Manifesto for a Bankless World
How to disrupt one of the oldest, most entrenched industries in the world.
What if I told you that traditional banking as we know it is on the way out? Sure, I’d be skeptical too. But hear me out.
It’s an open secret that most consumers don’t exactly have the healthiest relationships with their banks. When it comes to how we’re treated, everyone knows the big banks can be tone-deaf — not to mention antiquated, impersonal and backward-thinking. The truth is: banks are designed to look out for themselves. They’re slow to respond to their customers’ changing needs, and there are very good reasons — hidden fees, impersonal service, a lack of transparency — why people feel downright suspicious of banks as an institution.
When SoFi first started out refinancing student loans at Stanford University, most students turned it down — not because the terms were bad, but because a financial tech startup seemed less trustworthy than a bank. In this industry there are two aspects of trust: 1) can we handle money securely, and 2) do we have members’ best interests in mind (we call our customers “members”). Initially SoFi had to overcome the first issue; now big banks are having trouble overcoming the second.
The big banks have been doing things the same way for so long that they’ve forgotten, or simply don’t care, about evolving to fit customer needs. The problem is that banks try to wring as much profit out of every customer as they can. For people who have less money, this manifests in fees upon fees. For people who have more, they get lots of personal attention from financial advisors who are paid commissions for selling more products, not for recommending solutions that are right for their customers.
I remember when I first heard about SoFi several years ago. I had a friend and classmate from Northwestern University who had refinanced her students loans with the company. She was initially attracted to saving money by paying a lower interest rate, but she was blown away by the great customer service and supporting benefits — like unemployment protection — that SoFi offered. It felt — gasp! — like SoFi actually had her best interests in mind. Hearing a friend whom I deeply trusted extol SoFi’s approach was the proof that I needed, so I joined the company as an employee two years ago. I was inspired by the mission; I wanted to help reinvent consumer financial services. Here’s a list of principles that inspired me then and that still resonate with me today. You might even call it a manifesto.
Only launch products members will benefit from. At some point in the distant past, I’m sure big banks had customers’ interests in mind. But now they suffer from the “that’s how we’ve always done it” syndrome. And even when they do slowly change, the big banks equate “innovation” with “making more money.” This is because their success isn’t bound up with their members’ success. It’s a matter of incentive. Rather than foist the wrong loan products on members in a one-size-fits-all approach, we custom tailor solutions to our members’ needs. For instance: we offer 10% down payment mortgages to creditworthy borrowers because our members told us they wanted to buy homes, but, having just finished paying off student loans, no one else would give them a mortgage.
Lending requires a human approach — not just a mechanized one. As I’ve said, we take a different approach. For starters, we charge no origination fees on our loans. We’ll also put your student loans on hold if you get laid off. That’s right; if you’re a borrower who loses your job through no fault of your own, we pause your payments for up to 12 months, and we actually help you find a job if you need it. We also invite you to events so you can network with other members. Transparency, and responsiveness, and personal service are crucial values because we are literally only successful when our members are. And with 125,000 members so far, we’re doing just fine without rolling out products to people that don’t benefit from them.
In fact, we believe FICO is downright un-transparent and overlooks scores of potential lenders with promising futures.
Transparency is critical — and consumers deserve it. Who gets a loan in a bankless world? That’s easy. Our members spend less money than they make and have a history of paying their bills on time. Period. Our eligibility criteria is transparent, and we use simple language that’s not intimidating or intentionally obscure. We’ve been quite vocal about our dissatisfaction with outdated FICO scores. We believe they don’t tell a person’s entire financial story, and it’s not indicative of how a borrower will behave in the future. In fact, we believe FICO is un-transparent and overlooks tons of potential borrowers with promising futures. We envision a FICO-free world, and we hope you do too.
Empower a community of entrepreneurs. Did you know that 50 percent fewer people are starting businesses today than they did 30 years ago? We want to change that, so we started an entrepreneur program to make it easier and have helped 50 members build their businesses, providing loan deferment until they could improve their cash flow. We got hands on by coaching them and making introductions to investors and advisors. Then we shared their business with the whole SoFi community. Wandering Bear Coffee, a tasty cold-brew coffee delivery service started by a couple of graduate students, is just one powerful example of the program’s success.
Give employees autonomy to tackle problems at lightning speed. Employees at SoFi have a tremendous sense of empowerment. If I see an opportunity, I can propose a plan of attack and receive the resources necessary to tackle it. Because this spirit runs throughout the organization, we’re able to move quickly, listening to our members needs and responding with solutions, launching new products or services in weeks rather than years, as you’d see at a big bank. We measure success by constantly innovating and measuring how we’re helping our members achieve their money, career, and relationship goals.
Ultimately, SoFi’s current and future success is bound up with its members. That dynamic is central to what we do, and it’s the only way we’ll be able to successfully disrupt the banking industry. As my colleague Dan Macklin recently wrote on Medium: Companies that develop a copacetic relationship with their customers will be the true winners of a new bankless world.
If you’re reading this and thinking about your own situation, I’ll leave you with some parting advice: Take action. Inertia is a powerful force, but taking that first step to identify better alternatives, like student loan refinancing or investing your money in low-cost ETFs, will pay huge dividends down the road.