February 24, 2017
Online lending service for students SoFi (Social Finance Inc.) is close to raising about $500 million in a funding round expected to be led by private equity firm SilverLake Partners to bolster the expansion of its online lending businesses and personal financial services. The investment round should include several Asian investors like Japan’s SoftBank and others. The new international group will purchase SoFi’s loans as well as take an equity stake. The fundraising round values SoFi at $4.3 billion, higher than its previous valuation of $3.2 billion.
Closely held SoFi started out in 2011 by refinancing student loans. In 2015, San Francisco-based SoFi issued $5 billion in loans. That had grown to more than $15.5 billion by early this year. It’s since chased a much wider vision, expanding into personal loans, mortgages, wealth management and life insurance. Earlier this month, SoFi acquired mobile banking startup Zenbanx for about $100 million. Expansion and scaling to neobanking as complimentary FinTech vertical is a very trendy step right now.
Online student loans represent another very interesting niche. Such players as Affirm and Credible have already started to expand their product lines to provide not only personal loans but student loans too. American public company SoFi, a market leader, actively expands its business model to B2C (not only student loans but mortgages as well) and B2B (Credit Opportunities Fund, created by SoFi, allows institutional and private investors acquire pooled loans from SoFi and other players) segments. The fund has recently sold a portfolio with AAA rating by Moody’s worth $380M, which sounds like an investment opportunity for pension and insurance funds.
However, the size of SoFi makes it unwieldy over time – and it opens doors to such players as CommonBond (which has recently acquired PFM startup Gradible), Affirm, ClimbCredit and Earnest (all of them being approximately the same size). Smaller players follow the leaders – LendKey, Credible and LendEDU, for example, have already launched their student loans’ refinancing programs.
There is a pool of interesting projects focusing on particular needs (and behavioral trends) of some client groups. SelfScore, for example, allows international students to build a credit history in the US by issuing them credit cards – and this is a niche of up to 1M borrowers a year.
Noteworthy, this sector is actively developing only in the US despite the fact that student loans are a burning issue everywhere. Only British Future Finance (has raised $13M in equity and $143M of working capital to finance credit disbursement and expanded to the German market recently), Indian Buddy and Indonesian Cicil (all of them are very small startups) are developing in this field. This is strange considering that people from Singapore, Hong Kong, Japan and Korea spend a considerable amount of money for their education.