We’ve written about fintech here a lot at Strategic Tech Investor and there is a good reason why; it has made financial transactions easier than ever before and stodgy old banks that have made little changes to their process over the years make easy targets. When I also hear Jamie Dimon, CEO of JPMorgan Chase calling fintech an “enormous competitive” threat to banks, I get pretty excited.
Just look at the growth of Venmo or Cash App from PayPal and Square, which have a combined over 100 million users. That has also translated to big growth with their stock prices with PayPal up over 200% since March of last year and Square up over 500% for the same time period.
Companies like Upstart Holdings Inc. (NASDAQ: UPST) have also shown how archaic banks are as they improved on old lending practices by using artificial intelligence and non-traditional variables such as education and employment to predict creditworthiness.
Sure, banks have scale right now, but their customer acquisition costs are not in line with many of these newer companies and are not nearly as friendly. A great example of banks not being able to keep up is JPMorgan Chase pulling the plug on its Chase Pay digital wallet earlier this year.
Banks, in my mind, will continue to hold a shrinking role in the financial system and are being hit at every angle and today I want to touch on one company I think will continue to chip away at banks.
That company is SoFi (NYSE: IPOE), a personal finance company offering a suite of financial products including investing, credit cards, insurance, and loans. At first glance, they are already offering more services than a bank, and the best part is, everything can be accessed directly in the palm of your hand, not waiting in line for a teller.
SoFi is structured around three key segments, Lending, Financial Services, and Its Technology platform.
Its lending platform is exactly what it sounds like. They offer student loan refinancing, personal loans, home loans, and school loans.
Its financial services include its stock trading app and the recently launched SoFi credit card. All of these businesses offer a huge advantage in that they can cross-sell multiple financial products in order to boost revenue while lowering churn. This has been highlighted by its multi-product member growth going from 74k in Q2’19 to 400k today and a plan to get that to 775k by the end of 2021.
One of my favorite parts of Sofi and why I am bullish on the company is its Technology Platform. This includes a product called Galileo, which powers Sofi Money and companies like Chime, Transferwise, and even Robinhood. Galileo is an API and white-labeled payments platform. This means that other companies looking to build financial services products can build on this technology, creating an alternative revenue stream for SoFi.
Financially speaking, the company expects to go from $621 million in revenue in 2020 to more than $3.7 billion by 2025, that’s an almost 500% increase in only a few short years. Out of this revenue, they expect Galileo to generate revenues of $900 million. Even with the strong business, its stock price has come down from highs in the mid-20s in February, which has mirrored the general market for SPACs. With that said they recently filed an amended S-4 regarding the SEC’s guidance on warrant accounting and are still waiting to hear back. Given the volatility of their stock price, I’m either looking for a pullback towards $15 to get in or more clarity on their filing.
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