Shares of SoFi technologies (SOFI -1.29%) they pulled out this week after the fintech that offers everything from banking services to student and car loans received two pieces of bad news.
First, the Biden administration said it was again extending the pause on student loan payments through next June, limiting a key source of revenue for SoFi because it earns student loan processing fees.
Second, a Senate banking committee released an opening letter asking to look into SoFi’s crypto products.
By midday on Friday, SoFi shares were down 11.8% for the week.
SoFi is one of several “fintech disruptors” that took a sharp decline this year, as fears about rising interest rates and a potential recession squeezed the sector. The stock is now down 71% year-to-date, and this week’s news reminds us that exposure to so many financial services cuts both ways.
In the Senate committee letter, he expressed concern that, in light of the collapse of FTX and other cryptocurrency firms, “SoFi’s continued nonbank digital asset trading activities pose risks to consumers and risks to the security and soundness of your institution”.
In its response, SoFi said its cryptocurrency business is not material and that it generated just $3.85 million in cryptocurrency-related fees in its most recent quarter. He also said he corresponded regularly with federal and state regulators.
Separately, SoFi’s student loan activity has been in steep decline since the start of the pandemic because public debt holders have benefited from several student loan moratoriums and President Biden’s $10,000 loan reduction program. A rebound in student loan refinancing activity will be delayed by the latest extension of the repayment moratorium.
SoFi continues to grow rapidly, but the company is not yet profitable on a GAAP basis and the current economic environment will likely put more pressure on the fintech stock. Higher interest rates translate into a higher risk of default, and a recession will lead to lower demand for financial 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 to come.
Jeremy Bowman holds no position in any of the stocks mentioned. The Motley Fool has no position in any of the titles mentioned. The Motley Fool has a disclosure policy.