have the products.

They’re differentiated. We see the adoption of the product. So we know we have product market fit. We iterate on those products when we improve them and that drives even more adoption. We see the cross-buying rates and we see the satisfaction levels. So we’re going to continue to invest in product markets, continue to invest in differentiation, drive higher NPS scores, so we drive more trust and keep building that awareness.

The stadium deal, I couldn’t be happier that we did the deal. I know it was somewhat controversial but the cost that we get to reach the audiences that we reach now and primetime gains is very efficient relative to what we used to pay. Last year, we saw a huge benefit in the fourth quarter from that. Our rated [ph] brand awareness went from about 2% at the beginning of the season to 8% at the end of the season, leveled back off around 4%. We’re hoping to see a new high in the back of this football season. The team has done a great job in the advertising side of the equation, building a campaign that uniquely differentiates us.

And now because we have the bank license, we can actually market the product at the very top of our funnel, a 2% interest rate on checking and savings and a spokesperson in a great American, a great football player in Justin Herbert to go out there and tell the world about that product and that can flow through our funnel to all the rest of our products. So it’s taken us a long time to get here. It’s been almost 5 years but where we want to be and it’s a matter of continuing stepping on the gas and moving away from everybody else.

Michael Ng

It’s a fantastic way to cap off the session. Please join me in thanking Anthony Noto for his time, thoughts and insights.

Anthony Noto

Thanks, Michael.

Question-and-Answer Session

End of Q&A



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