How Does SoFi Make Money?

SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization. 

Origin story

SoFi (Social Finance) is an American online personal finance company founded in 2011 by Mike Cagney, Ian Brady, Dan Macklin, and James Finnigan.

Each of the four founding members met while studying at the Stanford Graduate School of Business. The company was established to provide more affordable options to students taking on high levels of debt to fund their education.

In the ensuing years, SoFi expanded its product range to include a suite of financial services. These services include credit cards, mortgages, personal loans, banking, and investing which can be accessed through an app or desktop interface.

SoFi revenue generation

Although SoFi is generally regarded as a no or low-fee lender, it does make money from a diverse range of sources. To get a better idea of the SoFi business model, it is helpful to consider the following categories.

Lending products 

This includes student, personal, and home loans that can either be issued or refinanced. On occasion, SoFi collaborates with third-party loan issuers such as mortgage lender Zillow.

These loans are monetized through a process called whole loan sales, where loans under management are bundled and then sold by SoFi to an institutional buyer.

Investment platform 

SoFi also offers a zero-brokerage trading platform allowing users to buy and sell ETFs, securities, and cryptocurrency. Company executives accept that SoFi will lose money on the zero-brokerage aspect.

But like similar platforms such as Robinhood, Sofi hopes to make money on interest accrued from customer accounts. It also makes money from securities lent to other institutions and FDIC-insured sweep programs.

Credit and debit cards

Consumers can sign-up for a SoFi-branded debit or credit card, with the former offering a cashback facility for selected partners and providing incentivization for healthy spending habits.

As is the case for many financial institutions, SoFi earns a small amount of interest on the money held in customer accounts. It also collects a payment processing fee of around 1% from the merchant with each transaction.

The company also receives a commission when customers use their SoFi cards to pay for goods or services from partner organizations. Examples include Netflix and food delivery service DoorDash.


Under the banner SoFi Protect, members can purchase home and contents, life, or automobile insurance policies in partnership with other providers.

As a result, SoFi earns a referral fee whenever it sells one of these insurance policies. The fee depends on the policy premium and expected customer lifetime value (duration).

Key takeaways:

  • SoFi is an online lending institution founded in 2011 by four Stanford graduates. The company was created because of a shared vision to provide affordable education loans to students.
  • SoFi now offers a diverse range of financial services, including loans, credit cards, investment services, and insurance. For consumers, the company is generally regarded as a low or no-fee lender. As a result, SoFi generates the bulk of its revenue through interest and referral charges.
  • SoFi also derives revenue via payment processing fees, referral fees, and loan securitization. Furthermore, the company offers FDIC-insured sweep programs for investors, allowing cash balances to be transferred to (and insured by) eligible banking institutions.

Connected Business Models

Wealthfront is an automated Fintech investment platform providing investment, retirement, and cash management products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.
M1 Finance is a North American online trading platform for common and preferred stocks and exchange-traded funds (ETFs). The company also offers margin lending, cash management, and a checking or debit account service. M1 Finance has a standard assortment of revenue streams for an investment platform. As a market maker earns money on the bid-ask spread, M1 Finance also offers a single premium subscription dubbed M1 Plus, and through interest and interchange fees.

Read: Robo-AdvisorsBetterment Business ModelWealthfront Business ModelM1 Finance Business Model.

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