Is SoFi Poised to Disrupt Online Banking?

From no monthly account fees to getting your paycheck two days early, SoFi (SOFI 4.55%) is establishing a comprehensive financial ecosystem for its current and prospective customers. In this clip from "The Future of Fintech" on Motley Fool Live, recorded on Feb. 10, Motley Fool contributors Matt Frankel, Will Healy, and Jason Hall discuss the scale at which SoFi is expanding and analyze how it might upend the banking industry and convert customers from more traditional banking institutions.

Matt Frankel: Will SoFi be successful at getting customers to abandon their long-held checking accounts? Let me tell you what they're offering. In addition to that 1% interest rate, they're offering no monthly account fees, a big ATM network, 55,000 ATMs are going to be in-network. Their paycheck will be direct deposited two days before payday if they set up a recurring direct deposit, which is a very unique feature. They're in cashback programs. They're courting local businesses specifically toward their cashback programs. No fee overdraft, coverage up to $50 of overdraft protection for your account that's free. Everything's on your phone. Their app is better than anything I've seen from most brick-and-mortar banks. They're doing a great job getting their name out there. The SuperBowl is about to be played in SoFi Stadium. They're doing a great job of marketing. But, do you think people will actually abandon their checking accounts? Will, we'll start with you.

Will Healy: I guess the one word is slowly. The average American has very little savings in their account. They're not going to see that much difference, so I don't think they're going to switch. But, if you're talking about the investor like you said with $50,000 in an account, they're going to look more closely at a company like SoFi.

Jason Hall: I think the biggest thing here is, I really don't believe they're explicitly targeting people that have been at Bank of America (BAC 1.70%) or Wells Fargo (WFC -0.26%) for 10 years or 20 years. I don't think that's who they're going after. I think they are going after people that might have a banking relationship, but they haven't been there that long, and they are younger, and they are tech-savvy, and they are willing to make that change before they start having all of the other issues with getting embedded with a bank that doesn't give you any yield and has limited products and services, and doesn't have any other benefit besides you getting stuck there. I really believe that's the case. It's a great message. They're going to get some on the fringes. They're going to get some marginal customers, somebody that's older but still tech-savvy enough that they're ready to do it and they blow everything up. But, most of them are not going to have those deep relationships. It's just a great marketing campaign.

Frankel: That's the switching model that Lemonade's (LMND 8.23%) using. Get people while they're young while they're not very valuable to the big insurance companies. This could be a 50-year customer relationship that they can leverage. If someone switches over even a low balance checking account, say they just use it to get their paycheck deposited and pay bills and things like that. SoFi also offers a variety of lending products now on its own because it can be a bank i.e., mortgages, student loans. They offer refinancing loans. They just started offering investment property loans which, by the way, if they can figure out a way to do that better than most lenders, that's a huge market right now because most lenders are terrible at underwriting investment property loans. It's such a hassle to get one, and I know I'm a real estate investor. SoFi has a brokerage account that people could switch to. They're trying to be an all-in-one financial system or a financial ecosystem for their customers. Insurance products they offer, I mentioned Lemonade, so technically they're a Lemonade competitor in a lot of ways. But, they offer insurance products, they offer estate planning services, they offer a credit card. Every customer that switches, this could be a 50-year, 60-year relationship, if they can keep them happy, so that's where I see the value. I don't know, guys. Any more thoughts on SoFi?

Hall: I think it comes down to execution right now, Matt, because it's one thing to have all of these services and work with a banking partner that takes on a lot of the risk by taking an outsized part of the potential profit there, but now you're also taking on that risk. So, I think it's really important. What I'm following is the CEO of the bank that they acquired has come along and is going to be, I guess the president of their bank subsidiary. Does he really stay? I think that's going to tell a lot to me because they need the right people to manage that banking business to succeed.

Healy: I think you have to look at how the traditional banks are going to react to this. Like you were saying, customers are sticky, so it's going to be a slow process, but they've always lagged on the technology side, and they're going to have to improve there if they want to stay competitive over time. You might see a traditional bank maybe take over a fintech eventually to address that. It's going to be an ongoing story. We'll just see how it plays out.

Frankel: I really think all of the big banks have missed opportunities over the past decade or so to take over some of these fintechs before they become massive threats to their business.

Healy: Certainly with Block (SQ 5.04%) and PayPal (PYPL 1.96%), that's the case.

Frankel: Like someone could have acquired them in 2016 for $5 billion and it wouldn't be a competitor these days. But, I mentioned that SoFi went public by SPAC. They got a massive war chest of cash, and they used $750 million of it to capitalize the bank they just bought, which is going to be SoFi Bank, and then they are using a ton of it on marketing. I don't know how much it costs to get their name on SoFi Stadium. I know the number, I just don't have it in front of me. But, they're spending a massive amount on marketing. I can't remember any other fintech disruptor launching marketing campaigns to the scale of SoFi, even the big ones like Square and PayPal, so I think that's something that's also worth watching.