Happen Bank Is Crushing SoFi This Year. Here's the Reason Why It's Still the Better Buy.

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 fintechs is the better buy today?

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.

Further, SoFi appears to be aggressively pursuing growth, with 43% revenue growth and 50% earnings-per-share growth last quarter. Specifically in its lending segment, originations were up 69%, while personal loan originations were up 54%.

The originations outpaced Happen Bank's growth, which grew "only" 29% relative to last year.

But there's a good reason that Happen is winning in 2026

Despite its lower top-line growth and lower profile, Happen appears to be executing better than SoFi on the fundamentals of lending. While its originations growth was well below SoFi's, Happen's earnings-per-share growth was actually a bit higher, up 51.5% from the prior year.

Happen's margins are more than double SoFi's and are expanding quarter over quarter, while SoFi's Q2 margins declined relative to the first quarter. Happen generated a 28.8% net margin in Q2, up from 26.7% in the prior quarter and 18.8% in the year-ago quarter. Meanwhile, SoFi's net profit margin was only 12.8% in Q2, down from 15.2% in the prior quarter, though up modestly from 11.4% in the prior-year quarter. Happen's margins were driven by a lower charge-off ratio, which came in at just 3.2%, compared with SoFi's 3.7%.

Happen's higher profit margin also translates into a higher return on tangible common equity, with Happen Bank reporting 15.9% in Q2, up from 14.5% in the prior quarter. Last quarter, SoFi generated roughly a 6.7% return on tangible common equity, down from about 7.3% in the prior quarter and likely below its cost of capital.

So, despite SoFi's higher growth rate off an origination base nearly triple that of Happen's, it appears that Happen has been able to better target and underwrite borrowers and more efficiently.

Image source: Getty Images.

Growth-at-all costs doesn't work, especially in banking

No doubt, this year's relative stock performance is partly attributed to both companies' starting valuations. SoFi came into the year trading at a whopping 45 times forward earnings, while Happen entered the year at a modest price-to-earnings (P/E) ratio of around 10. Even after this year's drop, SoFi still trades at 30 times this year's earnings estimates, while Happen continues to trade at just 10.5 times earnings expectations.

Even though SoFi and others in the space try to position themselves as high-growth technology companies that may be more exciting than traditional banks, these new-age, personal-loan-heavy fintechs are, at their core, lenders. While SoFi has its technology platform and other offerings, such as brokerage and other financial tools, the vast majority of its revenue and profits come from good old-fashioned lending.

Warren Buffett wrote in his 1992 letter:

Growth benefits investors only when the business in question can invest at incremental returns that are enticing -- in other words, only when each dollar used to finance the growth creates more than a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor.

As this is true of any business, it's especially true of financial companies such as banks. Anyone can write a loan, but it takes a good banker to get paid back, and it costs a bank equity capital to grow its assets.

So, while both SoFi and Happen have exciting growth prospects and growing franchises, it seems that Buffett would much prefer Happen Bank growing originations 30% with high returns on equity over SoFi growing originations over 50% but with lower returns. Even with SoFi's 2026 sell-off, Happen still has a valuation just one-third of SoFi's, all the while sporting superior earnings growth, margins, and returns on equity. Thus, Happen is the no-brainer personal-loan fintech to choose today.

Billy Duberstein and/or his clients have positions in Happen. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.