SoFi outlook for 2024 with particular attention on interest rate hikes and Tech Platform Growth. Happy Thanksgiving to everyone!

Interest rate hikes can increase the default rate and here are the ways SoFi manages its exposure risk:

1. Personal loans are charged with much higher interest rates than other secured loans.
2. SoFi's personal loan borrowers have a weighted average income of $164,000 and a weighted average FICO of 747. There is a hard cut-off FICO of 680 below which they will not lend. The average borrowers' income and FICO score put them in a safer position than their peers such as Upstart and LendingClub.
3. It uses forward-looking metrics to gauge how likely borrowers will default in the future.
4. SoFi only approves ~25% of the personal loan applications they get.
5. CFO Chris Lapointe stated that they are confident in the selling of loans to third parties which factored in the default rates.
6. On October 30th, SoFi announced an agreement to place a $375 million personal loan securitization exclusively with funds and accounts managed by BlackRock investment advisors which is expected to close mid-November. SoFi has sold over $14.5 billion and securitized over $13.7 billion of personal loan collateral.
7. “In the third quarter, we sold portions of our personal loan and home loans portfolio. In terms of in-period sales execution levels, we sold personal loans at an execution level of 105.1% and we sold home loans at a weighted average execution level of 100.2%. In addition, last week, we executed a $100 million sale of personal loans at a 105.1% execution to the same partner who purchased personal loans in Q3, and we agreed to terms with that same partner for a $2 billion forward flow agreement at similar execution levels.”
8. “The majority (or 94 percent) of economists say the Fed could begin cutting interest rates in 2024, while a smaller share (or 6 percent) expect the Fed to cut rates in 2025 or later, according to Bankrate’s Economic Indicator poll for the third quarter.”

Tech Platform Growth Outlook in 2024:

• The Tech Platform will probably be SoFi's biggest growth segment next year allowing SoFi to possibly become the Amazon of Fintech. AWS is the fastest-growing and most profitable segment of Amazon.
• The biggest hint came from SoFi's official Reddit account which I will reiterate below:
• The fact that u/SoFi decided to post CNBC's video link in the SofiStock subreddit soon after the Q3 2023 earnings release makes me think SoFi is actually trying to HINT TO US that the Technology platform is going to be really big very soon! It will probably play a crucial role in the expected GAAP profitability in the Fourth Quarter.
• It actually makes a lot of sense. There is a need for banks to have efficient payment processing and a modern core to remain competitive and survive. It is so much easier and significantly cheaper to use SoFi's technologies than to build it from the ground up. If you are a big bank or have lots of clients then you would want to use banking technologies from a reputable FINTECH BANK. Not just some technology company that can go belly up!
• From CNBC's video interview with SoFi's CEO on Oct. 30 (SoFi CEO: The bigger driver for Q3 was tech platform and personal loans, not student loans):

Technology Platform –> “The pipeline there is pretty visible and it's the most robust I've seen”

Galileo Financial Technologies –> We're essentially providing and processing debit and ACH processing on the platform with a number of APIs that allow a developer to build just an app on top of it.

We have what's called the core banking platform, which is branded Technisys, which is really an operating system for different products…

About 134 Million accounts and over 8 billion transactions a year.

So what we are seeing in a big way, is traditional banks, large-income banks, looking to upgrade to a modern processor which Galileo is in the cloud, as well as a modern core.

So we've, throughout the quarter have been responding to a number of RFPs from the largest banks in our country as they're evaluating updating that technology.

We're also seeing a lot of demand from other incumbents that wanna switch to us that are not big large banks but they are financial institutions where they have a large amount of payments or direct consumer offerings…

Source: Data Driven Investing articles by Chris Hoeger, Q3 Conference Call Transcript, SoFi's websites, Bankrate Website, and CNBC's video interview with SoFi's CEO on Oct. 30.