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Is SoFi about to disrupt online banking?

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From no monthly account fees to getting your paycheck two days sooner, SoFi (NASDAQ: SOFI) sets up a complete financial ecosystem for its current and potential customers. In this clip from “The Future of Fintech” on Motley Fool Live, recorded on February 10Motley Fool contributors Matt Frankel, Will Healy and Jason Hall discuss the scale at which SoFi is growing and analyze how it could disrupt the banking industry and convert customers from more traditional banking institutions.

Matt Frankel: Will SoFi be successful in getting customers to ditch their long-standing checking accounts? Let me tell you what they offer. In addition to this 1% interest rate, they offer no monthly account fees, a large network of ATMs, 55,000 ATMs will be networked. Their paycheck will be directly deposited two days before payday if they set up recurring direct deposit, which is a very unique feature. They are in cashback programs. They woo local businesses specifically for their cash back programs. Free overdraft, cover up to $50 of overdraft protection for your account, it’s free. It’s all on your phone. Their app is better than anything I’ve seen from most physical banks. They do a great job of getting their name out there. The SuperBowl is about to be played at SoFi Stadium. They do a great job of marketing. But, do you think people will actually give up their checking accounts? Will, we’ll start with you.

Will Healy: I guess the only word is slowly. The average American has very little savings in their account. They won’t see much difference, so I don’t think they will change. But, if you’re talking about the investor like you said with $50,000 in an account, they’re going to take a closer look at a company like SoFi.

Jason Hall: I think the most important thing here is that I really don’t believe they are explicitly targeting people who have been to Bank of America (NYSE: BAC) Where Wells Fargo (NYSE: WFC) for 10 years or 20 years. I don’t think they’re picking on them. I think they go after people who might have a banking relationship, but they haven’t been around that long, and they’re younger, and they’re tech-savvy, and they’re ready to make that change before you start having all the other problems of fitting into a bank that gives you no returns and offers limited products and services, and has no other benefits other than you being stuck there. I truly believe that is the case. It’s a great message. They will have some on the sidelines. They’re going to have fringe customers, someone who’s older but still tech savvy enough to be willing to do this and they blow it all up. But most of them won’t have those deep relationships. It’s just a big marketing campaign.

Frankel: This is the switching pattern that Lemonadeit’s (NYSE: LMND) using. Attract people while they are young when they are not very valuable to big insurance companies. It could be a 50-year customer relationship that they can leverage. If someone changes even a low balance checking account, let’s say they’re just using it to get their paycheck deposited and pay bills and things like that. SoFi also offers a variety of loan products that are now self-contained, as it can be a bank, i.e. mortgages, student loans. They offer refinance loans. They just started offering investment real estate loans which, by the way, if they can find a way to do it better than most lenders, it’s a huge market right now because most lenders are terrible at underwriting real estate investment loans. It’s so complicated to get one, and I know I’m a real estate investor. SoFi has a brokerage account that people can switch to. They try to be an all-in-one financial system or financial ecosystem for their customers. The insurance products they offer, I mentioned Lemonade, so technically they are a competitor to Lemonade in many ways. But, they offer insurance products, they offer estate planning services, they offer a credit card. Every customer that changes, it could be a 50 year, 60 year relationship, if they can keep them happy, that’s where I see the value. I don’t know, guys. Other opinions on SoFi?

Hall: I think it comes down to execution right now, Matt, because it’s one thing to have all of these services and to work with a banking partner that takes on a lot of the risk taking an outsized share of the profit potential, but now you’re also taking that risk. So I think it’s really important. What I am is that the CEO of the bank they acquired has arrived and he will be, I assume, the president of their bank subsidiary. Does he really stay? I think that will tell me a lot because they need the right people to run this banking business to be successful.

Healy: I think we have to see how the traditional banks will react to this. Like you said, customers are sticky, so it’s going to be a slow process, but they’ve always been behind on the technology side, and they’re going to have to improve if they’re going to stay competitive over time. You could see a traditional bank eventually take over a fintech to solve this problem. It’s going to be an ongoing story. We’ll just see how it goes.

Frankel: I really think all the big banks have missed opportunities over the last decade to take control of some of these fintechs before they become massive threats to their business.

Healy: certainly with To block (NYSE:SQ) and PayPal (NASDAQ: PYPL)it’s the case.

Frankel: As if someone could have acquired them in 2016 for $5 billion and it wouldn’t be a competitor these days. But, I mentioned that SoFi went public through SPAC. They got a huge cash war chest, and they used $750 million of it to capitalize the bank they just bought, which will be SoFi Bank, and then they use a ton of it for marketing. I don’t know how much it costs to get their name on SoFi Stadium. I know the number, I don’t have it in front of me. But, they spend a lot on marketing. I can’t remember any other fintech disruptors launching SoFi-scale marketing campaigns, even the big ones like Square and PayPal, so I think that’s something worth watching as well.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.