Social Finance has become the prestige brand to beat in consumer fintech. The startup made its name in student loan refinancing by targeting Stanford MBAs, and has since expanded into mortgages, wealth management, and more. Last year, even as a sex scandal engulfed the six-year-old company, SoFi originated $12.9 billion in loans, added 225,000 customers, and turned a profit.
SoFi’s remarkable growth has been driven in part by the capital-markets savvy of cofounder Mike Cagney, who stepped down as CEO in September. The company has also built, in parallel, a powerful marketing engine that captures prime borrowers by combining brand marketing, direct response, and member events. All told, SoFi spent $170 million on marketing in 2017, or $756 to acquire each new customer, according to data obtained by Fast Company and confirmed by the company. This year, SoFi plans to spend $200 million.
Other online lenders targeting prime borrowers, like Lending Club and Prosper, typically spend $350-$450 to acquire each customer, industry experts say. Lenders who specialize in student loan refinancing might pay slightly more, as justified by loan sizes that extend into the six figures. Lenders who target near-prime borrowers, with credit scores under 700, might pay slightly less. For all startup lenders, securing an advantage in a cheap acquisition channel can mean the difference between success and failure–particularly because their cost of capital is high, relative to bank lenders.
SoFi’s marketing budget has not always been so large. Just a few years ago, back in 2015, the company spent $30 million on marketing, shelling out $375 to acquire each of its 80,000 new customers. Marketing spend as a percentage of originations—a popular industry metric—was only 0.6%.
But in 2016, hot on the heels of SoftBank’s $1 billion investment, SoFi quadrupled its marketing budget to $120 million. Acquisition costs also soared, hitting $960 per customer as 125,000 new members signed on. A splashy Super Bowl ad cost the company dearly.
By 2017, acquisition costs had settled to a somewhat more reasonable $756 per customer as SoFi brought its media buying and creative teams in-house. Marketing spend as a percentage of originations clocked in at 1.42%, down slightly from the year prior (and lower than Lending Club by around 1%). The company placed a second Super Bowl ad, but on the relative cheap in an overtime slot. It also ramped up its expansion into mortgage, a lending category known for its higher acquisitions costs.
Through it all, SoFi has stuck to the same strategy: Build an aspirational brand that engenders loyalty, and avoid competing with other lending startups on price. For example, on rate comparison site Credible, which specializes in student loan refinancing, SoFi is conspicuously absent.
“Usually people do some competitive shopping, but they don’t feel that much affinity to the brand,” says SoFi CMO Joanne Bradford. “Our whole thing is, we’re with you. We don’t want to nickel-and-dime. We want you to feel really good about the experience, like you’ve joined a group of people that are on their way to accomplishing something.”
If SoFi can deliver on that feel-good experience, or so the thinking goes, the company will be able to cross-sell its many products and services, and ultimately justify its premium upfront acquisition costs. Cross-selling wealth management to a student refi customer, for example, would allow the company to bypass the $500-plus that some robo-advisors are spending to acquire their customers.
To date, SoFi’s most distinctive marketing tactic has been the events and career services that it offers to its members. In cities across the country, SoFi hosts regular dinners, panel discussions, and wine tastings. In addition, career coaching is available on-demand. Events and services are hard to scale, but they are worth the cost, the company says; members who participate in career coaching, for example, are three times as likely to take another SoFi product, and are also more likely to provide referrals.
But it is direct mail, one of the most expensive acquisition channels, that drives a more significant portion of SoFi’s marketing budget. Each month, the company distributes 15 million mailers. That puts SoFi in the same league as Goldman Sachs, which distributed 178 million pieces of direct mail in 2017 on behalf of its fledgling consumer brand, Marcus.
“We find it efficient,” Bradford says of direct mail, citing the quality of the targeting data. “And we find it efficient when we do television in conjunction with direct mail.”
Up until late last year, SoFi’s expensive marketing machine appeared to at least be delivering high-quality prime borrowers at a reliable clip. But customers missed loan payments at an “unexpectedly high rate” in the fourth quarter of 2017, according to the Wall Street Journal. Newly installed CEO Anthony Noto, who started on the job last week, may have to update the company’s credit models and revisit its marketing strategy in order to get loan performance back on track. He will also have to grapple with rising interest rates, which affect SoFi’s cost of capital.
“Anthony has lots and lots of ideas,” says Bradford. “He’s a passionate believer in really telling your story to customers.”