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Digital finance for millennials, with a focus on student loans

Sector: Futurebank

Armed with a fresh $500 million infusion, SoFi is trying to shake up the world of finance by finding time to mix career coaching and even dating events in with your mortgage payments.

In the past year, most of the financial startups that set out to upend the highly regulated realm of traditional banking have run into roadblocks. Many would-be disrupters are now working for or with traditional banks, as vendors, rather than competing with them. One standout exception is SoFi, the working name for six-year-old alternative lender Social Finance and the startup that currently has the best prospects for transforming itself into a full-service consumer finance company.

“Doing anything disruptive in financial services is very difficult. It requires a lot of capital, patience, and ability to navigate the regulatory requirements,” acknowledges CEO Mike Cagney, a former Wells Fargo trader who co-founded SoFi with three Stanford Business School friends.

His company started life hosting parties for recent graduates of prestigious universities (hence “Social”)–and offering to help them repay their student loans at lower rates (“Finance”). Student loan refinancing remains a big business for the company, which claims 300,000 customers and $20 billion in loans extended; but SoFi also has expanded gradually into other types of financial products, including personal loans, mortgages, wealth-management products, and insurance. 

Now Cagney is trying to figure out how to get regulators’ blessing for SoFi to provide traditional accounts. That’s the holy grail for any startup to fully replace a bank, it has to provide a place for its customers to deposit their paychecks. But the government has been very reluctant to grant such depository charters to nonbanks in recent years.

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