Financial technology companies are redefining the banking sector in the digital age. Among them, Upstart Holdings and SoFi Technologies have captured investors’ attention with their innovative approaches to consumer credit. As interest rates fluctuate and economic conditions evolve, these two stocks are trying to position themselves as tomorrow’s leaders. Each with distinct strategies, they offer unique opportunities and challenges to overcome. Let’s discover the strengths and weaknesses of these two rising stars of fintech.
At the heart of the fintech scene, Upstart Holdings and SoFi Technologies stand out with distinct strategies. SoFi Technologies, a rapidly growing digital bank, saw its user base rise from over a million in 2020 to 9.3 million in the third quarter of 2024. This growth was achieved even in the face of challenges posed by the federal pause on student loan repayments. SoFi’s model relies on net interest income, benefiting from the gap between borrowing and deposit rates.
On the other hand, Upstart uses artificial intelligence to assess borrowers’ creditworthiness. After losing momentum due to rapid interest rate hikes in 2022-2023, Upstart’s business is showing signs of recovery with the Fed’s rate decreases. The company is now focusing on off-balance-sheet loan transfers and establishing financing partnerships.
While SoFi offers greater stability with a projected growth potential of 50% annually, Upstart also shows possibilities for expansion, especially toward new types of loans such as auto or equity loans. In summary, SoFi appears to be the safest investment at the moment, while Upstart still needs time to prove its stability against economic fluctuations.
Impact of the economic context on sofi and upstart
The rise of fintech stocks such as SoFi Technologies and Upstart Holdings gained momentum during the years 2020 and 2021, motivated by near-zero interest rates. These conditions were ideal for stimulating the U.S. economy during the coronavirus pandemic. However, this stock bubble burst when the Fed drastically raised rates to counter post-COVID inflation. Today, both stocks are well below their previous peaks despite their long-term growth potential.
SoFi technologies: stable and promising growth
SoFi is primarily a digital bank with a fintech unit, Galileo, which provides technological services to over 160 million users across various applications and financial products. SoFi’s customer base exploded, growing from just over a million at the beginning of 2020 to 9.3 million in the third quarter of 2024. This significant development allowed the company to increase its revenue, even as it faced the halt in student loan repayments from 2020 to 2023. This pause severely impacted one of SoFi’s main sources of income, but the company still managed to report profits according to Generally Accepted Accounting Principles (GAAP) in 2024.
Upstart holdings: artificial intelligence at the heart of credit
Upstart relies on artificial intelligence algorithms to assess borrowers’ ability to repay consumer loans. By opting to originate loans and refer them to partner banks or institutional investors, Upstart has proven its profitability, displaying a notable GAAP profit in 2021. However, demand for loans suddenly weakened when the Fed began increasing rates from 2022 to 2023, leaving Upstart stuck with unsold loans on its balance sheet. Although the company has regained momentum since the pause on rate hikes, economic volatility will always pose a challenge to its stability.
