SoFi ups its firepower with $500m funding round

SoFi, the biggest and the brashest of a new breed of online lenders in the US, has sealed a $500m funding round, giving it firepower to push into new products and markets including Canada and Australia.

The private San Francisco-based company last received a big shot of funds — its fifth — in September 2015, when SoftBank of Japan led a $1bn round, the biggest in the history of “fintech”. The latest infusion was led by Silver Lake, the private equity firm, supported by SoftBank and GPI Capital, an asset manager, among others.

The valuation was undisclosed.

“SoFi’s platform — equal parts technology, community, and exceptional customer experience — is rapidly transforming personal finance,” said Mike Bingle, New York-based managing partner at Silver Lake, who is taking a seat on the board.

The six-year-old company, founded by Mike Cagney and a couple of his classmates from Stanford Graduate School of Business, began with refinancing student debt, recognising that there was a big gap between the interest rates good borrowers were paying on their loans from the government and the rates at which private investors were willing to lend to them.

Mr Cagney — a software engineer turned trader turned entrepreneur — has since branched out into mortgages, personal loans, insurance and wealth management. Last month he took another step in his quest to build a retail banking empire by buying Zenbanx, a provider of bank accounts, money transfers and credit cards.

Along the way, he has tried to foster a club-like mentality, hosting dinners and happy-hour mixers for his customers, whom he calls “members”.

A person familiar with the latest fundraising said it should support SoFi’s drive outside its home market, while allowing it to spend more on its basic mission of “building a bank in the cloud”.

Many online lenders have had a tough time of it over the past year, as choppy credit markets, rising delinquencies and a governance scandal at Lending Club prompted many buyers of the platforms’ loans to put programmes on hold. That, in turn, has caused several groups to cut back on generating assets, squeezing their bottom lines as revenues falter.

But in recent months institutional investors have begun to return, apparently convinced that the platforms have smartened up their acts. At Lending Club, for example, banks accounted for 31 per cent of loan volume in the fourth quarter, double their share of the third quarter, even as the company cut out special discounts.

Overall, volumes on consumer-loan platforms rose 10 per cent in the fourth quarter from the third, according to Orchard, a data and technology firm, breaking a three-quarter run of falls.

Last year SoFi originated $8bn of loans, it said on Friday, up from $5bn in 2015.

The company continues to home in on people in their 20s and 30s with good salaries and good prospects. Mr Cagney has called them “Henrys” — short for “high-earning, not rich yet.”

A $600m package of loans sold last month via the securitisation market was a good illustration of the target demographic: borrowers who owed an average of $75,000 had an average age of 34, a credit score of 764 — well into super-prime territory — and annual income of $170,000. The dominant schools were New York University, Michigan and Penn State.

SoFi’s focus on trying to service this high-achieving cohort by creating a strong sense of community may make it “the next American Express”, said Ram Ahluwalia, chief executive of PeerIQ, an analytics firm.