SoFi—or Social Finance, Inc.—is a San Franciso-based company with an exclusively online presence. Through its parent company, SoFi Technologies, Inc., it offers various financial products such as mortgage and auto loan refinancing, student loan assistance, credit card services—in short, everything you would expect from a bank. The major difference is that SoFi handles every aspect of their business online, through both mobile and desktop apps.
SoFi has been around for over ten years (the company was founded in 2011), and its success has been built on customer loyalty, smart strategy, best-in-class products, and well-timed acquisitions, such as the April 2020 acquisition of 8 Securities, a Hong Kong-based investment app.
Management appears to know exactly what how to execute to win market share and are poised to take market share from traditional banks, if not dominate them altogether. But will SoFi replace banks?
Shark In the Water
To call SoFi an aggressive fintech organization is a bit of an understatement.
The firm’s combination of easy-to-use, well-polished apps and recently granted bank charter promises to position it as a disruptor like the traditional banking world has not yet seen in a few decades.
SoFi is constructing a sleek, muscular banking model that glides effortlessly through the complexities of personal and online banking and poses a real threat to the way traditional banking has been done.
The company has long been a leading refinancer of student loan lending, but its acquisitions and impressive development of related technologies were more than enough to make it a powerful—and, if you’re a conventional bank—dangerous contender. Now that it has received regulatory approval to become a national bank, all bets are off.
Acquisitions, One Bite at a Time
SoFi has clearly had a long-standing gameplan based on acquisitions.
SoFi announced its pending acquisition of Technisys, an Argentinian digital banking provider shortly after two other notable prizes: Galileo, a cloud-based payment platform (it’s thought that SoFi mainly picked up Galileo for its API technology) and Golden Pacific Bancorp, a community banking institution based in California.
Though the Technisys acquisition is not yet finalized (it’s expected to close soon, sometime in mid-2022), the Argentina-based digital platform already has North American clients in addition to broad Latin American market share.
The technology SoFi will be acquiring from Technisys will enable this singularly aggressive fintech firm to provide near real-time decisions on loan approval and refinancing rates, itself a monumental advantage in the increasingly fast-paced lending world.
SoFi isn’t following in anyone’s footsteps, but is actively changing the way financial services are offered to a public who are hungry for refinancing at competitive rates.
With streamlined onboarding of new customers, improved and AI-customized engagement, and a plethora of embedded financial services all available through a slick and friendly app interface, SoFi is not just changing how the game is played—it is changing the game entirely.
3 Major Threats SoFi Poses To Big Banks
SoFi’s acquisitions are an accomplished and well-played hattrick and promise to present significant challenges to existing banks and credit unions, organizations that were structured for a slower-paced financial world with fewer options. The traditional banking model is seeing significant changes, all of them ultimately bad for business.
The shrinking of retail banks has been going on for a long time—and has been noted in the media for at least a decade.
Banks are seeing smaller revenues thanks to low-interest rates, coupled with a marked uptick in the competition which has forced them to reduce and eliminate fees they once depended on as a significant part of their earning profile.
When digital banking first made waves, the revenue loss was manageable—little more than a rounding error. That has changed and continues at an accelerated pace.
SoFi may be the biggest potential disruptor of the moment, but they are far from the only one. They know this and have doubtless accounted for the effect their competitors are having on the traditional banking systems.
Fintech is a fast-moving world, and SoFi is perhaps the fastest mover out there. The company’s acquisition schedule is a virtual blitzkrieg against conventional banking. The pace at which its adoption of new technologies allows it to adapt and grow—and the agility it grants the firm—are unmatched, unparalleled, and unpredictable.
Fintechs were traditionally dependent on conventional banks and credit unions for core functions and payment processing, which proved a significant obstacle to the pursuit of the kind of real-time processing savvy consumers have come to expect. By strategically partnering with—or through acquiring—service providers, SoFi has empowered itself to deliver real-time, purely digital end-to-end banking.
Disrupting the Disruptor: How Will Banks React?
Traditional banking systems have been around for a long time, and they are somewhat sluggish to react to SoFi’s nimble maneuvering. In an effort to maintain a competitive stance, change is certainly necessary—but what shape might that change take?
By making increased and more deliberate investments in omni- or multichannel user experience, complete with personalization tailored to each individual customer, conventional banking could find some ground to stand on. By making offerings that are at least competitive—if not superior—to those SoFi and fintech companies like it are providing, they could hold (or even gain) some ground.
This comes at a price, though—by either reducing or eliminating the kind of fees that Fintechs and other shadow or neobanks typically never charge, conventional banks are losing a substantial source of revenue. If they won’t—or can’t—eliminate those fees, they’re in the position of having to find some other value to make their offerings comparable.
Big Banking Must Rival SoFi’s Customer Loyalty
If traditional banking pivots to leverage its scale, the industry could dismantle the value chain presented by SoFi and other fintech upstarts.
Providing new features and moving into different roles could unleash the potential of conventional banks and credit unions to compete, and by unbundling financial products and offerings they could forge new territory and create entirely novel revenue streams.
Another option is to leverage their existing capabilities to provide enhanced and customized end-to-end product delivery through every step of the buyer journey. T
hey absolutely have to compete on the digital front and must improve and innovate in their app space to present a comparable model to digital-only banking. But this isn’t enough—aggressive and agile digitization offerings must be on the shortlist, if these megalithic banking models hope to survive.
A Run on the Banks: The SoFi Charter Is Huge
Though only the most recent in a chain of acquisitions, SoFi’s Technisys acquisition positions it ever closer to a one-stop-shop for almost all of an individual consumer’s banking needs.
Though conventional wisdom is that traditional banking still has an advantage over digital-only banks through their wider array of product choices, it’s conventional wisdom. The SoFi charter changes everything.
SoFi is now positioned to be able to innovate at a lightning-quick pace as well as offer an increasingly deep choice of products and services to end-users. If conventional banking does their homework, they could adapt to face this challenge by matching it in scope and scale—and if they want to survive long-term, they may have to.
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