YouSaid · the spoken record

Mike Cagney

lines on the record: 106
first: 2016-02-08
most recent: 2016-02-08
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“More importantly, we want to make sure that you make more money than you spend today And that is the single greatest driver of credit performance.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think you have to be very careful about what you do because the consumer financial protection bureau is very particular about what can and can't go into underwriting. And they're doing that to address any potential disparate impact that comes from, for example, if I say I'm going to use LinkedIn and there's a protected class that isn't fairly represented on LinkedIn, that's a problem, right? And so I think we boil it down to the very simple mechanics, which is we'll look at your credit history, we want to make sure you didn't short sell a mortgage two years ago, right? The fact that you missed a J Crew bill is somewhat of an irrelevant characteristic for us.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“You don't use, but it's one of the indicators, right? Are there other indicators? Because a firm is trying to do it with, I don't know, your social. You know, there's all kinds of schemes around what makes a good credit.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“This is what matters. Yeah, it's absolutely crazy. I mean, we see it all the time. We see people where they didn't pay a $2 medical charge and their FICOSCOR gets hit or their vantage score gets hit. At the end of the day, I think FICO score is a little bit of a crutch. It's the same concept of, you know, why do you hire Stanford MVAs? Because, well, they got to Stanford, they must be okay. And I think the reality is our view on it is good credit will have often high FICO's, but a high FICO isn't necessarily good credit.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Doesn't pay out J. Crew bill. That's the end of it Enormously wealthy cannot get a loan. It was really fascinating. And I had these long, sort of philosophical discussions with one of the lenders we talked to, like, you're an it came down to you're an idiot, I can't believe you're, and they themselves were like, yes, we're idiots, like this is what matters.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“I was not treated particularly friendly by the person at the window, but they were nice to me once they realized who I was. But they gave me a piece of paper that I had to write my name on. They know who I am. They have the account. They have the relationship. And I think losing that synergy, creating friction from product to product”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“And the first thing they said is, Mr. Kegney, this is great. We're really happy you want a mortgage. They gave me a blank piece of paper. And the first thing I had to do was write my name on it. And I said, this is all I need. And I took it and I left. And I said, look, this is the dimension in which you're missing. Because one, first off, I had to go to a branch between 9 a.m. and 5 p.m.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's funny because I have a lot of big banks. So a big four bank came out recently and asked me to come and give them a presentation and they're a capital market provider of us. And so I did it. And I talked about one of the challenges they have. Their view was that banking was under attack of disaggregation. The idea that there are all these startups that are going to take different slices of the bank out. And I said, I think that's actually the absolute wrong idea. The value of the customer, the relationship is what matters. I said what your issue is, is around product fit and delivery. And I demonstrated this and I took a couple of the folks in this meeting, couldn't take all of them. There were about 20, but I took a couple of the senior folks out and we went to a branch of which I have a banking account. And I'm a private banking customer there. And I walked in and I said, I want a mortgage. And I went from having to sit at the teller window to going to sit in a nice little desk with a green lampshade and some comfortable chairs.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“No, no. And we'd be a hard acquisition just because of the dynamic personalities that we have in our team. But we want people to rethink that relationship. And I think in doing that, we position ourselves in a way that an existing bank can't cast themselves in that light. It's still transaction-oriented. It's checking accounts and mortgages and so forth, which are critical.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think Lincoln's definitely trying to do that to some degree on career and certain kinds of relationships. I think the money pieces might be missing here, although potentially LinkedIn could bias and integrate that money piece in.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“We're trying to get people to recast it rather than a transactional banking relationship into the concept of money career relationships. And to us, that's where the real win is.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Because half our volume comes from referral. So it was critical to get that. was the most differentiating aspect was this concept of alignment that we wanted to align with our members and what I mean by that is we invest in career resources for them we help them with their resume we help them with interview coaching if you lose your job we get them reemployed we've done it over 165 times we're within 91 days we've gotten someone to a higher paying job if you want to start a company we help you raise capital you've done I think 48 times now we hold networking events two to three times a week across the U.S.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“No branches. Three is service. So we wanted a service level that people would evangelize the business. And that's important.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Two is delivery. So we wanted to do everything through the phone. We view the phone as the ubiquitous branch, right? So brick and mortar is gone. Your phone is what matters.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“While, but even on a whole loan basis. And to me, the 800 pound gorilla in the room and everyone of these conversations was why don't you do it yourself? And I think that we came to a point of comfort that nobody had the brand and the strategy and the acquisition methodology that we had. And consequently, it was very difficult for a bank to come in and position themselves as a sofi. And that was important because we tried to build the business on four key tenets, which was one, product fit. So we want to make sure that we're delivering a solution people wanted. Student loan refinancing is a great example, but we're doing the same stuff in mortgage and personal loans and wealth management.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“That's right So it's a really interesting question. We also had a lot of banks that began to participate and buy loans from us. And to me, all these”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, I knew Joe, and I think Joe was extremely passionate about financial services and the opportunity for disruption in financial services. So when he got a chance to participate, and there were some other potential synergies that came out of that relationship, he convinced his board to come in. And so what we were able to do is take that money and kickstart a lending program, and then in early January of 2013, Morgan Stanley said, look, we've seen enough. We've seen enough dispersion between your performance and the government performance that we believe the thesis. So they gave us a warehouse line of financing, which is effectively just a loan to fund our loan. That's right. And so throughout the course of 2013, we began to build the business up, and at the end of 2013, we did the first rated securitization and market space lending. It was $155 million transaction that we did, but it kind of opened up the institutional market to understanding the value of these loans.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Instagram. That's right. And DCM, and then a large amount was from Renren, which is a Chinese internet company, a very unique partnership that came out of that.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“To put on the balance sheet. And everyone that was looking at us from the outside said, you know, Mike Cagnet, you're an idiot. You just raise $80 million to lend out at 6%. That's not a very good business model. And of course, it's not a good business model.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, you and me both. But the challenge was that there was this huge opportunity. We weren't raising capital enough. We were making this pitch, and everybody in New York was extremely nice and cordial to me. And in fact, they all told me how smart I was, which meant I would never get money from them. Because that's kind of a general rule, the nicer people are, the less they're going to give you. And so I came back to San Francisco a little bit humbled and frustrated in terms of how to address this chicken and egg problem because people wouldn't lend us money because they couldn't see loan performance. We couldn't generate loan performance without money. So I did something relatively heterodox. I went out and raised $80 million of equity capital. Okay.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“It may not let that go by without you. Well, student lending in general was constantly in the press around it's a disaster, it's a problem, it's the next crisis. But the reality is there's hundreds of billions of dollars of phenomenal credit within that pool. And so it's throwing the baby out with the bath wire. I see. And so we're making this case in our very heterodox approach to underwriting, which is not a FICO based approach, but cash flow-based approach.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“And so I went out to New York in 2012 and I pitched all the major banks, Goldman, Morgan Stanley, Credit Suisse, Bank America. And I said, look, there's a phenomenal opportunity here. This is what they call baby bathwater asset class. It's student lending. What did they call them?”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“So, what was happening at the time was we were going out raising alumni to fund these loans, and we realized we wanted to expand, and we added another four business schools and went out and started raising money from alumni in the other programs And we very quickly realized there was a huge opportunity here. And at the time, I was flying around the country raising $20,000, $50,000, $100,000 at a pop. It's a small.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“We did an outreach, so we did a town hall. We talked about what we were doing and why we were doing it, and then we had all the demand we could deliver into.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, right. Or, of course, this is where we'll get people, or of course, this is an effective channel to acquire customers. And of course, this is a wonderful color and a beautiful image and so forth. At the end of the day, you kind of have to become egoists and drop all that and just be driven by data. And so if something doesn't work, you realize it very quickly, you iterate fast, you put something out there that does. And sometimes it could be something you think looks horrible.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think a lot of times you come into a situation with assumptions about how things should work and why things are happening.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“To me, it was so counterintuitive and it was such a good learning experience, and it really set the precedent of being more data driven as opposed to intuition or conjecture-driven as a business.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“I don't know if you're going to call me at dinner or if you're going to try to sell me something stupid. To be a loan shark at Stanford.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“And to me, I don't think that mattered because I'm lending you money. And so, why do you care who I am if I disappear? That's wonderful. Maybe you don't have to pay me back. But the concern was, no, I don't know who you are.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, so it was interesting because we went to the students and we went to the financial aid office and we had our product offered. In the beginning, people didn't take the product. So, this was what was fascinating. So, it was a better rate, it was a better product, and people weren't taking it. And so we sat outside the financial aid office, and we waited for people that didn't take the product and accosted them and said, why didn't you take this product is better? And what we discovered, I think, was one of the most important learnings that we had early in the business people said, well, I don't know who you are.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“You know, one of the benefits of Stanford and why I think it's a phenomenal place for any entrepreneur to start a business is the network is so tight. And so I had a lot of relationships who were Stanford alumni from my previous company and from my hedge fund. And so people knew me well and we had that dialogue. So it wasn't difficult to do. But it happened very quickly. And I think it's very hard to imagine that happening in other university systems outside of Stanford. It's a very unique place to start a business.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yep, and we did a, in 2011, we did a really small fund. We went to 40 alumni, put $50,000 apiece, and it was a $2 million fund, went $20,000 out to 100 students to demonstrate that it worked. And then in 2012, we said, you know what, we're going to scale this. We're going to refinance loans.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“That's right. That's right. And so to me, the opportunity really opened up because it was clear that the banks were retreating from a lot of the consumer lending. There was a void there. In a situation where we can go in and actually establish a beach head into what we think is a phenomenal customer, sort of this, my general view is if you're between 25 and 40 years old, the banking industry is not designed to deliver solutions for you. And the banking industry is very oriented around 60 year old boomers with lots of money And so there's a huge opportunity way beyond student lending. It's really just broad consumer lending to go after.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Actually, nobody was there. So nobody was doing student loan refinancing when we came in. We actually created the product. They were doing financing.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think if you take the opposite view, so Peter Thielen's book, I think one of the things he said very well was find a vertical that nobody's in, build it, and then show it's important. And I think that that's what we did with student loan refinancing. So we went after that. Nobody was in there. Prop didn't exist.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Possibly better for themselves. They left a void. But to me, that was just one dimension. There's a financial dimension, but there's a lot of other dimensions that we can talk about as we talk about SOFI that need to be fulfilled. But there was a void that was there. And so the way I like to think about being an entrepreneur is I like to go after greenfield opportunities. I don't want to go and start a business to compete with Wells Fargo on day one.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“And well, because that was their option, right? That was their only option. And so I went back to Wells Fargo and I asked some of the folks there, why don't you go to Stanford and lend it six? Because you get all the business. And what was very clear was they said, look, with Dodd-Frank, with the crisis, with all the regulations, consumer lending has become very, very hard for us in all kinds of dimensions. And that's where finally it was what had traditionally been their comparative advantage, their moat, the FDAC insurance, had turned into a disadvantage in a lot of ways because of the regulatory burden that came with it and some of the hurdles that they had relating to that insurance. And so that's where it could be.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“And it's a great model, and there's the whole community thesis around repayment that you don't want to default into your community. And it's extremely strong. We see this in microfinance. But really the light bulb moment for us and where the opportunity opened up was I couldn't understand why students at Stanford were paying 6.8, 7.9% loan rates when they hadn't had a domestic default in 30 years.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think the challenge was, and why I didn't end up doing something with Chris or doing something at that point in time, was traditionally what's made banking on a saleable is FDIC insurance. So how do you compete with an entity that has zero marginal cost of funds? It's very hard to do. And so at the time, it wasn't the right opportunity, although there was a glimmer of hope in terms of a way to attack the industry. It was actually in 2010, I went down, ended up doing a fellowship at Stanford. So at that point, I'd been steering at Bloomberg Screen almost my entire career and wasn't getting any smarter with a blinking at me. So I went down to Stanford, serendipitously met my co-founders at SoFi, and we were talking about this affinity-based lending model. And there was an asset class right in front of us, which was student loans, and 65% of the students at the graduate school business borrow. And we said, boy, this is a great product where we could connect alumni to invest in a fund, lend to students, create a social contract. Makes all the sense”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“That's exactly right. That's exactly right. And we see that all the time within our organization, particularly around our mortgage business, where it's often beneficial to bring someone who's not been in that industry over because you need that fresh perspective.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I did a lot of structured product work for the lending groups, though. And I was very involved with a lot of the aspects of the bank around the balance sheet and balance sheet hedging. And so I knew the consumer loan book extremely well, but I wasn't a consumer lender. And I think that's actually helped in a lot of ways. I think sometimes you need to come out of it.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“But it was impacting people directly, right? And that's what I was most concerned about and where I thought there was an opportunity. So I reached out to someone I'd known for a while, Chris Larson, who was the founder of Prosper. Sure. And I looked at what Chris was doing in the peer-to-peer lending space. And I really liked the idea of disintermediating banks. I think Chris was ahead of his time at that point. It was in 2008 when we first spoke. But it stuck with me. The idea of a model that could connect sources and uses capital more efficiently than the banking system.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Inevitably. Inevitably gets to that point. That's one of the fallbacks of FDIC insurance. It's an agency problem in sense you to lever like that.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, because it was actually Gordon Getty that came to me to say this, and I think Gordon's been vocal about this, that it's an inherently unstable system because of the amount of leverage in it.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, I love the markets. And, you know, when I was at Wells, I was running proprietary trading in 1997 when the Asian currency crisis happened in 98 when Russia defaulted. So going back into the markets in 2006-7, a little bit of a heyday. And then 2008 changed the strategy a little bit before everything went bad and ended up working with just a couple of very large family offices and running their capital. Was in a situation the genesis of SoFi happened in 2008 when the world was falling apart. One of the families that I worked with came to me and said the banking crisis breaks every 25 years. Why don't you figure out a better model? To stop.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“It did fine. We ultimately sold that to Broadridge, and I left. At the time, we had 130 people in that company. And I said, you know, I'll never run 130 person company again. So I started too big too many challenges, too many personalities. Enterprise software is a pretty tough business to begin with. I was pushing pretty hard to move into software as a service, which is now called the cloud, obviously. But I wasn't able to affect that change. And so it was a great experience and it was a fine outcome, but at the end of the day, it wasn't what I was really looking for. And so I went back and started a hedge fund. To go back into the markets and to have four people working with me instead of 130. And that was a great change and a great transition for me.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Well, yeah, I was, and I had a very harsh realization I sat down a couple years into it with my co-founders and I said, you know, how do you think it's going? I think it's going great. And they kind of paused and were looking at the floor and finally one of them said, you're the worst CEO ever. And I went through the various stages of, you know, first it was, well, no, I'm not. And then you don't understand how hard I work and ultimately sobbed in the corner about how bad of a CEO I was. Okay.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“I wasn't throwing phones, but I think I got lulled into a sense of complacency because when the crisis hit, no one could go anywhere. There were no jobs. And so nobody left the company. And I misinterpreted that as people really enjoying the environment. The reality was, you know, I just was ill-prepared. I was 29 years old when I started the business. I had no mentorship in terms of how to run a company.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I raise money relatively quickly and I started an enterprise software company and I had come from a trading environment where I could throw phones at people and they would show up to work the next day. And so for the first two years of my enterprise software company, I was probably one of the worst CEOs ever.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think one of the realizations you have when you work at an organization like Wells, and Wells is a great bank, but irrespective of how important I thought I was at Wells Fargo, if I got hit by a bus on the day to work, the bank was still there the next day, right? So it wasn't clear that I can have a direct contribution in terms of growing that business out. And that's what I really wanted.”
2016-02-08 · Decoder with Nilay Patel · Recode Decode: Mike Cagney, CEO, SoFi · IDENTIFIED FROM THE TRANSCRIPT