SoFi first U.S. fintech unicorn to wade into Asia

The wave of virtual-bank applications in Hong Kong and elsewhere in Asia saw a relentless push by mainland Chinese tech giants to dominate fintech, with no response from Silicon Valley – until now.

SoFi, the San Francisco-based fintech and a pioneer in the U.S. currently led by Anthony Noto (pictured, center), is acquiring 8 Securities, the local retail online broker and wealth advisor, for an undisclosed sum.

8 Securities’ principals, co-founders Mathias Helleu and Mikaal Abdulla (pictured left, and right), will become SoFi’s senior vice presidents for international business. Working under U.S.-based Tony Paquette, the company’s head of international, they will work to scale SoFi in Hong Kong and then expand it to new markets, in Asia and beyond.

SoFi so good

SoFi was founded in 2011 by four Stanford business school grads to create an electronic lending market for student loans. It went on to raise huge amounts of money, and was the first P2P lender in American to securitize its credit. By 2014 it was expanding into mortgages and personal loans; by 2016 its board included luminaries such as former SEC chairman Arthur Levitt and Softbank and Silver Lake had joined the likes of Peter Theil as its various investors.

The firm stumbled in 2017 when then-CEO Mike Cagney, an original founder, was ousted over sexual harassment claims. At the same time it faced charges from the Federal Trade Commission of misleading consumers.

These ended up as minor setbacks. In early 2018, Noto, previously COO at Twitter, entered as CEO. Since then the firm has sealed its celestial position among Silicon Valley legends: it now raises vast sums from sovereign wealth funds in the Middle East and not one but two American football teams play in SoFi Stadium.

It has also become a de facto bank, offering deposits, cash management, robo advisory and brokerage.

Pieces of 8

The story of 8 Securities is not yet primed for a straight-to-Netflix biopic, but it’s encapsulated the Asia fintech story in a different way.

Helleu and Abdulla set it up in 2011, the same year as SoFi, following careers at E*Trade Financial, running the non-U.S. businesses of the electronic brokerage – the first to offer flat-fee commissions in Hong Kong and other markets in Asia, the Middle East and Europe.

8 Securities got its reputation as the first B2C robo advisor in Hong Kong, a business that led mostly to frustration, as well as in Japan. Today it is primarily an online securities broker selling Hong Kong and U.S. equities to local investors.

Two years ago, in April 2018, Nomura Securities acquired the majority of 8’s Japan business, and a minority stake in its Hong Kong business. Nomura wanted to fold the Japan robo/brokerage into Instinet, the electronic brokerage it previously acquired. And it sought to partner with 8 to build B2B robo to serve banks in other Asian markets – another venture that didn’t lead anywhere. Later, Nomura bought out the rest of the Japan stake.

Helleu, speaking to DigFin, declined to detail the size of the brokerage business today other than to say it is on track to generate $5 billion in turnover over the course of 2020.

He says however the firm has experienced a fourfold jump in volumes over the past quarter, as retail investors in Hong Kong have traded stocks in response to volatility caused by the Covid-19 outbreak. Moreover the portion of U.S. stocks rose to account for about 70% of trading.

American unicorn in Asia

In other words, 8 Securities has survived, and that, combined with its backers’ experience at E*Trade, made the business an attractive target for a U.S. fintech giant looking to take its first step out of the U.S.

“This is exciting because we have a common vision,” Helleu said: “to bring affordable and easy-to-use mobile solutions to young investors.”

SoFi is buying 100% of the Hong Kong business, from the founders, from Nomura, and from its other investors. For SoFi this is the cornerstone of a plan to expand globally.

“It’s rare to find a U.S. company with this kind of global vision,” Helleu said. “The fintech unicorns in the U.S. tend to be very domestic. But SoFi’s view mirrors our own. 8 Securities gives them a licensed entity in Hong Kong with a team that has built international businesses and a technology that can be transported.”

Asked if this is setting SoFi in direct competition with the likes of China’s Tiger Brokers and Futu Securities, Helleu said, “Definitely.”

The 8 Securities brand will disappear. Helleu says asking investors to let a local fintech hold their cash has been difficult. While SoFi is not known in Hong Kong, it does bring the heft to rival mainstream banks or Chinese internet companies.

SoFi’s Americanness might play into its branding in Hong Kong. “There are many Chinese tech giants playing locally,” Helleu said. “There are no U.S. unicorns here, so this is a big differentiator for us.”

The company hopes to import some of SoFi’s innovations as well: in the U.S. it is the first fintech to fractionalize shares, allowing young investors buy slices of popular brand-name stocks. It offers zero commissions on trading.

Helleu says the model in Hong Kong will be to emulate Robin Hood, another U.S. fintech. It will however find this a competitive space, fighting mainland brokers, emerging ecosystems based around virtual banks, and fintech rivals such as eToro Brokers and, perhaps, other foreigners such as Revolut – all as Covid-19 continues to play out, bringing disruption of an altogether different kind.