How does SoFi fund loans?
SoFi is making money from loans and securities lending to many other financial institutions through processing fees for debit/card issued by them and insurance policies. SoFi initially started as a lending marketplace that connected students with alums and provided loans at a 0.75% interest rate. But now, they no longer run on this model. They now create loans through their network partners. SoFi, in some cases, uses its collateral to underwrite the loans themselves.
They do monetization of the loans that they issue through a process called “whole loan sales.” They bundle the loans under one agreement and sell them to institutional firms and investors like pension funds. They get a premium upfront from the institutional buyers, enabling them to access the cash flows generated through the loan origination process.
SoFi’s investment product allows customers to do trading of stocks and ETFs. Customers can also purchase crypto and fractional stocks. SoFi makes its money from the investment platform through the modes of securities it lends to other financial organizations that need to borrow shares for clients. They also earn through the FDIC-insured sweep programs. They also generate their revenue through rebates from the makers in the market. SoFi collects 1.25% of the commission for all cryptocurrency purchased through their platform.
Sofi offers renters, homeowners, and auto and life insurance policies. As the insurance business is capital intensive, they partner with other companies to share the risk of its operation. They earn a referral fee every time they send a new customer to one of their insurance partners when they successfully sign up for a policy.
The referral amount will depend on the agreement Sofi has with its partner and the type of policy purchased by the applicant. They also earn on debit/credit card transactions through a collection of fees when the user swipes the card. They also make on the interest on the cash in their client deposits. They loan these funds to other financial institutions and earn interest at an interbank rate. This creates significant revenue for SoFi. Through all these methods, they do the funding of their loans.