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“Our student loan business has been cut by more than half” after federal payments hiatus

Sofi CEO Anthony Noto joins Yahoo Finance Live to discuss the company’s third quarter results.

Video transcript

SoFi stocks switch to pre-commercialization as fintech saw better-than-expected sales and profits for the third quarter. The company also reported accelerating sales growth for the fourth quarter as it continues to expand its product line. SoFi CEO Anthony Noto is here with us now. Anthony, always happy to see you here.

So Coinbase, they had a bad quarter, stocks are getting yelled at. Robinhood, bad quarter, the stock is affected. Your stock is up significantly here in the pre-market. You are in the crypto space. How did you manage to do it during the quarter?

ANTOINE NOTO: Yes, our record revenues truly reflect the diversity of our business. We’ve built our business with a focus on the mission of helping people get their money right so they can get to the point that they have enough money to do whatever they want, which we call l ‘financial independence. And to do that, we have to be there for every major decision, their financial life, and every day in between.

We are therefore a one stop shop for financial service products on your mobile phone. And because we have this line of products to serve our members, we have businesses that benefit in the low interest rate environments, in the high and rising environments, that we find ourselves in right now. We have had businesses that have benefited in the home stay industry – secular change, as well as the reopening of commerce. And this diversification allows us to really focus on the areas that are most in demand, as opposed to companies that may be only in crypto or only in brokerage or only in lending, or that have benefited disproportionately from staying at. home or – and are now being hurt by it.

So our record sales in the quarter truly reflect an advantage of our strategy applied to three diverse companies and the successful execution by our team. It’s been a year-long sprint that we’ve hit a number of really key milestones to get to this point where we have all of these products on our platform, everything from four different loan types, the ability to buy. stocks, fractional stocks without commissions, buy ETFs. We have six of our own ETFs which are tailored to the interests of our members. We also have robo accounts. And one of our robot accounts has just been recognized by Barron’s as number one in its category.

And we also have cryptocurrency. We also have a SoFi credit card and then SoFi money, which is like a checking or savings account, where you can make your direct deposit, pay your bills, or pay your friends. And we also have insurance. All on your mobile phone, no need to go to a branch or talk to anyone.

I did a double take, Anthony, while listening to the conference call last night. You have 28 cryptos on your platform. I remember when you were just starting in the business. It is a large number. How many cryptos do you want to add and what is the size of your crypto business right now?

ANTOINE NOTO: Yes, we really want to differentiate each of our products based on a number of factors including selection. And so, when we launched SoFi Invest in 2019, we launched it with this wide array of selections. And now we’ve added a selection to it. Fractions of shares are therefore a different type of selection from full shares. And we launched with Bitcoin, Ethereum, and Litecoin initially two years ago, and now we’ve added more coins over time.

We listen to our members. We are looking at the data. We hear what they ask for. We therefore want to make the products that interest them available on the platform. We are responsible for educating them on the risks of these products or on the best ways to invest. And cryptocurrency is an unproven asset. It’s very volatile. You could lose all your money.

It should really be a small percentage of your overall portfolio, given the risk profile it presents. It must be good for the individual. But we will make it available and we will make sure we educate – and we do – investors about the pitfalls of investing in high risk assets, which it does. But we have to give them the opportunities they want to make the decisions, to help them make the right decisions. So we really focus on average dollar costs, recurring investments and diversification.

Anthony, this is Emily. I wanted to ask about SoFi’s student loan business because, of course, that’s still a big part of the business here. Now, you mentioned that the student loan environment remained depressed during the quarter, and student loan refinancing still had volumes below pre-COVID levels. We saw similar references to declining higher education enrollment in Chegg’s results earlier this month. Can you tell us a bit about your outlook for this particular industry, based on what you see at SoFi?

ANTOINE NOTO: Yes, this quarter, and quite frankly last year, I couldn’t be more proud of our team and what we’ve built. When I arrived in February 2018, we really had two viable loan products and none of the other products I mentioned. Our student loan refinancing business was our largest and our first business. Well, last year when former President Trump announced in March 2020 that those with federal student loans did not have to pay their loans for the foreseeable future – this has now been extended until January 31. 2022 – Our student loan business got cut in more than half. And so that was our biggest business, it was our oldest business, and it was still growing pretty well. This business has accounted for about 50% of the pre-COVID volume over the past 20 months.

Well, the diversification that we have in our business, the other loan products, the credit card, the brokerage products, the insurance products of the SoFi money products, they have all taken over, despite the fact that this company, our largest and our first company, is at 50% or less of its previous level. I think there will be a significant increase in the number of those who want to refinance their student loans as January 31 approaches. The moratorium on your student loan payments on federal loans is coming to an end. The rates right now are at historic lows, and this is the best time to be able to refinance, when the rates are at zero, on the federal funds rates, which we base our rates on.

He has therefore been depressed for 20 months. Our company has done a phenomenal job to be able to overcome it, as you have seen from our record results. But we’re about to see a very significant increase in 22, as people have to start paying off their student loans again. And they have the option of refinancing with substantial savings if they choose to do so, given current rates.

Anthony, I felt on the call last night a slight, a slight change in tone around the prospect of a bank charter. Do you think this will happen next year?

ANTOINE NOTO: You know, there is no set timetable for the application of a national banking charter. We applied for a change of control for a national banking charter in March, which will really give us a great competitive advantage. This lowers our financing costs, allows us to offer consumers lower interest rates on loans, higher interest rates on checks and savings. It will be a real game-changer for us. It takes a lot to get approval for a national banking charter. It’s a truly unique asset, and with that comes a huge responsibility.

We’re really encouraged by the process over the past nine months with the Federal Reserve, as well as with the OCC. We passed their exams. The feedback has been constructive. There are a number of other steps in the process, and we are working diligently with them to get through those steps. But we’re encouraged by the point we’ve reached right now, but it’s never done until they give you the approval. So there is still some uncertainty and we believe we have done our best on our side. And now it’s all about successfully taking the final stages of the process.

And of course, on this Veterans Day, Anthony, the Yahoo Finance team thanks you for your service. West Point graduate, captain of the United States Army. Thank you.

ANTOINE NOTO: Thanks, Brian. Thank you for hosting me. I would also like to warmly thank all of the veterans, those who have served or are currently serving, as well as my first platoon, Bravo Company, second platoon at Fort Stewart, Ga., 24th ID at the time. It was my first experience in the military. It was a phenomenal experience. What made him so special were the people. And I can’t thank them enough.

Well, thanks again. SoFi CEO Anthony Noto, we’ll talk to you soon.


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