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SoFi, an Online Lender, Is Looking for a Relationship

SoFi members mingle at an invitation-only singles cocktail party hosted by the online banking company.Credit...Adrienne Grunwald for The New York Times

SAN FRANCISCO — Alyson Casey recently received an invitation to a singles event in Manhattan from a start-up. But it didn’t come from a dating service. It came from the company that had recently refinanced her student loan: SoFi.

The idea of a financial firm playing matchmaker initially struck Ms. Casey, a 35-year-old software saleswoman, as rather unorthodox. But the invitation promised an even split of men and women, and free drinks at the rooftop bar of the James hotel.

After a few glasses of wine — and a few phone numbers collected — the idea of a student lender helping her find a mate made a lot of sense to her.

“These are people with a similar mind-set,” said Ms. Casey, who used SoFi to refinance the student loan that paid for her M.B.A. at New York University. “People who aren’t risk-averse. People who understand a good investment.”

Ms. Casey is not the only one who has been impressed by SoFi’s strategy of stretching the definition of what a lender should do. In addition to holding singles events, SoFi — short for Social Finance Inc. — provides career counseling, wine tastings and home-buying workshops, and is starting to provide financial services other than loans.

This approach is helping elevate SoFi with potential customers and investors in a business — online lending — that has had no shortage of trouble over the past year.

After growing swiftly for several years, the nascent industry of online lending was severely shaken in May, when the largest company in the field, Lending Club, dumped its founder and acknowledged financial records were misstated.

The investors who had been buying loans originated by Lending Club and rivals like Prosper, OnDeck and Funding Circle fled from nearly everyone in the market, including SoFi, forcing the lenders to curtail their business significantly at a time when they needed to grow to fulfill the expectations of venture capitalists.

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Credit...Adrienne Grunwald for The New York Times

SoFi courted its own controversy with unapologetically elitist advertisements, including one during the Super Bowl in January. The company generally lends money only to young, wealthy borrowers — whom it refers to as Henrys, an acronym for high earners, not rich yet.

But as the turmoil has calmed down, SoFi is emerging as the new leader. In May a SoFi bond backed by the company’s loans was awarded an Aaa rating by Moody’s Investors Service, a first for SoFi. The company is now originating more student, personal and home loans than it was before the Lending Club crisis, unlike its competitors.

So far this year, SoFi has lent out $5.5 billion, up from the $5.2 billion it originated all of last year, and the $1.3 billion it did in 2014. The company has now issued loans to 175,000 customers.

“They are the No. 1 player in the space now,” said Matt Burton, the co-founder of Orchard Platform, which provides a marketplace for online lenders.

In a recent interview at SoFi’s offices in San Francisco, the chief executive, Mike Cagney, said the company was preparing to expand to Europe and Asia, and to introduce products like life insurance in the coming months.

Mr. Cagney has recently been traveling through Asia and Europe, raising around $500 million in new funding for SoFi. The new investors will increase SoFi’s valuation from its last fund-raising round, when it was worth $4 billion, Mr. Cagney said, though he declined to say what valuation it was targeting.

The previous rounds involved Daniel S. Loeb’s hedge fund Third Point; Peter Thiel; and the Japanese conglomerate SoftBank.

Mr. Cagney declined to answer questions about any plans for an initial public offering — SoFi had been working toward one, but put it off when it raised money in 2015.

The new money will help support Mr. Cagney’s ambitions to expand SoFi from a specialized student loan provider to one offering wealth management, deposit accounts and other products.

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In addition to singles events, SoFi offers career counseling and home-buying workshops.The firm started by refinancing student loans, but is expanding into other product lines.Credit...Adrienne Grunwald for The New York Times

Matt Harris, a partner at Bain Capital Ventures, said that among the most intractable hurdles facing online lenders were the high cost of acquiring customers and the difficulty of building a relationship that outlasts the first loan.

He said that SoFi had found a neat solution to these problems by providing additional services, like the singles events and career counseling.

“It is a very different strategy than the more transactional lenders,” said Mr. Harris, who is not an investor in SoFi, referring to competitors like Lending Club. “If you are playing a lifetime value game — a relationship game — you have a lot more leeway to subsidize more products and you are less subject to commodification and the vagaries of competition.”

For example, Mr. Cagney said that half of the people who had taken out mortgages with SoFi began as student loan customers. He started the company with three co-founders in 2011 by refinancing the student loans of fellow Stanford business school graduates.

Within 18 months, he expects that mortgages, which were introduced just this year, will be the company’s biggest product line. They currently represent about 15 percent of SoFi’s business, while student loan refinancing is still roughly 50 percent.

Mr. Cagney, however, is likely to confront plenty of hurdles.

Because SoFi and the other online lenders are not banks, they do not have a steady base of consumer deposits to fund their loans. As a result they must rely on big investors, who are often alarmed when there is any sign of trouble — as happened earlier this year.

Since the spring, Mr. Cagney has frequently been on the road, getting bigger credit lines from banks and searching for a broader array of investors to buy the company’s loans. He said SoFi now had a credit line of $4 billion from banks that it could use to originate loans even without investors, in contrast to the $1 billion it had when the first signs of trouble struck the online lending industry last winter.

Mr. Cagney has also been spending time in Utah, weighing whether to seek a bank charter from the state, which would allow SoFi to begin collecting deposits. SoFi is opening a service center in Utah, and Mr. Cagney said he was looking into what becoming a bank would mean. He is still wary, because regulations may limit SoFi’s ability to do things like hold singles and networking events.

The Federal Deposit Insurance Corporation “is very particular about what banks can and cannot do,” he said. “There are a lot of things we do that don’t fit into a bank holding company, that are critical to our brand and our mission. If we can’t do those things, we lose a lot of what makes SoFi different.”

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Credit...Adrienne Grunwald for The New York Times

On the regulatory front, some industry experts have said that SoFi could face problems because of its elitist approach, serving only customers with the most pristine credit. In the most recent pool of SoFi personal loans, the average annual income of the borrowers was $144,000 a year, and the average credit score was 733, according to the rating agency Kroll.

Banking regulations bar lenders from any practices that have a discriminatory impact on minorities, even if the impact is a result of algorithms rather than human decision making. While not a bank at the moment, SoFi is audited by the F.D.I.C. and regulated by the Consumer Financial Protection Bureau.

The pursuit of elite customers also leaves some investors concerned that SoFi will not have a base of potential consumers large enough to sustain a big business. These customers often pay off their loans quickly and are, by their very nature, relatively few in number.

That is why Mr. Cagney is looking to Europe and Asia, and is building out more products to offer his customers.

At the singles event in New York, the clientele appeared to appreciate SoFi’s strategy.

Ms. Casey, the software saleswoman, said that after refinancing her student loan she had refinanced her credit card debt with SoFi when the company began offering that service last year.

A few tables over, Lisa Akey said she learned about SoFi from a classmate at school who loved it, and had since talked up the company to her friends.

“Immediately I felt it was a company I could trust,” said Ms. Akey, 32, a brand manager at Unilever. “I feel like banks are just banks. SoFi feels like it’s more built around people.”

Kim Hutchison, a 34-year-old lawyer, said she had refinanced her law school debt a month earlier and had been preapproved for a mortgage with SoFi just hours before the event.

“They are making their customers into better risks and more committed customers,” she said. “I’m jealous of their business model. I wish I had thought of it.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Finance Start-Up Seeks a Relationship. Order Reprints | Today’s Paper | Subscribe

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