You could be forgiven for never having heard of Marlette Funding. They have only been in business for just over 15 months and their major retail brand is called Best Egg. But this unassuming company is quickly becoming a major player in our industry.
I chatted with Marlette’s founder and CEO, Jeffrey Meiler, recently to get the scoop on his company. During our conversation one thing quickly became very clear to me. Unlike many new platforms I speak to, this was a company that is steeped in the consumer credit industry with 80% of their workforce having worked together before, mostly at Barclays in the Barclaycard division.
$400 Million in Their First 10 Months
The growth has come very fast at Marlette. They issued their first loan on March 17, 2014 and by the end of the year they had originated just shy of $400 million in new loans. By May they had already surpassed that number for 2015. They are without a doubt the fastest growing marketplace lender in our industry.
To say their story is all about growth, though, would be missing the point according to Meiler. While growth is important it is only one aspect of a broader business scorecard. He prefers to look at his company through three different lenses: growth, profit and cash flow. In other words, growth is not that important if it doesn’t also lead to the establishment of profitability.
On this count, Marlette is also the industry leader. Despite just launching in March of last year, by Q4 of that year they made money on a GAAP basis. I have never heard of another company in this industry making money so quickly. Year to date they have also made money on a GAAP basis and they will break even on a cumulative basis in the coming weeks. And Meiler expects Marlette to be cash flow positive by Q4 of this year.
The first investor on board at launch time was industry pioneer Colchis Capital. While they do not have an equity stake in Marlette they did provide 100% of the debt capital for the first few months of their operation. Now, Marlette is serving a range of institutional investors and Colchis no longer provides the majority of their funding.
Can a Platform Grow too Fast?
The whispers I have heard about Marlette when talking with others in the industry is the danger of such rapid growth. When you grow this fast it takes a while before any underwriting missteps to show up. Meiler is well aware of this problem and he is very comfortable with their rate of growth. He shared that their vintage delinquency and loss rates to date have been inline with expectations. He also said that they are going to “eat their own cooking” later this year by investing alongside their institutional investors.
While growing this fast certainly has its risks the fact that the team at Marlette has such deep consumer lending experience helps allay some of these concerns. While at Barclays several members of the Marlette team helped grow their US credit card business from $1 billion to $12 billion and a top ten US card issuer in just a five-year period. So, they have experienced and managed rapid lending growth before.
Where are all these borrowers coming from? While Meiler didn’t go into details of their marketing plan he did say that the vast majority of their loans are coming through their retail-facing brand, Best Egg (www.mybestegg.com). With this platform they are targeting a slightly more prime borrower than other marketplaces – their average FICO score to date is 715.
One of their goals for 2015 is to diversify their borrower channels. In Q1 10% of their loans were coming from sources other than Best Egg offline execution and their goal is to make that 40% by Q4. What are these new channels? Meiler wouldn’t elaborate other than to say they are doing more online channels and aggressively pursuing partnerships including Lending-as-a-service type deals.
On the investor side Marlette is well served. They have been built from the ground up to serve institutional investors – they only make whole loans available and there is no cherry picking, all investors receive a random allocation. And as mentioned earlier they are going to start funding loans off their own balance sheet in the second half of the year.
The Largest Marketplace Lender?
I don’t think it can be disputed that Marlette is the fastest growing marketplace lender in the US. There was an article in Bloomberg earlier this year that talked about how Marlette did in 10 months what Lending Club did in five years. Now, that is probably not a very fair comparison because five years ago there were no institutional investors in this space. So, it would have been impossible to grow the way Marlette is today.
But here is a team that is used to dealing with consumer credit in the billions of dollars. If they keep growing at this breakneck speed it is quite possible that one day they could be the largest player in our industry. It will be interesting to watch the Marlette story develop.