SOFI, SQ, UPST - is rate hike the end of fintech?

Fintech sector is trading low recently. as most companies started recovering most of the fintech stocks are trading lower and sideways, but failing to recover.

SOFI and UPST are trading lower because their revenue is mostly loan based.


[color=#33D5FD]Since SOFI is a small company, their revenue growth is mostly based off membership growth and by selling them multiple products and services as all in one stop shop. On a rate hike, the margin of SOFI should not take a beat because they received a banking charter on jan2022. The biggest con of the rate hike for them is they will struggle in gaining new members and won’t be able to provide a low interest rate like before. Another con is the student loan moratorium that was placed on COVID and still stands despite jobs numbers improving and negative COVID effects being gone. Also, SOFI recently announced SHARE DILUTION as a part of their deal to acquire Technisys for $1.1B on a stock and cash deal. This deal should help them take a bigger part of the Neo banking sector in LAN as this region is extremely underdeveloped in terms of financial services.[/color]


[color=#32C594]Upstart is an AI lending platform that partners with banks and credit unions to provide consumer loans using non-traditional variables. The decrease in loan demand from the rate hike should decrease the revenue of UPST as people are less likely to take on loans with the interest rate on the rise. The company is still looking very strong and attracting investors because the AI platform and margin of profit is very high. The only big competition they have is Pagaya, Israeli based company that should be going public in the next few years.[/color]

[color=#000000]BLOCK (SQ) is an American financial services and digital payments company. The company is very diversified and provide many services such as Square (business payment platform), Cash App (person-to-person money transfer), Afterpay (BNPL service) and more. Their revenue on 2021 was $17B but its by far the most expensive. Their services are less impacted by interest rate hike. The con on this company is their amount of liabilities that they will have to pay more interest on.[/color]
source: 2021Q4 shareholders letter

1 Like

Letter from American Fintech Council (whatever that is) shared by @SoFi on twitter regarding the student loan moratorium:


I agree the fintechs are getting their but kicked right now but I think the longer term is still unclear.

I actually read an article talking about because mortgage rates are going up there’s even more of a demand for people wanting to buy houses as quickly as possible, trying to lock in these lower interest rates that are only expected to continue to go up. But again, home inventory is so tight that is going to remain the limiting factor. So in the end it’s likely no real net change except people paying even higher prices for homes in the short-term panic.

It’s funny how the fed is finally realizing they need to fight inflation, but congress is continuing to do everything they can to make inflation worse. Something is going to give this year…

Don’t forget the BNPL companies like AFRM & KPLT, they are likely to also trend down with these higher interest rates. Either though people deciding to use their service less if they have to start paying higher interest rates, or simply failing to pay.


I wonder how higher rates would have an outsized impact on fintech. I’ve always thought the default rate would be the stronger catalyst and has been for Affirm. But if rates rise across the board would that hurt fintech more than traditional lenders and if so, why?

1 Like

I’m very bullish on SOFI long term. Both my parents have been in real estate for 40+ years. One does commercial and the other residential. Rate hikes are bullish for lenders, typically. So I’m not worried there. The student loan moratorium being lifted is definitely a potential near term catalyst, but it’s iffy. I wouldn’t surprised if it gets extended. But the resumption of loan payments will cause a nice spike, and May 1st is the day that might happen, but again an extension is just as likely. Even still, SOFI had good earnings with good guidance and any price under IPO is a steal of you plan to hold long term.

But this is a pure buy share and hold play. Or option leaps at least a year out. Near term would be straddles for May 1st. Personally, I’m just sitting on a fuck ton of shares.

Im reading more into UPST and my initial thought is it is different from SOFI / SQ. I think Upstart should be more compared to Lendingtree but lending tree has a bank charter. Just posting this here incase others have viewpoints on UPST. I am very new to these concepts but I would think that with increasing increase rates it should work out in a few ways.

  1. Influx of borrows to take advantage of lower fixed unsecured loans
  2. Leveragering of technology to identify lower risk borrows during higher rated loans

Also im gonna be biased here and I need to understand who Upstart’s demographics here are. If its true that they identify people who have career progression for loans then I dont think they will try to lower their standards to get more income but just become more of a competitive advantage when using their service and that their target audience are going to be the ones who wont be severely impacted since their income can outgrow inflation rates.

Currently Im researching UPST looking at their platforms and looking at their Q4 earnings report and forecast.

I always thought upstart was mostly used by banks & credit unions to give a ai-enhanced “credit worthiness” rating that covers more information than traditional FICO scores or other basic information banks used in the past with their own in-house systems.

I would assume their model is some base service flat-rate + some sort of charge per-application or possibly even a slice of commission on approved loans.

Yes that is correct. So their value comes from their algo being accurate and still providing value. Which is why I would think , conceptually , upstart will have advantage since the tightning of unsecured loans can use advanced modeling to lower risk and lower rates to be competitive. If employement stays up and UPST target demographic rate of wage growth beats inflation then I would think that UPST will do amazingly well.

The problem with SOFI in my opinion is not the fundamental or the financial data. the fact that they prioritize growth over investor relations and make purchases with stocks causing dilution or the SBC which is 40% of their revenue currently seems a little too drastic.

The company is great, I just think we will have better entry opportunities and it is currently overvalued.