Continuing the recent trend of alternative finance IPOs – leading student finance provider SoFi has announced that it will go public early next year.
The platform is expecting to raise between $200 and $250 million. SoFi is an ascendant marketplace lender and is the largest provider of student loan refinancing. In Q3 the platform refinanced a staggering $350 million of student loans, a number that has shot up 503% from last year. SoFi has now crossed the landmark $1 billion mark and the firm has indicated that it is on track to originate $1.2 billion in student-loan refinances by the end of the year.
Today’s announcement follows on from August’s Lending Club IPO filing – from which the platform intends to raise around $500m; a move that appears to have opened up the floodgates. Only a few weeks earlier OnDeck announced that it was going public in a bid to raise $200m – valuing the company at $1.5 billion. This stream of IPOs is helping to push the alternative finance market into the mainstream, and is garnering media attention from every corner of the globe.
SoFi was in the headlines back in July for the sale of a ground-breaking securitisation. It was one of the first peer-to-peer lending sourced product to be rated by S&P – and it was given a single A rating. The securitisation was sold for $270 million.
SoFi has also announced plans for product expansion. The platform will start making mortgage loans in 5 separate states and the District of Columbia. It started originating mortgages in California in August and is hoping to expand into Massachusetts and New York by the end of year. It sees this as a “multi-billion dollar opportunity”.
SoFi sees moving into the mortgage market as a natural route of expansion. The platform will source mortgage seekers from the same groups of people that generally take out its loan product: “early-stage professionals” for whom rising house prices have put home ownership beyond reach. SoFi’s borrowers are 30 years old on average with an average gross income of $140k. The platform will aim to capture its customers when they transition from paying off their student loans into looking for mortgages. In other words, SoFi is clearly angling to create a more holistic platform that can support young people through successive stages of a typical lifetime. That’s a powerful proposition.
In order to execute this new lending strategy, SoFi is loosening its lending criteria and will require less income and asset documentation for applications. This stands in opposition to traditional lenders, which have instead incorporated more stringent checks into their lending process since the financial crisis. It will offer fixed rate and adjustable-rate mortgages and significantly, an interest-only mortgage that doesn’t require principal payments for the first 10 years. The plan is to sell these mortgages on to banks and retail investors down the line.
Mike Cagney, CEO, indicated that SoFi is now focusing on trying to attract investor attention ahead of its listing. This new product launch helps draw attention to the platform as it now gears up to IPO. Announcing the two moves in tandem is a shrewd move that will inevitably lead to a publicity spike for one of the sector’s most innovative players.