WHEN a financial firm boasts of offering the biggest loans at the lowest rates with the slimmest collateral, it has either devised the underwriting equivalent of a better mousetrap or is setting itself up for an almighty fall. At first glance SoFi, a startup based in San Francisco, looks like it is up to the sort of tricks that would make even a pre-2008 banker blush: lending youthful customers $975,000 to buy a $1m house, say. Yet few “fintech” firms seem quite as threatening to America’s incumbent banks.
Social Finance, as it once was, started life in 2011 as a way to match students who needed money to pay for a degree at Stanford with alumni with lots of dough. Engineering graduates from one of America’s grandest universities, the firm’s founders reasoned, were unlikely to welch on their debts, especially with Silicon Valley booming. That allowed SoFi to price student loans below even the notionally discounted rates available under government schemes, attracting lots of customers. Well-to-do alumni, meanwhile, were happy to lend via SoFi’s platform, understanding what a safe bet the borrowers were. The firm also raised money to invest in its...Continue reading
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