What happened
Shares of SoFi Technologies (SOFI +0.66%) were pulling back this week after the fintech that offers everything from banking services to student and auto loans got two pieces of bad news.
First, the Biden administration said it was again extending the pause on student loan payments until next June, limiting a key revenue source for SoFi because it makes money on student loan processing fees.
Second, a Senate banking committee posted an opening letter asking to review SoFi's crypto products.
As of noon on Friday, SoFi stock was down 11.8% for the week.
NASDAQ: SOFI
Key Data Points
So what
SoFi is one of several "fintech disruptors" that have fallen sharply this year as fears around rising interest rates and a potential recession have crushed the sector. The stock is now down 71% year to date, and the news this week is a reminder that being exposed to so many financial services cuts both ways.
In the Senate committee's letter, it expressed concerns that in light of the collpase of FTX and other crypto firms, "SoFi's continued nonbank digital asset trading activities pose risks to consumers and safety and soundness risks to your institution."
In its response, SoFi said that its cryptocurrency business is non-material, and that it generated just $3.85 million in cryptocurrency-related fees in its most recent quarter. It also said it corresponds regularly with federal and state regulators.
Separately, SoFi's student loan business is down sharply since the pandemic began because public debt holders have benefited from several student loan moratoriums and President Biden's $10,000 loan relief program. A rebound in the student loan refinancing business will be delayed by the latest extension of the repayment moratorium.
Now what
SoFi continues to grow quickly, but the company is still unprofitable on a GAAP basis, and the current economic environment is likely to put more pressure on the fintech stock. Higher interest rates translate into more default risk, and a recession will lead to less demand for financing products.
If the company can maintain its strong new member growth rate, it could come out stronger on the other side of the recession, but investors should be prepared for more volatility ahead.
