SoFi Technologies, Inc. (NASDAQ:SOFI) Citi 2022 FinTech Conference November 15, 2022 3:30 PM ET
Company Participants
Anthony Noto – CEO
Conference Call Participants
Ashwin Shirvaikar – Citi
Ashwin Shirvaikar
Let’s get started. I’m Ashwin Shirvaikar, I’m Citi’s Global Head of FinTech Research. Super happy to be here, and it’s fantastic with the two companies we end the day with SoFi and PayPal. And from SoFi, you have Anthony Noto, who is the CEO.
Anthony, thank you for being here.
Anthony Noto
Thank you very much. Yes, absolutely.
Question-and-Answer Session
Q – Ashwin Shirvaikar
I’d like to start with the set question generally sort of a level set investors in the room should be familiar with the Company, but if you could spend maybe a couple of minutes, just kind of a broad overview of SoFi, that’d be great?
Anthony Noto
Sure. SoFi, at the highest level as a consumer financial technology company, our mission is to help our members achieve financial independence, which means they reach the point they have enough money to do what they want, whatever that may be. We’re targeting high achievers that have done well academically, they have done well professionally, and they’re struggling to be able to own the home that they want, live where they want, have the size family they want, have the career retire when they want. They just haven’t been well served by banks.
We think we can uniquely serve them better than anyone has through a digital platform to help them borrow better, save better, spend better, invest better and protect better. We think it’s critical important to provide all those services, so that we can be there for all of the major decisions they make in their financial lives, big decisions as in all the days in between. And we think if we can build that lifetime relationship, we can build trust and liability with the first product which we want all of our products to be best of breed.
So when they want to use a second product, we have a better chance of winning that relationship and continue to drive value for them, which results in superior unit economics and lifetime value. As we’ve built the Company and have built out all these products over the last five years, we’ve run across many companies that said they want to be a one-stop shop, they want to be a complete solution set, and it’s quite hard to build. I’m not aware of anyone that’s actually done it other than us. One of the things that allowed us to do it is that we’re vertically integrated. We’re vertically integrated in loans. We’re going to be vertically integrated in money, as well as credit card on the back of the acquisitions of Galileo and Technisys.
And we eventually will be vertically integrated and invest that allows us to do more personalization, provide better real-time decisioning. It allows us to make our products work better when they’re used together. But it also allows us to really drive the roadmap of technology innovation for the industry. When we’ve partnered with technology companies in the past, regardless of the product, we’ve often found they’re not willing to invest in innovations that we want to drive, that we think are key to differentiation of building best of breed products. And similarly the cost that we would incur to get them to build those technologies, are exorbitant and it’s really hard to be a low cost operator if you’re operating in that type of way.
Not to mention you can’t really own your innovation. So, the acquisitions of Galileo and Technisys and building other technologies position us to not just be, to control the pace of innovation and technology, but to be a low cost operator. Ensure we have best of breed products and because we’re building stuff that the rest of the industry needs, but building it for the Company, that’s going to be the biggest and largest. We’re building technologies that we know they’ll use and we’re happy to allow them to use it to lift the tide for everyone as we try to drive from physical to digital financial services.
Ashwin Shirvaikar
I want to start with one first thing you said customer is, and as we sort of think of that, they may be not well served, but they are higher end and being as it is that macro is such a big part of what investors worry about today. Do you feel like maybe that higher end consumer maybe protects you is makes you a little bit more defensive compared to others? Any changes in behavior?
Anthony Noto
Yes, I think there’s a couple of natural benefits we get out of having this high end consumer, a $100,000 of income or higher well educated, need for broad-based financial services, need for more than what they’d get from traditional banks, but don’t have enough assets to get the high end private wealth management services. One those people are hard to find.
And they do have a higher standard of product experience that they want. They do want a relationship with certified financial planners. So the equation that we build from the value equation we build for them is hard to replicate. And so that is one moat that we’re building around our business.
In addition to that, in periods of financial stress, they’re going to perform better. That doesn’t mean we’re immune to the economic environment. We definitely have the same risk as other people. But we’re underwriting higher credit succeeding and higher, the quality of our unsecured personal loan borrowers at 740 FICO score. Our student loan financing product is over 750, so super high credit, real good attractive income, high needs for financial services. And we try to hold ourselves to standards that will allow our loans to be durable through the cycle.
We made a really tough decision in 2018 when it was still a very bullish market to reduce our lending from mid-teen billions of dollars a year down to single digits. And we did that because we wanted to focus on quality over quantity. And in that process we developed unit economics that would be very attractive, 40% to 50% variable profit per loan through the cycle.
And in order to get there, we had to really improve our pricing, testing our credit, testing our marketing channel, testing our operations, and really get to great unit economics. By the end of 2018, we were delivering 40% to 50% variable profit margin per loan, and we knew that when a deep recession hit and LIFO loan losses increased, those loans would still provide an adequate return whether we kept them ourselves or we sold them.
And that’s helping us in today’s environment. We try to manage our unsecured personal loans to an 8% LIFO loan loss or lower. And we’ve been able to do that since 2018. And in some periods where things got rough, we pulled back to make sure we can maintain that standard. And we’ve been able to do that. We’re below that still today. We expect it to normalize and we’ll make the appropriate changes as it happens.
Ashwin Shirvaikar
The other part of it is just planning for next year. And just from a prudence perspective, are you modifying your planning process as you think of next year sort of a just in case?
Anthony Noto
Yes. I think we’ve lived in a world that no one else has lived in since 2020. Yes. Everyone’s had to navigate working from home in the pandemic and protecting their employees, et cetera. But I think we uniquely got hit with a big external threat in March of 2020 when the President announced appropriately a moratorium on paying federal student loans, and that really hurt our largest and first business and Student Loan Refinancing. We went from generating 2.4 billion origination volume in the fourth quarter of 2019, when fed funds is 1.65% to this most recent quarter generating less than $400 million of originations, so it’s less than 25%.
And the reality of that for the last 2.5, 3 years, is that we’ve had to reallocate resources to other growth areas. I think we’ve proven that we have a pretty diverse business. We built this business to accomplish our mission, which puts the member at the center of what we’re building, which is a one-stop shop. The business benefits are that is that we have a lot of businesses that are pretty diverse. And we can play the game of where can we win the most in a certain environment.
When rates are low, we can win and things like home loans and we can win and things like investing because there’s no yield on checking and savings. When rates are high, we can win and things like checking and savings. We can win and things like personal loans. And so, that diversity has allowed us to overcome the challenge of the last three years of student loans being where they’re at. It’s also forced us to scenario point, when is the student loan moratorium going to end, I think it’s been extended for last count five or six times. But we’ve always had a plan B, C, or D to drive the growth.
And I think one of the things I’m most proud of as a company is not just that we’ve built something no one else is built, where it’s proven to be durable, it’s proven to be diversified. The fact that we’ve hit six record revenue quarters in a row and eight quarters of positive EBITDA despite that punched in the face, so to speak from our largest and most successful business, most differentiated business largest market share business being hit is a testament to what we’ve actually built.
So, as we go into 2023, we can be more optimistic about our position in the marketplace and the growth opportunity ahead of us. And whether student loan moratorium gets extended or not, we’re going to deliver really strong growth if we’re in an economy, that’s what we expect it to be, which is a little bit more dour than today, but not overly dour.
Ashwin Shirvaikar
Understood. Help question, this sort of broad question about your TAM. And where I’m kind of looking at it is, when you consider your target market, people who, 100K or over, it’s about a third of the U.S. population. When you consider the number of members you have, you have what seems like a pretty impressive 10% share of your target market already. I don’t know if that’s the right way to look at it, there’s obviously a crossbar and all that kind of stuff. But how are you thinking of the long-term components of growth, sort of your growth algorithm as you go the next several years?
Anthony Noto
So if we only play in the prime credit market, it’s probably a 40 million home market. I don’t know 125 million homes, which I think is what you’re referring to. But yet remember, a home is not a person, it’s multiple people. So we should have multiples of a home so whether that’s two three or four or people in a home, but anyway, 40 million to 50 million people or more as addressable market for prime.
Now we have many products that appeal to people that are not prime, like our checking and savings account product is a product that anyone can use or invest product that anyone can use, assuming they’re in good standing with the government and know your customer and all the other security things we have to do. Same thing with real life product anyone could use from an economic standpoint.
So we’ll have a really big top of the funnel, but at the end of the day, if we had to 40 million people or the equivalent of 40 million homes, so 80 million people half of that that would be an incredible outcome. So, we’ve barely scratched the surface. And that’s number of members and on top of that, our goal is to be there for every one of the major decisions they make and all the days in between. So our aspiration is to have many products per person.
So, I think about the growth opportunities we have versus other companies I covered as a research analyst covering the internet and media from ’99 through ’07 and then as a banker. And all the companies I’ve seen over the last 20 years, and the financial services sector is by far the most appealing sector and there’s really a couple reasons for it. First, it’s one of the largest parts of our economy. Second, every product we do is digital.
We don’t have to manufacture and ship anything. We don’t have to go to a supplier. And there’s infinite permutations when it becomes digital. There’s infinite permutations of rate and term and so many different ways to differentiate, and it’s an algebra equation. You tell me one variable, and I’ll solve for the other variable to make money against that variable. So it’s a pretty dynamic situation.
We say to our company, the only thing that’s gaining our growth, and we’re growing 50%, six record quarters in a row, is how much money we spend to build awareness to build trust and become a household brand name. When we make people aware of the product, they’re best of breed products, they adopt it, they trust us, they adopt a second product, and that’s what we’re going to keep doing over and over and over for the next many decades.
And so, we barely scratch the surface of what the opportunities in front of us from a consumer standpoint. We also have this technology platform business, and we want to build the AWS of FinTech. Galileo and Technisys are just the first two pieces. There’s a whole pipeline of products and services, we’ll continue to add to drive the ecosystem to be modern in the cloud, be able to use dynamic decisioning and personalization and data.
Ashwin Shirvaikar
Okay. I’ll get into some of those pieces through the course of this conversation. But I’m kind of doing this frequency in terms of what questions I get from investors. So one of the more frequent ones is with regards to the bank charter, and what are reasonable expectations one should have for 2023?
Anthony Noto
Yes. What I’d say first and foremost is that we’ve made a lot of big strategic choices and bets, and the bank license was a highly debated topic and one that was really challenging to get our board comfortable with, and then even more challenging to get through the process with the Federal Reserve and OCC in fact, I wouldn’t be surprised if we don’t see another bank license given out for another decade, especially on the back of some of the financial troubles we’re seeing in the marketplace today.
So it’s an incredibly valuable asset. I couldn’t be happier that we made the decision. It gives us a huge competitive advantage. It gives us lower cost of funding. It gives us the ability to use our deposits to fund our loans, and not be dependent on others for their resources. In addition to that, we can really differentiate our checking savings account. We’ve come out with an interest rate that’s really unmatched in checking of 2.5%. We have 3% on savings.
Not only is it a great interest rate, but it comes with no fees should I early paycheck, the ability to pay any way you want. You can pay with your phone. You can pay with your debit card. You can pay person to person payments. We can do electronic pay. We can even send a check for you. In addition to that, it’s all on your phone and easily integrated with our other products. In one click you could be buying stocks or ETFs off of that platform. You can now set up auto investing off of your direct deposit account.
And so, it’s the center of what we’re doing for our members. It’s the primary account and it’s also driving significant growth in high quality members. So you only get the benefits that I mentioned if you do direct deposit with us. So our deposits total $5 billion. Prior to the bank, we had a billion. So we’ve driven $4 billion for incremental deposits just since opening the bank earlier this year, 80% of those deposits come from direct deposit customers.
So they’re sticky customers, they’re primary customers. We get to see the data on them to help them get their money right. We can see if they have a mortgage that can be refinanced, if they have student loans or credit cards that can be consolidated into a personal loan. We can see if they’re overrunning their budget, need to talk to a certified financial planner, or if they’re sitting on a bunch of cash that should be invested to be compounding. So it’s really critical to the overall strategy.
In addition to what I just mentioned, it’s also a good revenue product because when they do direct deposit, they spend with their debit card. And our annualized spending now is in the billions of dollars, many billions of dollars in growing quite fast. So the bank charter really solidified our strategy in building that trust relationship to then generate cross buying from there and driving more products per person as well.
And so, there’s absolutely a funding benefit. That’s just priceless in this marketplace. We’re funding liquidity you’re going to be at a premium in addition to allow us to execute the rest of our strategy.
Ashwin Shirvaikar
Let’s look at some segments. So starting with lending and personal growth, personal loans obviously done fantastic this year, you’ve done this a few years, you know that investors often get nervous about growth and growth. And it becomes — this is not a tough comp kind of question. So as we sort of think of personal loan growth in the future, what drives that is it more the cross buys it more new members so?
Anthony Noto
Personal loans, only about 25% to 30% of our personas are cross-buy. Now, that’s actually giving us great efficiency and marketing costs and driving significant savings, and customer acquisition costs. But that product is very differentiated, we have very small share, but we’ve gained a lot we’re about a 6% market share in our demographic, so 680 in higher FICO score, unsecured personal loan market, where about 6% share, it’s up from about 4.5% share a year ago.
We think it’s a very differentiated product, you can apply and be approved relatively quickly, we have time to apply to fund down to two days, which is really hard to match. We also do sizable loans. The average is about $3,000. We provide a lot of flexibility in terms of term. And we give you additional benefits if you’re willing to do auto pay and direct deposit as well to make the product work better together.
So in this environment, people are consolidating their debt, they’re terming it out over a period of time, instead of letting it revolve at a fixed rate. So it’s a really attractive product. And our growth areas really just limited by how much we want to grow it. And right now, we’re being pretty smart and prudent about how fast that we’re growing it relative to the risk. One thing we’re committed to is our credit box and making sure we keep our level of losses at 8% or lower, we’ve been well below that level. We do expect it to normalize up to that level.
And if we get into a really tough recession next year, we’re forecasting about a 1% to 3% decline in GDP, which in this environment, we think we can still operate in pretty well. But if it gets much more dour than that, and unemployment gets into the 5% plus range, and we have GDP contraction in the mid-single to high-single-digits. We’ll likely have to underwrite less than that business and reallocate to other businesses that make up for it. But we’ll get our growth thereby, how much risk we want to take, overall, from a portfolio standpoint, always limiting the LIFO loan losses to 8% or lower.
Ashwin Shirvaikar
The yields of those personal loans, is it primarily that consolidation is that change overcome?
Anthony Noto
It’s also home improvement, it’s also solar installation, it’s also bridge loans for events of people’s lives but the largest percentages, is that consolidation.
Ashwin Shirvaikar
Have you provided the breakout of usage or time or?
Anthony Noto
We asked the question when people apply, we could share the numbers we’ve talked about before.
Ashwin Shirvaikar
Okay. On student loans, and last year, you saw a head of the moratorium supposedly ending there was a lift. I don’t know how many times that can happen with behavior. I mean, are you expecting that kind of lift now or people sort of?
Anthony Noto
Yes, everyday, the environment changes. If the moratorium ends on January 1, which remains a big lift until we get there. We anticipate there will be a lift in December, which is what we saw last year. As I mentioned, we were doing about 2.4 billion in the fourth quarter of 2019. We still think there’s a really big TAM with rates up as high as they are now. It’s a $200 billion of TAM that people would save in student loan financing in our credit box today. And so, we think we can get back to the high ones low twos on a normalized basis when payments resume.
We also think and we’ve seen this in personal loans, that there will be a fair amount of the population that have not refinanced in the past. They’ve been waiting to see if they get forgiveness. They now know if they’re getting it or not based on what was announced, the courts are now debating that, whether it was something that President had the authority to do or not, but let’s assume for a second, he did.
People know what they’re getting into what would be forgiven at most $10,000. Most of our members are over the limit of $180,000, so won’t apply to them. Even if they can’t save on the interest rate, we think there will be a high propensity of people to term out that loan over a longer time period to lower their monthly expense, they could still pay the full principal amount they were paying before if they want, but it gives them the option to pay less on a per month basis.
The thing that’s interesting about the Student Loan Refinancing product is, if they’re let’s say their rate right now and that is 5% and they can’t get better than 5%, they’re getting that 5.5%. It’s maybe in their interest to refinance it at a higher rate, term out over 10 or 15 years, so their monthly payment is low, so they can kind of afford the higher inflation environment that we’re in.
And a year from now year and a half now, when rates are coming back down, they can refinance without any additional cost. There’s, unlike a mortgage, there’s no closing cost, there’s no title insurance, it really cost them nothing to refinance loan, we don’t charge fees, and there’s not like a big cumbersome closing process they have to go through. So it’s almost a frictionless option for them to refinance and lower that cost over time.
They could still pay back at the same rate they were before but have the optionality if they’re short relative to the cost that we’re seeing in the environment, they could have more discretionary spending. So, regardless of what happens, I think there’ll be incremental demand. The question is, does it get all the way back to about $2 billion a quarter, and I think, if it resumes in January, it does. If it doesn’t, it’s somewhere in between.
Ashwin Shirvaikar
And then the last part of it for home loans, as you can look at that, high interest rates seem to have the intended effect here. The question is, you also have some other factors, fulfillment issues, and so on. Where do we stand there, if we could kind of walk through?
Anthony Noto
We’re clearly in a purchase market to be in a purchase market, you have to have time to fun now. We want to get to 30 days. That requires great operations in the backend. We have partners in the backend, they’re not performing at the level that they need to. And we really need to own the backend. And so we’re evaluating different options for small purchases of technology and processes allow us to own end to end.
So I’d say that the home loan business is something we definitely want to be in. It’s one of the most important decisions our members will make in their financial lives. It’s a hugely emotional decision. We want to be there for them. But we have to deliver the product on time when someone’s buying a home and not be late. And so the team’s working really hard on optimizing that.
We’ve made great progress since August. And I feel like we’re coming out of the bottom of that, but we have a long way to go for it to be a major contributor to the performance of the business. So, 2023 will be a year of investment and rebuilding, but I’m optimistic about where we’re going to be.
Ashwin Shirvaikar
Okay. Just moving to the technology segment. If you could kind of talk about the vision of that sort of we put Galileo with Technisys together, you have now how you talk to the more recent call about B2B opportunity. A year from now, three years from now, how does it product look?
Anthony Noto
Yes, I mean, Galileo was going through a huge investment. It’s modern in the cloud. 99% of the authorizations we have are being processed in the cloud. And that is a hurricane goal that the team achieved with no small feat. We’ve maintained great SLAs for our partners during that whole transition of moving from on-prem into the cloud. We’re deploying code faster. We have a great pipeline.
I couldn’t be happier with the technology, stability, robustness, redundancy, and pace of innovation we have in the business right now. I think it’s second to none from a technology standpoint, an innovation standpoint. We’re running over our competition, whether it’s incumbent processors or new modern self-proclaimed modern in the cloud processors. We’re really taking share across this consumer segment and the B2B segment. And I expect us with Technisys to be very differentiated, continue to win big relationships.
There are incumbents that have relationships with older technologies, and it’s not a question of whether our technology is better or a lower cost solution. It’s a question of when they’re willing to make the change from an older technology that’s siloed. So, we’re in discussions with large banks that we’ve never been in discussions with before, because we have a complete end solution. I think we’re in the pole position to win those big financial institutions, big bank deals, but it really is going to come down to when they decide to make the transition.
We’re also in discussion with large consumer companies that want to be in the financial services sector that may — that have big installed bases that have partnerships that are pretty fragmented, that could be consolidated with Galileo and with Technisys, as well as a lot of the products that SoFi’s built. So, I think we’re in a really strong position. LatAm, Technisys has done a phenomenal job with traditional finance institutions and now Galileo’s in those discussions. And in the U.S. Galileo’s partners are in discussions with Technisys.
Ashwin Shirvaikar
Okay. Should investors worry about many investors think of the Galileo base of clients? There are a number of neobanks in there. And that’s not particularly attractive in market right now. There is a sense that there was a lot of over investment that went in many of your clients went back the same end client base. How are you thinking of that? Is that sort of a risk? Or are there components where you can kind of say to particular clients, I can help you?
Anthony Noto
Yes. I would say the financial stability of our top customers is pretty strong. I mean, we do have partners that we worry about. I do think there will be entities that will have to pull back, but the sort of vast majority of our biggest customers are in really good shape. And those that aren’t, we think we can replace with new customers or new products. The dimensions of growth for us at Galileo are the existing partners’ growth and accounts, which has been quite strong in driving that.
In addition to that growth, it’s us selling in new products against that installed base, which is quite promising. In addition to adding entirely new customers, not just in the consumer segment, but also in the business segment. And last quarter we announced almost half of our new partners were B2B. Many of the B2B partners have installed bases. So that time to revenue is very short just a matter of integration. And we see more and more businesses coming to us as their awareness of the platform that we provide increases.
And we have a pretty big robust pipeline with Galileo and Technisys. In fact, the first product that we’ll launch that was built on Galileo and Technisys is Pay-in-4. It’s a partnership with MasterCard. It’ll launch on SoFi first. We’ll pre-approve you for a line. Let’s say, it’s $500, we’ll give you a virtual card. You can use that virtual card as much as you want. And every time that you use it, that amount that you’re financing with that card is paid off in four payments, one at the beginning and then three subsequent payments.
And that’s a product that will launch at SoFi. It’s a great additional credit product for our members. We’ll only offer to direct deposit customers again, so we’ll have great information about them. But we’ll also offer that to all Galileo’s partners. And it’s a much better product for Galileo’s partners than SpotMe or Overdraft. It’s a product where the consumers actually not paying an interest rate.
The merchant’s paying a percentage point that the Company is getting, they are clearly taking credit risk, they decide how much to underwrite with a $100 or $500 or $1000. It’s knowable, especially for the direct deposit customers. So, we think it’s a really good offering that will drive incremental revenue for us, based on who takes that product, but I think it’s a much better product and Galileo’s partners are currently offering to their members from a lending standpoint.
Ashwin Shirvaikar
Right. So just to clarify, this is automatic BNPL?
Anthony Noto
It’s automatic. So today, we’ll just say with SoFi so far you have a credit card, and you have a debit card. And we’ll pre-approve with an offering remember home feed that says asked when you’ve been pre approved for $1,000 paying for. When you use it, let’s say you use that card to buy something for $200, you’ll pay one quarter of that $100 upon that point and then the other three out of your debit account.
And the other three payments will be debited against your debit account over a periodic period of time, and it’ll just be automatic. You pay no interest way the provider of that card. So if it makes money is on the interchange, that MasterCard is negotiated with all the people that accept MasterCard. So, there’s no need for us to go sell into retail, there’s no real need for us to go sell to manufacturers who are instantly available everywhere.
Ashwin Shirvaikar
Right. Is it a seemed like an odd question? Is it a business banking opportunity as you kind of look at?
Anthony Noto
Yes, just not today, but there’s a clear opportunity for SoFi to do what it’s doing consumer for businesses. So someday we’d like to offer small medium businesses, a checking account, a savings account, treasurer account, ability to borrow money from us the ability to invest with us all the things that small medium businesses need. All the technology that we’re building is technology that can be used for small medium businesses.
We have such a huge opportunity consumer. We’re focused on that today. But we will plant seeds in 2023 that will grow in ’24, ’25 and ’26 to add on to the growth rate that we have in small medium businesses, absolutely one area we’ll go into. But we need to continue to show the regulators how well we can do in consumer before we ask for the permission to add other products like SMB lending and SMB checking and savings. There’s a lot of demand for it. We get requests every day.
Ashwin Shirvaikar
Just going back to the Technisys question, you had sort of multiyear, multilevel synergies that will promise. Where is then with me now you’re on track what needs to be done?
Anthony Noto
Yes, we still believe the synergies we have lateral achievable. We’re to the point now where a go to market on both Technisys and Galileo and them together as being executed and the feedback that we’re getting from our partners is quite positive. A big piece of the of the synergies is also moving, checking, and savings onto Technisys is core offered the current core and I’m excited about that, in addition to the credit card processing, and the core on to Technisys. So some of the cost savings is just us bringing it in-house, which will be phenomenal once it’s done.
Ashwin Shirvaikar
Okay. And does that mean that you have you also convert a long list of clients or is that?
Anthony Noto
We do what we just were — we’ve actually done it three times, we’re pretty capable of doing it. And because we own our ledger, it’s not that hard of a challenge. If you don’t own your ledger come really challenging.
Ashwin Shirvaikar
Got it. So moving to the financial services segment, obviously many elements to that, and you had strong momentum in your deposit growth. Sort of partially answered this question earlier, but what keeps that deposit growth going? The strong APY helps is that essentially, what I’m asking is what’s the differentiator that it would rate your experience to that as simple as that?
Anthony Noto
Yes, we tried to differentiate each one of our products on five things. First is fast, the fastest place to apply, the fastest place to move money, whatever it is, we want it to be the fastest, the set fast place to pay a bill, etc. Second thing is selection. What does that mean? That means, what are the features and functionalities, that is added on top of that. The interest rate is part of selection, the ability of joints accounts, custodial accounts. The ability to do bill pay, ability to do person to person payments, ability to pay with your debit card or with your phone, wire transfers, remittance, etc. That’s all part of selection, content and convenience of the other two elements.
The convenience element often is not appreciated because people think it’s just about having at your fingertips. But it’s also how convenient is it to use that checking and savings account with your SoFi brokerage account or paying your loan or applying for a new product. And we’re constantly working on those things. But it’s also making it super convenient when you have a question. They ask the question through chat or through email, or when you call in having that person answer all your questions not just about SoFi checking your savings.
And the rate is a big headline thing that gets people interested in they see the all the rest of the benefits that are there. As an example, most people don’t realize this but with SoFi checking and savings, we give you reward points, we give you reward points for setting up direct deposit we give you reward points for coming to the app, we get reward points for doing bill pay, we give you reward points for doing person to person payments, those reward points are redeemable into any of our other products. So, the product itself sits in an ecosystem that makes it more valuable as part of the ecosystem in addition to itself.
And the last point I’d make is. I don’t believe anyone can compete with us on rate. We’re not even close to the highest rate we could offer and still be better off than are other choices. So right now we’re offering 3% on savings and 2.5% on checking. I don’t know anyone that’s offering more than 1% on checking. So that’s a very attractive rate. How can we afford to do that? Well, we used to pay primarily banks to use the warehouse lines to fund our loans.
Now we’re paying consumers two and a half percent to fund the roads. Well, the warehouse lines are at 5%. So we’re actually paying the consumers half at 2.5%, what we’d be paying for the warehouse lines. Now sometimes we still use the warehouse lines, because we are deposit grown very fast, but it doesn’t fund all of our loans. So, we have a lot of ability to raise that rate, in addition to all the other benefits that we have. So I feel like we have a huge competitive advantage that will be hard for others to match, including the big banks do not offer interest rate on checking. That’s significant.
Ashwin Shirvaikar
It makes a difference. I know people on my team will switch. So how should we think about the non-interest income in this segment?
Anthony Noto
Yes, we do have interchange, as I mentioned, the debit spending is growing very fast because of direct deposit. And our run rate, annualized run rate is probably meaningful there. And that’s an incremental revenue stream, that’s high margin.
Ashwin Shirvaikar
And look at all the pieces that have been on an investment tear for multiple years. As a tech analyst, asking a tech company is all the investment done sounds very weird, but I want to ask it anyway?
Anthony Noto
Yes, no. I mean, we’ve said, since we’ve started talking to investors, we want to be disciplined investors, we want to build durable growth, we want to compound growth for years, that requires that we’re disciplined and every incremental dollar year-over-year in revenue, we want to reinvest 70% of the back in the business and drop 3% of the bottom line.
Our long term EBITDA margins, we think are 30 plus percent by dropping 30% of overall revenue to the bottom line, it reinforces the path to that 30% and the 70% allows us not to shortchange the investments that we can make in the business with this wide open growth opportunity in front of us.
So we can continue to compound that 35 plus percent, for a long period of time. And I think the things that are in front of us are artists for the taking. We just have to keep on the strategy that we’re executing on. It’s a matter of becoming a household brand name and building awareness and trial and keep innovating faster than the next person which we’re doing. So, we’re super excited about it.
Ashwin Shirvaikar
Okay. And the 30% incremental margin, that commitment that stays that year in, year out, it’s going to be there.
Anthony Noto
That’s our goal. If the — if something like the pandemic happens again or something else where there’s a significant change in the economy that’s dire and it’s existential, we may have to change that. But in a normalized environment, that’s what we’d like to do through the cycle.
Ashwin Shirvaikar
Okay. We’re almost out of time here. Any closing comments, is there something you want to say to the audience?
Anthony Noto
I would just say a couple of other things. Like at the heart of what we do is technology. We don’t build buildings, we don’t put pillars up. We don’t have people staying behind us, and the technology piece of what we do is not trivial. It’s a huge differentiator. It’s what brings the product to life. And it’s not just that individual features and functions of that technology. It’s the experience we’re trying to build in the app.
And we don’t talk about this very often, because we’re in a environment where we could have a recession. We have unprecedented inflation. We have potential continuous rate hikes. And so, everyone focuses on the financial elementals of it, which I would be doing as well. But what can’t be missed in our journey is that we’re building an app that is very personalized, that has a member home feed.
And in that member home feed we’re trying to answer for you in a personalized way, three questions every day. What must you do in that your financial life that day? What should you do and what can you do? And we’re using all the information we have on you and all the information we have on other people like you to program that feed, to answer those three questions in a personalized way.
And not only is the technology that we’re using creating an app that could be a daily app, not one that you just use when you want to pay a bill where you want to check a balance, but that you go to every day. The way you go to Facebook every day to see your friends are doing, or LinkedIn to see what’s happening in the business world or Twitter to what’s happening in the news world or to TikTok to be entertained.
When we have you coming back every day, we have more chances to build trust and liability with you, to educate you, to have you understand those three choices that you have. And as that happens, we’ll build network effects and those network effects will make us better and better and really hard to catch. So building out the class of products is step one. Building out the underlying technology is step two.
That manifests itself in an experience that’s going to be unmatched in financial services. And that’s what will give us license to go even beyond traditional financial services products. We talk about borrowing as opposed to personal loans and student loans internally. We talk about savings, we talk about spending, we talk about investing, we talk about protecting. We’re not using the industry of parlance because we don’t want to think about the industry’s products. We want to think about those activities.
So when we say we want to help you spend better, it’s not just by giving you a credit card or a debit card or paying for or bill pay or person to person payments or Fed now or remittance. It’s also being able to buy things cheaper. So one of the things that we’re really excited about is something called SoFi Travel. We’ll have the ability to white label for you through our brand SoFi Travel, the ability to get travel at discounted prices and not just buy in our app better, travel, but also to use your reward points on top of the discount that’s already there and build more reward points, if you use your SoFi products to buy.
In 2023 will be a year where we start to plant these seeds that go beyond just the simple financial products into these verbs that we’re talking about spending and investing in a much bigger and differentiated way. So, we’re super excited about.
Ashwin Shirvaikar
Looking forward to it. Thank you for insights.
Anthony Noto
Great. Thanks.
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