Is SoFi Ready to Disrupt Online Banking?

From no monthly account fees to receiving your paycheck two days early, SoFi (SOFI 7.31% ) is building a comprehensive financial ecosystem for its current and potential clients. In this clip from “The Future of Fintech”. Motley Fool Live, taken on February 10thMotley Fool contributors Matt Frankel, Will Healy, and Jason Hall discuss the extent to which SoFi is expanding and how it could disrupt the banking industry and transform customers from more traditional banking institutions.

Matt Frankel: Will SoFi succeed in getting customers to give up their long-held checking accounts? Let me tell you what they offer. In addition to this 1% interest rate, they offer no monthly account fees, large ATM network, 55,000 ATMs will be in the network. Your paycheck is deposited directly two days before payday if you set up a recurring direct deposit, which is a very unique feature. They participate in cashback programs. They advertise local businesses specifically for their cashback programs. No overdraft fee, cover up to $50 Overdraft protection for your account that’s free. Everything is on your phone. Your app is better than anything I’ve seen from most brick and mortar banks. They are doing a great job of getting their name out there. The SuperBowl will soon be played at SoFi Stadium. They do excellent marketing work. But do you think people will actually abandon their checking accounts? Will, we’ll start with you.

Will Healy: I think that one word is slow. The average American has very little savings in their bank account. You won’t notice much of a difference, so I don’t think they’ll switch. 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 important thing here is that I really don’t think they’re explicitly targeting people who’ve been to Bank of America (BAC -1.82% ) or Wells Fargo (WFC -1.37% ) for 10 years or 20 years. I don’t think that’s what they’re aiming for. I think they’re looking for people who might be banking, but they haven’t been there that long, and they’re younger, and they’re tech-savvy, and they’re willing to make that change before they start having everything The other issues with embedding yourself in a bank that gives you no returns and offers limited products and services and has no benefit other than getting you stuck there. I truly believe that is the case. It’s a great message. You will get some on the edges. You’re going to get a few marginal customers, someone older but still tech-savvy enough to be ready, and they’ll blow it all up. But most of them won’t have those deep relationships. It’s just a great marketing campaign.

frankel: This is the switching model lemonade‘S (LMND 8.39% ) use. Get people while they’re young while they’re not very valuable to the big insurance companies. This could be a 50 year customer relationship they can leverage. If someone switches even a low checking account, say they only use it to deposit their paycheck and pay bills and things like that. SoFi now also offers a variety of lending products as it can be a bank ie mortgages, student loans. They offer refinancing loans. They’ve only just started offering home 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 bad at underwriting home loans. It’s such a hassle to get one and I know I’m a real estate investor. SoFi has a brokerage account that people could switch to. They try to be an all-in-one financial system or financial ecosystem for their customers. Insurance products they offer, I mentioned Lemonade, so technically they’re a competitor to Lemonade in a lot of ways. But they offer insurance products, they offer estate planning services, they offer a credit card. Any client who switches could be a 50 year, 60 year relationship if you can make them happy, so I see value in that. I don’t know guys. Any further thoughts on SoFi?

Room: I think it’s execution that matters now, Matt, because it’s one thing to have all these services and work with a banking partner that takes a lot of the risk by taking an outsized chunk of the potential gain there, but for now We also take this risk. So I think it’s really important. What I’m following is that the CEO of the bank they acquired has come and I suspect will be the president of their banking subsidiary. is he really staying I think that will tell me a lot because they need the right people to run this banking business successfully.

Healthy: I think you have to see how the traditional banks will react to this. As you said, customers are persistent, so it will be a slow process, but they are always lagging behind on the technology side and they need to improve there if they are to remain competitive in the long term. You could see that a traditional bank might eventually acquire a fintech to address this. It will be an ongoing story. We’ll just see how it develops.

frankel: I truly believe that all major banks have missed opportunities to acquire some of these fintechs over the past decade before they become a massive threat to their business.

Healthy: Certainly with block (SQ 6.41% ) and PayPal (PYPL 0.89% )this is the case.

frankel: Like someone could have bought it for $5 billion in 2016 and it wouldn’t be a competitor these days. But I mentioned that SoFi was listed by SPAC. They got a huge war chest of cash and they used $750 million of that to capitalize on the bank that they just bought, which is going to be SoFi Bank, and then they use a ton of that for marketing. I don’t know how much it costs to get their name into SoFi Stadium. I know the number, I just don’t have it in front of me. But they spend a lot of money on marketing. I can’t think of any other fintech disruptor that has launched marketing campaigns on the scale of SoFi, not even the big ones like Square and PayPal, so I think it’s worth watching as well.

This article represents the opinion of the author, who may disagree with the “official” endorsement position of a Motley Fool premium advisory service. We are colourful! Challenging an investing thesis — including one of our own — helps us all think critically about investing and make decisions that help us be smarter, happier, and wealthier.

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