Welcome, everyone, to the UBS Global Technology and AI Conference. We're very happy today to have with us the team from SoFi. Up on stage with us today is Chris Lapointe. Chris is the CFO of SoFi. Really appreciate you making the trip, Chris.
Awesome. Thanks for having me, Tim.
All right. We've got a great lineup of topics that we're going to attempt to cover in the 30 minutes that we have here. We're going to start with talking a little bit about loan origination trends. Then we're going to get into some more kind of Q4 quarter-to-date and more looking into the near-term revenue outlook. Then we'll break it into some of the three kind of subsegments. We'll talk a little bit about lending. We'll hit financial services. We'll hit the tech platform and Galileo. And then we'll wrap up with some more sort of financial results type of questions if we have time. So with that, Chris, why don't we kick things off and talk around loan origination volumes that were pretty strong in Q3, both on the student loan side and the home loan side. Over to you.
Yeah, absolutely. So what I would say is we've had really good momentum in terms of originations throughout 2024 year to date. But as a reminder, our overall outlook on the pace of growth of our balance sheet has remained unchanged at seeing modest growth in nominal dollar terms for the year. We've been able to maintain that outlook and still deliver really good returns across all three of our asset classes that we originate. We've been able to achieve record revenue in several quarters. We've also been able to achieve 20%-30% annual revenue growth over the course of the year. In terms of how we think about the pace of originations in any given period, it's a function of a number of things. First, it's a function of the demand that we have from a credit buyer perspective.
It's a function of where rates are, where credit spreads are, where losses are trending. And what I would say is throughout the course of 2024 and the last 12 months specifically, we've seen really, really good demand from a capital markets and credit buyer perspective, probably the best that we've seen over the course of the last several years. Over the last 12 months, we've sold over $6 billion in loans across all three of our products. And that doesn't include the $1 billion of originations that we did on behalf of others as we expanded our loan platform business this past quarter in Q3. In addition to that, we're seeing a really good trajectory in our overall delinquencies and losses.
That, coupled with robust capital ratios at north of 16% relative to a regulatory minimum of 10.5%, has enabled us to scale originations at the pace that we have throughout the year. In Q3, we ended up doing record originations at $6.3 billion. We had record personal loan originations at $4.9 billion. We had our best quarter in student loans since Q1 of 2022. And we had our best quarter in mortgages since 2021. Overall, really good momentum while sticking to our overall outlook for the balance sheet size.
Thank you, Chris. That's a great update on the loan origination trends. With that, would you be able to provide some initial thoughts into 2025 and some of the opportunities that you see ahead?
Yeah. What I would say is our overall outlook on scaling the balance sheet has remained unchanged. But given all the factors that I just mentioned with the appetite from credit buyers, as well as loss trends that we're seeing, gives us confidence in being able to continue to originate at a healthy level across all three of our products. I think breaking it down in each of the products, I think our home loans business provides us with ample opportunity. Right now, we're less than 0.1% of the overall market. But there's significant opportunity, particularly as rates start to come down. And we're now in market with a more robust product set. We now offer home loan refis, purchase, home equity lines of credit, and home equity loans.
And there's ample opportunity, and I would originate as much as I could, just given the capital markets dynamic there where there's an automatic takeout as long as we're underwriting to the specific formula. The other compelling fact in our home loans business is that less than 2% of all mortgages that are taken out by our SoFi members are taken out with SoFi. So there's ample opportunity, even within our existing installed base, where we wouldn't have to pay a second customer acquisition cost to scale this business with our members. On the student loan refinancing side and in-school loans, right now we're originating at less than half of where we were back in 2019, when we were originating on average about $1.7 billion per quarter, and we peaked out at $2.4 billion. I think as rates come down, there's ample opportunity there.
We estimate the total addressable market right now is at about $280 billion in our credit box and where we can price these loans, so I expect that to be a good tailwind for us in 2025. And then on the personal loan front, like I said, record originations last quarter as a result of the significant expansion of our loan platform business where we're originating on behalf of others. We are happy with where the balance sheet size is for personal loans right now, but given the dynamic that we're seeing from credit buyers, I would expect to be able to continue to originate at a very healthy clip in 2025.
All right. Thank you, Chris. That's encouraging. Let's talk a little bit about Q4, kind of quarter-to-date and the recent updates. So the fiscal 2024 guidance was raised pretty much across the board: revenue, Adjusted EBITDA, getting to GAAP profitability. Lending was a big driver of this increased outlook. Now it's expected to be at levels kind of more similar to 2023. Maybe talk a little bit about that lending strength, but also the increasing mix that you're expecting for financial services and technology platform in your revenue mix.
Yeah. What I would say is we're really happy with the momentum that we're seeing outside of our lending products in terms of revenue growth in Q3. Our technology platform and financial services segments comprised 49% of the overall total adjusted net revenue in the quarter. As a reminder, we had guided the street to having about 50% of revenue coming from those two segments and 50% coming from lending. So we're well on pace to do that. Where we're seeing really good momentum in financial services continues to be in net interest income that grew meaningfully as a result of growth that we had in deposits in Q3. We ended up adding over $2.4 billion of member deposits in the quarter.
We're also seeing really good momentum in non-interest income, which was up over 100% year- over- year, or over 200% year- over- year, driven primarily by our loan platform business as well as interchange growth. Interchange, we expect to continue to grow heading into 2025. We saw annualized spend levels in the $12 billion range in Q3, and that continues to grow quite meaningfully. What I would say is the overall growth looking forward in financial services is going to be a two-pronged approach, where we're going to continue to see really good momentum and growth in terms of number of new product adds each quarter. In Q3, we ended up adding growth of 40% year- over- year in new products. That's excluding crypto. Then the other prong is in terms of overall monetization.
Right now in financial services, we're generating about $81 of annualized revenue per product, and we expect to continue to expand that monetization, so continued growth for years to come in terms of number of products, as well as overall monetization. In tech platform, we're really opportunistic. We feel really good about where things stand with potential customers. We haven't lost any deals, and the pipeline is as robust as it's been in terms of the client selection process, so we feel good about the continued momentum, both on the processing side as well as new deals that we're signing, both in the bank side as well as other larger consumer brands, and then in lending, we talked about and already hit on, we expect continued momentum in originations across all three products.
Perfect, Chris. Thank you. And before we move into a little bit of a deeper dive on the three segments, you mentioned tech platforms. So let's just hit it. So one of your competitors for Galileo has mentioned a little bit of insourcing across some of their clients. And we talked about this on stage earlier with Marqeta. If you could just talk a little bit about what you're seeing in terms of either timing delays and/or insourcing, if this is a theme or anything that you're seeing in the business.
No, we haven't seen anything in terms of timing delays and no issues with our sponsor banks. As a reminder, Galileo is regulated via our holding company by the Federal Reserve. But to answer your question directly, we have not seen any issues.
Okay. All right. Thank you, Chris. All right. I said we'd go into a little bit of each of the segments. So we'll start with some comments on lending. So strong net interest income, strong NIM, deposits have grown. Maybe you could talk a little bit about the outlook there.
Yeah. So in terms of the overall outlook for our net interest margin, what I would say is we expect to maintain healthy NIM margins at north of 5%. That's obviously a function of a few things. First, it's a function of our overall loan pricing betas, where historically we've been successful in maintaining really healthy betas, even in declining rate environments, where we've been able to maintain or even increase the weighted average coupon of the portfolio, which has helped keep really strong yields across our asset base. Then the other component is on our overall cost of funds, which continues to improve year- over- year. Sequentially, our overall cost of funds was down this past quarter, which helped us generate a net interest margin of north of 5.6%. Like I said, we expect to stay north of 5%.
We still have opportunity to improve as it relates to cost of funds. We still have a little bit of warehouse debt that's outstanding, as well as some brokered CDs. And that will continue to drive the overall margins there. So net net, we feel great about the net interest margins that we're delivering. But it's a function of our ability to maintain pricing on the loan side and continue to improve our cost of funds.
Okay. Great. A follow-up related to that in terms of cost of funds. So funding mix. So deposits are now a large majority of the funding mix. Maybe you could just refresh the audience on what you consider to be the optimal funding mix?
Yeah. We've been really successful in growing a strong deposit base, where at $23 billion of deposits today, over 90% of those deposits are coming from direct deposit members. So super sticky, high-quality deposits. Over 98% of them are fully insured by the FDIC. So we feel good about the progress that we've made in terms of growing that deposit base. I think right now we're at about 85-ish% of our loans being funded via deposits. Our longer-term target funding mix is closer to 85%-90%. So we're in a really good spot with respect to that and expect to be right around this 90% level going forward.
Okay. Perfect. Thank you, Chris. All right. As the last one on the lending segment, let's talk a little bit just more of a, I mean, it's a SoFi question, but it's a broader industry question as well. But maybe update us on the general health of the U.S. consumer at this point in the cycle.
Yeah, so overall, health of consumer, particularly the SoFi consumer, is really strong. We're seeing it both in terms of spend behavior in financial services and our money product, where annualized spend levels are north of $12 billion as of the end of Q3, and that continues to progress here in Q4. In terms of on the lending side, credit is holding up in line with expectations, and we feel really good about that. We saw a bending of the curve from a delinquency perspective in Q1, a bending of the curve in Q2 in terms of overall losses, and we feel great about all of the efforts that we put into our maniacal focus on underwriting to the highest quality members and tightening credit over the course of the last 18 months.
If you look at the cohort of loans that were originated between Q4 of 2022 and Q4 of 2023, they're performing meaningfully better than the last time we came close to our underwriting or risk tolerance of 8% life-to-loan losses, which occurred back in 2017. So we feel really good about the changes that we made starting in the second half of 2022, and that momentum continues into 2024.
All right. Excellent. Let's move into the financial services segment. So we often talk about SoFi as being a one-stop shop for digital financial services, which means customers buying multiple offerings and products from SoFi. So broadly, before we get into some of the more detailed stuff, could you talk about the ARPU lift and some of the CAC benefits that you receive from this approach?
Yeah. What I would say is the overall monetization across financial services continues to improve. We're at $81 of average revenue or annualized revenue per product. That's up over 50% year- over- year. That's a function of a number of things. That's a function of the growth that we're continuing to see in products. It's a function of the deposit growth that we've seen, where our cost of funds is 200 basis points better than the next alternative source of funding. We're seeing really good momentum across all spend categories, and we've been able to expand our loan platform business quite dramatically. So that's what's been driving the overall uplift in ARPU in that segment, and we expect that to persist going forward. Right now, we've talked about this during our last earnings call, but we are undermonetized in the invest business. We expect to be able to improve monetization.
We recently rolled out new products with Alts and mutual funds. We just made an announcement with BlackRock as it relates to our robo b usiness, where we're now offering Alts in addition to fixed income and single stocks in these robo accounts. We were a pioneer in IPOs and fractional shares. So you're going to continue to see us shipping new products, new features, new services, and innovating in the same way that we have over the course of the last several years, which will continue to improve overall ARPU. And then our credit card business is relatively small with just 300,000 accounts. You would expect us to continue to scale that business, which will provide additional uplift.
In terms of the overall customer acquisition cost, we're acquiring members at the level that we're happy with and that we would need to in order to hit our longer-term target margins of 30% EBITDA margins and a return profile of 20%-30% ROE. So we feel good about where that customer acquisition cost is. We have been more efficient over the course of the last several quarters and years in terms of driving sales and marketing as a percentage of revenue down. That's a function of a few things. It's a function of continued high levels of cross-buy. Right now, approximately 30%-35% of all products that are taken out are coming from existing members on the platform, where we don't have to pay that second customer acquisition cost.
In addition to that, we've made significant investments in brand, which just makes our direct product marketing dollars work that much more efficiently. And we're getting better and better at targeting our members. So those three factors combined are giving us the CACs that continue to improve and are at the level that enables us to hit our long-term target margins.
Okay. Excellent. Thank you. Let's move on to, as part of the financial services segment, and you hit on this a little bit, but direct deposit. So direct deposit, the stats have been impressive. So more than 50% of newly funded accounts are setting up direct deposit within the first month. Can you talk about what's made SoFi so successful with direct deposit? And if there is, I'm not sure, but if there's an angle there that has a connection with the offering of longer duration loans?
Yeah. What I would say, it's a function of having a best-in-breed product as well as our APY, which is a component of overall selection. So we've had a big focus on driving towards direct deposit members. It was a key priority for not just our money team, but all teams across SoFi when we got the bank charter and started focusing on gathering deposits. But it's a combination of having a best-in-breed product as well as a focus on driving direct deposit as a KPI internally.
All right. Excellent. Last one on financial services. So you also referenced this earlier, Chris. You talked about debit interchange. So we're about a year or so since you went over the 10 billion thresholds for Durbin. So maybe you just talk about interchange topic broadly, and then more specifically, the Fed's recent proposal to reduce the regulated interchange rate down lower than the current rate.
Yep. Overall, like I said, spend behavior really robust, north of $12 billion annualized. Interchange was up over 60% year- over- year in Q3. We've remained very confident in the overall spend behavior of our members, the health of the consumer. In terms of the overall regulatory component, I'm not going to speculate on what's going to happen from a regulatory perspective, but suffice it to say we're obviously monitoring, but remain very confident in the overall behavior that we're seeing from our consumers.
All right. Great. Thank you, Chris. Let's go to the technology platform. So we're going to shift gears there. So we can talk a little bit about some of the expanded capabilities, right? So there's credit issuer processing. You've talked about some other things around BNPL, fraud prevention. There's the rewards capabilities. Let's just talk about what that means for Galileo in context of the broader competitive landscape.
Yeah. What I would say is stepping back, Galileo was originally a pioneer in providing technology infrastructure for fintechs in order to enable them to innovate and offer better products at a more accelerated pace. We're now starting to see, as the product has evolved and the services have evolved, that it's starting to gain traction with larger, more established companies that will set us up to achieve more durable revenue streams, as well as larger companies that have large installed bases and financial services businesses. In terms of the specific differentiation for our tech platform, what I would say is it's the only full-stack solution and the most robust product engine of any core or processor that's out there in the industry today. It's cloud-based, which makes it obviously developer-friendly, and it's evolved quite meaningfully over the course of the last several years since we acquired it.
Second differentiator is we have a very experienced team who can serve as trusted advisors to our customers. And then finally, the other differentiator is that it's part of our holding company and regulated. So we're no stranger to regulation and understand all of those dynamics, and Galileo and Technisys are part of it.
All right. Excellent. Let's talk a little bit about RFPs. So when you do those RFPs, if you could just talk about some of the competitors that you might run into. But specifically, Pismo was acquired by Visa, and that's one that comes up often in competitor discussions.
Yeah. We're not going to talk specifically about some of the peers or competitors that we see in these RFP processes, but suffice it to say we obviously understood where the puck was going as a result of what we're seeing in the overall M&A landscape. Right now, our team is heads down in building the best product that can serve the broader marketplace. But no, I wouldn't comment on the specific competitive landscape.
Okay. Let's talk a little bit about the TAM expansion opportunities then for the tech platform. So specifically, over time, you've talked a little bit about traditional banks and maybe platforms, but let's just talk about some of the more TAM-expansive opportunities that you see for this segment.
Yeah. In terms of the overall TAM, this is typically discussed in terms of payments because that's where the monetization lies today. But as you think about the longer-term AWS of fintech concept, it speaks more to the business model and building out the architecture in the platform and the client-facing components that will enable us to meet a number of different use cases across financial services and consumer brands alike.
All right. Excellent. In the time we have remaining, let's see if we can fit in a few more here. The first one is around loan platform fees. So this past quarter, these fees contributed about $56 million or so to financial services revenue. Can you just talk a little bit about this business and how you think about it going forward?
Yeah. This is a great business for us. It's fee-based. It's low risk and capital-light. This business has evolved quite dramatically since 2019 when we acquired Lantern Credit with the ambitions of creating a marketplace for all financial services products. It was a really good channel for personal loan declines for us. Over time, we're typically declining 70%-80% of all personal loan applicants that come through the door. So there's a lot of potential members that we haven't been able to serve, and we also are trying to manage to a certain size of the personal loan balance sheet.
On the flip side, from a capital markets perspective, given our desire to grow the balance sheet at the pace that we have over the course of the last several years, we haven't been relying as heavily on the capital markets because we wanted to grow the balance sheet such that we could generate meaningful and recurring net interest income on a perpetual basis. We have now found a way to unlock and meet the demand, excess demand that we're seeing both from a borrower perspective, consumer borrower perspective, as well as a capital markets credit buyer perspective, and we're able to originate on behalf of others assets that are aligned with their investment strategies and duration objectives, so it's been a great expansion for us. I think it's going to be a key driver of growth.
The demand from a capital markets perspective has never been as strong, and we're excited about this opportunity. Again, it's low risk, fee-based, and capital-light.
All right. That's a great overview of that business. Thank you, Chris. Let's move, if we can squeeze this one in, sales and marketing leverage. So it's a broader topic, but you've been seeing a lot of it. So sales and marketing as a percentage of revenue continues to decrease year- over- year. So maybe just talk about that opportunity and how investors should think about modeling that.
Yeah. What I would say is we've been able to see that efficiencies as a result of overall scale that's driving it, but most importantly, the three factors that I mentioned before. We're getting better at marketing in specific channels. We're getting more efficient with affiliates and other channels. We have invested heavily in brand over the course of the last several years, which makes all of our marketing dollars work that much more efficiently. And we're continuing to see really healthy cross-buy rates at north of 30% on an ongoing basis. So you could expect there to be natural tailwinds as it relates to all three of those factors going forward. A lot of our growth right now is coming from growth in financial services products where the cost to acquire a member is lower than it is with lending.
So that will serve as a continued tailwind towards overall sales and marketing efficiencies. But like I said earlier, we're at the level of customer acquisition cost that we're happy with, and it enables us to get to our longer-term target margins. So I wouldn't expect to see meaningful improvements in overall CAC because we're willing to pay a slightly higher CAC to improve the overall lifetime value of a given member.
All right. Great. I think we have time to squeeze in one last one, which is related to a topic that you mentioned at Q3 earnings, which was around small business as a potential growth area. Maybe you could talk a little bit about that opportunity, maybe how big it is today. That type of context would be helpful.
Yep, so right now, our SMB business is very small and immaterial from an overall revenue perspective, but it serves as a real potential growth driver for our business. Right now, we are not principal in terms of doing small and medium business loans or checking and savings accounts. It's more of a referral partnership that we have in a marketplace where if someone comes in and they take out a loan or a checking and savings product, we would get paid a referral fee. But quite frankly, we have not invested meaningfully in terms of overall marketing in that space, so you would expect us to put more effort in towards investing in that product.
It's a very high-margin, great business for us, as is our insurance product, which we're also not principal, but in a referral business, and that will also serve as a big growth driver for us going forward.
Excellent. Well, on behalf of everyone at UBS, again, I want to thank Chris, Amanda, Paulina. Thank you for being here today and making the trip out to Arizona. Thanks a lot.
Thanks for having us, Tim.