Innovation spotlight: North American FIs going social
As banking continues to go digital, online innovators and niche players in North America are getting personal by adding social activities to their customer services.
Even among technologically adept recent graduates from top universities and business schools, firms that reach out socially are finding a warm reception.
SoFi, short for Social Financial, combines better rates on student loan refinancing with parties for its members (aka borrowers), around the country. It even offers career and financial counselling.
The San Francisco-based company was co-founded by Mike Cagney, now its CEO and chairman. It initially focused on refinancing student loans taken out by graduates of leading business schools who had great earning potential but might lack credit scores. They were dubbed “Henrys” – an acronym for “high earners, not rich yet”.
Unlike the government, which lends to all students at the same rate, SoFi offers rates to match a customer’s risk, which it determines through measures like savings, cash flow, employment history and earning potential. The company uses a proprietary underwriting model, which it credits for its strong margins while offering attractive rates.
It now offers student loan refinancing through more than 600 employers – providing them with a new perk for indebted employees, administered through SoFi. The company offers refinance help to its own staff, up to $200 a month. The company packages the loans and securitises them or sells them to investors.
SoFi, which now has more than 200,000 customers, has expanded into mortgages, personal loans and wealth management. It also has an entrepreneurship programme, which will suspend student loan payments for six or 12 months and introduce participants to investors and advisors to help them start a business.
With a clientele that is well-educated and professional, what better perk than drinks parties or dinners where customers can meet each other, perhaps network for better jobs, or maybe spark a romance? It holds workshops, dinners and cocktail parties – events that to date have drawn more than 7,000 attendees in 55 cities across the country.
Jim Prosser, a spokesman for the company, says SoFi wants to play an active role in its customers’ success “by providing not just products, but community – events, career strategy help, and our Entrepreneur Programme”.
It now hosts events around the country every week, from happy hours to whitewater rafting, and is planning to add new ways of connecting the community online. SoFi is betting that by treating customers like members of a club it can make them lifelong customers.
A similar company is operating, albeit with somewhat less attention, in New York. CommonBond, which launched nationally in 2013, offers loans to undergraduate and graduates students, refinances loans for graduates, and works with employers to offer student loan repayment as a benefit.
CommonBond offers an online student loan evaluation tool to help prospects determine the best ways to manage their debt. It estimates that members save an average of $24,046 as they repay their student loans, and even more for people like doctors and dentists with advanced degrees and higher debts.
The savings come because the federal student loan programs don’t offer a way to refinance at a lower rate – interest can run as high as 8.5%. Student loan refinancers are often looking at borrowers who have accumulated some employment and credit history that can be an indicator of financial stability and reduced risk.
CommonBond events for members have included dinners, a seminar in how to buy an apartment in New York, investing with robo-advisor Betterment, kickstarting a business for women, and making the leap from corporate to start-up…
This is an excerpt. The full article is available in the April 2017 edition of Banking Technology.