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Two high-growth, technology-savvy fintechs, Happen Bank (NASDAQ: HAPN), formerly known as LendingClub, and SoFi (NASDAQ: SOFI), are moving in opposite directions this year: Happen Bank is up 2.9%, while SoFi has plunged 31.5%.
The move may seem counterintuitive. SoFi garners more media and investor attention than Happen. But after the divergent moves in both stocks, which of these high-growth, personal-loan-centered <a href="https://www.fool.com/investing/stock-market/market-sectors/financials/fintech-stocks/?utm_source=yahoo-host-full&utm_medium=feed&utm_campaign=article&referring_guid=259330fa-d11e-4338-9ba1-11087b6a033e” rel=”nofollow noopener” target=”_blank”>fintechs is the better buy today?
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Personal loan fintechs have massive growth opportunities
Over the past one to two decades, Happen and SoFi have emerged as two of the main companies seeking to disrupt the consumer credit market in the U.S. While SoFi began as a student loan originator, its personal loan business now dwarfs its student loan franchise.
The idea behind these companies is to use data and technology to underwrite unsecured personal loans. While personal loans generally carry fairly high interest rates in the low- to high-teens, these rates are much lower than traditional credit cards, which can be in the high-20-percent range or even higher. As such, issuance of unsecured personal loans has grown quickly in recent years.
The new personal loan renegades believe they can use data, technology, and the lack of traditional banks’ overhead branch costs to undercut traditional banks and still generate robust profits. Given the massive $1.35 trillion revolving credit market in the U.S., this niche appears to be a huge growth opportunity.
While other fintechs, such as Upstart (NASDAQ: UPST), have also emerged, Happen and SoFi appear to be the closest peers, as both companies have acquired banking licenses and not only sell their loan portfolios to others but also accept deposits and hold loans on their own balance sheets. Both also target relatively well-off borrowers with mid-to-high FICO scores.
SoFi positions itself as a tech stock
It might seem odd to some investors that SoFi has underperformed relative to Happen Bank this year. After all, SoFi is seen as the more prominent “tech-like” company, with its name on the Los Angeles Rams stadium built in 2020. SoFi also has a technology segment that includes payment processing, issuing, and back-end ledger technology services for others.
