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How I learned to stop worrying and love SoFi


The business model of marketplace lender SoFi can sometimes sound like the subject of a grim corporate dystopia. The fintech start-up is not only in the business of selling loans — it wants to bring millennials on board from early adulthood until death, through relationships and home-building.

The online lender is adept in identifying what it calls HENRYs — High Earners, Not Rich Yet — and trying to lock them in for life.

In addition to identifying tomorrow’s 1%, SoFi offers a dating service for borrowers looking for love (once you've taken a student loan refi from a firm, why wouldn't you turn to them for your romantic arrangements?). 

It also originates unsecured consumer loans and has already launched a mortgage platform, aiming to serve its chosen customers throughout their lives. Far from being just another way for people to refinance their student loans, the lender is now indicating that it wants be there for its borrowers through the years, sharing in their hopes and dreams and fears.

At first glance, this sounds terrifying. SoFi’s designated HENRYs, who will be shacking up, marrying, having children and living on until their deaths, are greeted with a nice fat check from their corporate benefactor. But it might be the perfect business model for capturing the loyalty of millennials and tapping into their vast spending power as the largest age demographic in the US.

According to pundits and researchers, millennials are intensely brand loyal, and are less likely than their parents to shop around for loans, mortgages and other financial products.

By introducing itself as a one-stop-shop for future high earners, which it locks in early, SoFi is building loyalty across its customer base. After all, if you’ve refinanced your student loans, met your wife and financed big purchases through SoFi, what's the harm in adding a mortgage or life insurance to the package.

Its members also receive perks and benefits such as help with career planning and investor introduction for entrepreneurs, giving borrowers a feeling of personal loyalty and obligation to the company as well as financial indebtedness.

Of course, this level of engagement with its customers is driven by SoFi collecting a tremendous volume of data, at a time when fears over corporate meddling in people's personal lives is at a fever pitch. But it doesn't look so sinister when compared with say, Google, which continues to command user confidence, even as it monitors internet traffic, emails, telephone contacts and the physical whereabouts of its users.

SoFi in January ticked another generational box when it announced that it no longer factors FICO scores into its loan qualification process.

Instead, the company said that it considers three criteria — employment history, track record of meeting financial obligations and monthly cash flow minus expenses — to determine if an applicant is qualified for its loan products including student loan refinancing, mortgages and personal loans (though FICO scores are still front and centre in ABS pre-sale reports for deals issued by the company).

A survey commissioned by Bankrate and compiled by Princeton Survey Research Associates International in 2014 found that 63% of millennials don't have a credit card. SoFi is grabbing borrowers who have shunned their parents’ generation’s love of cards as a means to take on personal debt.

In the post-crisis era when the quality of the technology at traditional banks continues to lag behind and customer service is widely distrusted by consumers, companies like SoFi will likely continue to look more appealing to the next generation of spenders, even if the business model has to cautiously tread the line between modern convenience and corporate surveillance state.

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