When you are watching Super Bowl 50 this Sunday, you will see a commercial for a company that has never advertised on TV before. SoFi will air its first TV ad during Super Bowl 50 titled “Great Loans for Great People.” It features a real SoFi borrower and examines what makes SoFi borrowers “great.” The ad attracted attention before it even ran during the Super Bowl for last-minute edits to change it's snarky tone. The original version ends with: "Find out if you're great at SoFi.com: You're probably not." The final edit drops the last three words.
This company is leading a charge that may mark the beginning of major changes in the lending business. SoFi is one of the largest of a fledgling group of non-bank lenders that are challenging big banks with their alternative approach to providing loans for customers. To take a page from another industry, consider what happened to Blockbuster when Netflix, Inc. came to town. There are other players in the space, including CommonBond and Earnest.
SoFi was started in 2011 by four partners who were convinced that the banking industry is not serving the public in the way that customers deserve. This company has quickly grown into a billion-dollar entity that specializes in student loan refinancing and personal loans as well as mortgages for financially responsible individuals. Being a non-bank lender has given it the freedom to pioneer a different approach to qualifying potential borrowers, one that looks as much at the person’s present financial circumstances and future potential as their past. (For more, see: Personal Loans: Top Alternative Lenders.)
To this end, SoFi recently announced that it will no longer include FICO scores in its loan evaluation process. This marks another major step away from conventional policy for the lender-and opens the door for a raft of potential borrowers whose past circumstances no longer accurately reflect their current financial situations.
What it Means to You
SoFi’s underwriters look at a borrower’s current cash flow, future earnings potential, employment and financial history before making a decision. But it believes that the components that make up scores contain some fundamental flaws (such as how they reflect poorly upon a borrower who doesn’t have or use a credit card, regardless of their ability to repay a loan), and they are no longer a part of the equation. Prospective borrowers who have a demonstrated a history of financial responsibility but may not have the credit score to reflect it can log on to SoFi's website and for a breakdown of their current student and personal loan rates.
Going Above and Beyond
SoFi’s commitment to its borrowers, who they call members, doesn’t stop with mere loan origination and servicing. It takes a personal interest in its borrowers that goes beyond money, and supports their career and relationship goals as well. For example, it offers top-flight career placement assistance and a six-month deferment on loan payments for those who become unemployed. The career counseling includes resume coaching, personal branding, the art of negotiation and basic job interview skills. More than 165 borrowers have found new jobs with SoFi’s help. (For more, see: Are Super Bowl Ads Worth Their High Cost?)
It even offers an Entrepreneur Program for those who wish to start their own businesses, and prospective entrepreneurs who are selected for this course are given access to investor networks and mentorship. It also hosts two to three educational and social events each week, and will host more than 300 events in total in 2016. This innovative approach helped land SoFi on CNBC’s Disruptor 50 List as well as The Wall Street Journal’s Billion Dollar Startup Club.
The Bottom Line
SoFi’s elimination of the FICO score from its underwriting criteria may mark the beginning of a much larger trend towards a more forward-thinking model in the lending industry. The company will also soon expand its array of products and services by offering wealth management. But it will stay committed to offering viable alternatives for customers who want more for their money than what they get at traditional banks. For more information on SoFi visit www.sofi.com. (For more, see: 10 FinTech Companies to Watch in 2016.)