SoFi’s Next Growth Market: Auto Loan Refinancing
Online fintech startup SoFi, which is in the process of going public by merging with special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings Corp. V (NYSE: IPOE), has been aggressively launching new financial products and services in recent years as it builds out a comprehensive portfolio for its customers.
But there is one loan category where it has not yet made many moves: auto loans.
That might be about to change.
Why Partnering With MotoRefi Could Position SoFi for a Massive Market Opportunity
SoFi is preparing to announce a new partnership with MotoRefi, according to Bloomberg. MotoRefi is an auto loan refinancing startup that tries to streamline the entire experience, from finding the best rates to simplifying the documentation process. The startup raised $4.7 million in seed funding back in 2019, followed by another $8.6 million in Series A financing in 2020.
Currently, SoFi’s auto loan refinancing offerings only include referrals through a network of third-party lenders via Lantern, which SoFi acquired in 2019. SoFi exec Jennifer Nuckles told Bloomberg that auto loans are a “consistent request” from SoFi members when asked what additional products they would like.
The company also pointed to internal data that showed that many members have auto loans and could benefit from refinancing with lower rates, making the category an obvious choice to help customers.
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Overall, auto loan debt has been steadily marching higher for years, driven in part by rising new car prices. The average new car price in the United States topped $40,000 in 2020 for the first time, according to Edmunds.
Total outstanding auto loans in the United States hit a record $1.37 trillion in the third quarter, according to the Federal Reserve. Those figures underscore the market opportunity that SoFi is pursuing through the partnership.
MotoRefi reportedly refinanced around $250 million in debt in 2020. SoFi and MotoRefi argue that many consumers are not aware they can refinance auto loans, while it’s fairly common for borrowers to know about mortgage refinancing. The companies see an opportunity in educating members that they can do precisely that—and save money in the process.
SoFi’s Growth Strategy: Expand Into New Products
SoFi announced its merger with the SPAC back in January, and the company made it clear that much of its growth strategy in the years ahead will be predicated on expanding its product portfolio and cross-selling members on additional services.
Multi-product usage leads to better unit economics in the form of lower member acquisition costs and higher variable profit per member. There are currently approximately 400,000 multi-product members, and SoFi is targeting 775,000 by year’s end.
Last month, SoFi launched its first credit card, which offers 2% cash back and structures the rewards program around paying down debt, while also outlining its plans to allow retail investors to participate directly in IPOs, a process that has historically favored large institutional investors.
Disclaimer: Motley Fool Ventures has invested in MotoRefi.