Dan Macklin, one of SoFi's four co-founders, left the personal finance company in 2017 partly because the fast-growing fintech — which is expected to go public soon and just signed a deal to buy a bank — was growing really fast.
Macklin missed SoFi's heady startup days, when he and his co-founders, who came up with the idea for the online lender on the Stanford campus, were struggling to build a small company.
"At that time SoFi was getting close to 1,200 people," he told Protocol.
Two years ago, he became the U.S. CEO of Salary Finance. Macklin, now 44, leads the U.K. workplace lender's 31-person team in the U.S.
That expansion is about to get more financial firepower. Salary Finance will announce a $150 million debt financing Thursday from Community Investment Management, an institutional impact investment firm, Protocol has learned.
Founded in 2015, Salary Finance works through employers to offer short-term unsecured loans to employees. The company does this by "tying products to the regularity of their salary payments" in order to "actually improve the products that people are offered."
"In the world of loans, it means that you can end up borrowing at cheaper rates," Macklin said.
Jacob Haar, CIM managing partner, said the investment firm was offering the debt facility based on what it saw as a Salary Finance's potential to offer better financing to employees, especially at a time when the U.S. is still reeling from the pandemic downturn.
"Salary Finance has an incredible track record in the United Kingdom, but is a relative newcomer to the United States," Haar said.
In an interview with Protocol, Macklin, who is from Great Britain, discussed why the company is expanding aggressively in the U.S., the challenges he sees in fintech and how his SoFi experience is helping guide him in his new role.
This interview was edited for brevity and clarity.
Why offer loans through employers?
Up until a few years ago, the financial wellness industry was concentrating on education. You can tell people how to budget better and explain how APRs work and all this good stuff. But unless you lead people to better solutions, it's somewhat in one ear, out the other.
When you go through the employer, it gets in front of people because employers have a big mouthpiece. Their employees trust them. So if they tell them something is good and should be looked at, then they'll look at it. We partner with employers in a way that integrates into their payroll, and we partner directly with those employers to get their employees out of debt and into savings.
We're able to offer significantly lower interest rates to those people who would otherwise be barred from accessing credit or would be paying extremely high rates, someone who now is paying in their 20% to 30% range, or someone who is borrowing from an online lender at 50[%] or 60%, or even payday lenders in the 300[%] or 400% [range]. Those people do it because they don't have many options. By integrating with a company's payroll, crucially, taking repayments directly from their payroll, we are then able to provide much lower rates. So it's a win for everybody.
Why did you take this job?
I had seen at SoFi how employers were increasingly involving themselves in this space. Ten years ago, employers were [essentially saying], "We pay our people. We give them health care. We give them a 401(k). We've done our job." There's been a real progression and I saw it at SoFi and I'm seeing it and Salary Finance. Employers are realizing, "Actually, we can do more. We can steer our employees towards solutions that can help them." A big piece in me deciding to come to Salary Finance was the trend towards employers being more active in these areas, and not simply saying, "We pay our employees. What they do with their money is their responsibility."
And what were the things that maybe you were worried about?
It's a pretty new product. It's still a minority of employers in America today that are offering products like these to their employees. But to me that's an opportunity because there's a huge market out there. Only a very small percentage of them are working with us or somebody else. Two years ago, it wasn't necessarily proven in the U.S. I would say that's changing very quickly.
What are the biggest challenges in the U.S.?
Employers increasingly understand that their employees have debt. And they're bringing that debt into work. We have all kinds of horrible statistics out there about the impact of that debt, the fact that people do not leave those money concerns at the door of their employer. They bring it into the office. They bring it into the factory. We can send you studies that we've done: People who have financial stress are nine times more likely to have troubled relationships with their colleagues, and seven times more likely to be suffering from depression.
Who do you see as your main competitors in the U.S.?
I would say that the competition is inertia. The competition is employers not acting quickly enough due to the number of priorities that they have on their plate. But it's really resonating with corporate America. It's still a very new area. There's room for lots of players, let me put it that way.
There are other fintech trends that are growing, including "buy now, pay later" and earned wage access. These are also starting to raise red flags with regulators and consumer advocates. How do you view these growing regulatory worries?
I think it's not controversial to say that regulation in the U.S. is more complicated than in the U.K., where there is a single regulator. Over here, it is different. We have taken a very deliberate approach here. We are partnering with a bank with a national banking license to make sure that we are abiding by all the regulations that are out there. It remains something that we keep a very close eye on. Our main product, the salary link loan, essentially, is a loan. It's regulated in the way that the loan is. So we are very upfront about that.
SoFi is about to go public via a SPAC. Any thoughts on how the company is progressing since you left?
I've been very encouraged by what I've seen at SoFi since I left in 2017. I buy Bitcoin through my SoFi app. I still have my SoFi mortgage.
How much Bitcoin do you have?
[Laughs] More than I had a year ago, let me put it that way, and not enough to be checking the price. Obviously I'm following the news about the SPAC very, very closely.
Are there mistakes or missteps from your SoFi years that are top of mind for you in your new role?
My six years there and then the year or so [we spent] thinking about the company have given me tremendous learnings for what we're doing at Salary Finance. One of the things that I did take from SoFi that we're applying at Salary Finance is to not be a [one-]product company. So we quickly moved from just doing student loan refinancing to personal loans and mortgages. I think most companies don't succeed in moving out of their lane. At Salary Finance, one of the reasons I joined is I could see that in the U.K., they had already moved out of their first core product being the lending product, and had moved into savings and insurance products. That's what we're going to be doing in the U.S.
SoFi exemplifies the dictum that you can't thrive in fintech as a one-trick pony. Was that clear to you when you launched the company 10 years ago?
Yeah. I actually have the very first venture pitch deck on my desk. The intention at SoFi was always to use a great initial product, which was student loan refinancing, then very quickly expand that product suite and offer other great products to customers. It's the same way at Salary Finance. The ability for people to take loans at a lower rate is our key product. That's our way in. Once you have the trust of someone and they know the brand, then you have the ability to offer them other things, whether it's savings accounts, or better types of checking accounts, insurance, or ultimately mortgages. You've got to walk before you run.
You launched SoFi in the wake of the 2007 to 2009 recession. Ten years later, what is the most important lesson that you think fintech companies should keep in mind?
I think recessions and downturns in the economy provide amazing opportunities. Ten years ago, banks were retreating from lending in general. It very much created a vacuum and SoFi, along with others, helped to fill that vacuum. I believe it's very similar now.
We're still going through COVID. Literally, people are getting checks sent to their door now. What's not clear is the medium-term effects as people start to have to pay their student loans again, as people start paying their rent and their mortgages again. Then the real impact of what we're going through now will be felt. I don't believe that we're seeing that quite yet, the full impact. What does that mean for fintech? It means that it's an amazing time to be involved with launching companies or growing companies. There's uncertainty in the world and with uncertainty brings hesitancy on the part of banks and large players, and that creates gaps for smaller, more nimble players to jump in and take market share.
But is there a fintech trend that worries you right now given what we've just gone through and what we're still going through?
Generally, the credit environment I think is something that everybody should be watching. COVID happened pretty much a year ago. Share prices plunged and most banks and lenders pulled back because they weren't quite sure what was going to be happening in the market. To some extent, it's pretty much gone all the way back. People are lending again. I wouldn't say it's like nothing has happened or gone wrong, but I think maybe there are probably some lenders out there who are perhaps a little bit more gung-ho than they should be because no one truly knows where the economy is now. No one truly knows where it's going to be in three or six months. There may be some shaking out that happens in the second half of this year as some of those decisions on the part of some companies turn out not to be the best.
Are you talking about traditional banks or fintech lenders?
I mean everything. I think the old models of lending are a little bit up in the air.