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Podcast 279: Jerry Wang of Haitou Global

The CEO and founder of Haitou Global talks emerging market debt investing and why some of the best investment opportunities today are in far flung places.

December 31, 2020 By Peter Renton Leave a Comment

Views: 88

Most U.S. debt investors pay only scant attention to emerging markets. While some are moving into Latin America most are happy to stay in the comfortable confines of the USA and Europe. But some of the best opportunities are in emerging markets today, those markets that do not yet have much of an institutional investor presence.

Our next guest on the Lend Academy Podcast has embraced this opportunity. Jerry Wang in the CEO and founder of Haitou Global, an asset management firm based in New York but with a global investment mandate. His firm has investments in places like India, Indonesia and Nigeria. He brings a sophisticated and tech-savvy approach to investing in lending platforms in emerging markets.

In this podcast you will learn:

  • Why Jerry decided to start Haitou Global.
  • What they do exactly and their investment thesis.
  • How they evolved to include private credit as part of their investments.
  • What is it about emerging markets that attracted Jerry and his team.
  • The types of loans they are funding in emerging markets.
  • The yields they are looking to earn.
  • How they adjusted their loan terms during the pandemic.
  • What analysis they do before pulling the trigger on one of these deals.
  • The types of lenders they prefer working with.
  • The countries with the best opportunities today.
  • What makes Haitou Global different to other emerging market investors.
  • What Jerry has been doing differently this year because of the pandemic.
  • The kinds of investors they attract today.
  • The key fintech trends they are seeing in emerging markets.
  • Jerry’s plans for 2021.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking.

Download a PDF of the transcription of Podcast 279 – Jerry Wang.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 279-JERRY WANG

Welcome to the Lend Academy Podcast, Episode No. 279, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. LendIt’s flagship event is happening online this year on April 27th to 29th with the possibility of an exclusive VIP in-person component. The verdict is in on LendIt’s 2020 event that was held online with many people saying it was the best virtual event they’d ever attended. LendIt is setting the bar even higher in 2021 so join the fintech community at LendIt Fintech USA where you will meet the people who matter, learn from the experts and get business done. Sign up today at lendit.com/usa.

Peter Renton: On our last podcast of 2020, we’re going to do something a little different, we’re going to be talking about emerging markets. I am delighted to welcome the CEO and Founder of Haitou Global, Jerry Wang, on to the show. Now, Haitou Global is really interesting because, I think, they have a unique perspective. They’re actually based in New York, from China based in New York, investing in emerging markets, private credit and providing basically credit lines to fintech lenders in emerging markets.

We get into that in some depth and we talk about how they were able to do this, what they look for in investments, the types of companies that they’re working with and it’s super interesting. Jerry also provides his perspective on the region as a whole, particularly Southeast Asia, Africa. He’s got his finger on the pulse as to what’s happening, not just in fintech there, but broader trends in the larger economies. It was a fascinating interview, hope you enjoy the show.

Welcome to the podcast, Jerry!

Jerry Wang: Hi, how are you, Peter? Thank you so much for the invitation.

Peter: Of course, I’m great. So, I’d like to get this thing started by giving the listeners a little bit of background. I know you’re not from this country, just like me, but why don’t you just give the listeners some of the background of your career and how you got to where you are now.

Jerry: Yeah, sure. So, I grew up in China, I went to college in Beijing, I came to the States 20 years ago and studied at Notre Dame, worked at Notre Dame and so I spent half of my life in China and half of my life in the United States. We live in New York, the company’s out in New York so we’ve been in office for seven years now, but still travel extensively back to China, Asia and other continents too.

Peter: Okay. Why did you decide to start Haitou Global, what was the thinking there?

Jerry: Well, we started seven years ago, 2014, here in New York City. The rationale was, you know, I spent a couple of years in offices and allocating capital in emerging markets and I just felt like, you know, the emerging markets and entrepreneur bug you know, I wanted to do something different and I want to serve the other markets, you know, emerging markets, always underserved.

There are investors coming out of China and Asia and they want to allocate capital globally. but they have no experience, no channel, no platform to help them to do so and that’s how I set up the platform on helping Asian investors originate in the US. Gradually, we branched out to other markets, mostly emerging markets, over time.

Peter: Okay. So, maybe why don’t you just describe what you guys do exactly, how you’ve kind of structured your company and where you invest.

Jerry: So, since day one, we are positioned as a global asset location platform and so there are a couple of fundamental principles. For example, we’re technology-enabled, we’re a research-driven platform so we have our apps and we invest in different emerging markets, it’s global and it’s based on technology platforms. Those are, you know, the main principles. Other than that, we are not much different from the much larger investment houses, you know, we allocate capital into different asset classes, stocks, bonds and venture capital, real estate and we invest in different markets like the United States, Southeast Asia, Africa. So, even though we’re a small firm, but we’re as diversified as any other houses.

Peter: Right. We’re going to be focusing here on the fintech space and in particular, I know you do a lot of private credit-type investments. Why include that…..it’s, obviously… not every investor has a private credit/debt that’s in their portfolio, what was your thinking there in making that a big part of what you do.

Jerry: Well, it’s just a natural evolution. When we started the company seven years ago, we worked more like a cross border LendingClub type of platform and we wanted to use, you know, global payments, cross border transaction platforms help the local Chinese and the Asian investors invest in the US and that’s our original thesis and credit is just a natural set. You know, it affects income, it’s stable and it’s liquid so that’s how we like the asset classes. It’s just like public credit, you know, it’s volatile, you had a market and the yield real low under current environment and that’s why we picked the private credit sector.

We know the sector well and that the investment has strong demand for uncorrelated and high yield that’s why we picked the sector. It’s difficult because, you know, in terms of private you had to choose your own field, you had to structure it and you had to manage your services. There is a high bar and it’s not like you can just open a Charles Schwab account and start trading it. So, like you mentioned, this is kind of an investment we really like, you have a high hurdle and you have a high demand and we have the team, the investors, the technology to manage it, to mitigate the risk so it’s a strong portfolio for the whole asset class diversification.

Peter: And then what about emerging markets, you’re focusing a lot on those countries that are less developed, what’s the thinking there? Why invest in emerging markets?

Jerry: So, we have key teams, one in New York, mostly the Investment Team, another in Beijing, Research Team, Operation Team, Technology Team and so we get to know both markets really well. You know, we started our office five years ago in Beijing so we can cover Southeast Asia and South Asia easily, not too distant, but it’s much easier than from New York and that’s how we can cover that region and cover that by investment class and also, because it’s what I have seen in the past years. So, we know China really well and has been growing fast, particularly in the fintech sector so we surpassed the US and we can get to know the biggest fintech market in the past couple of years.

We’ve seen that fact, you know, the China teams and the business models and the technologies were adapted by the Southeast Asia and South Asia markets quickly that’s why we naturally branched out to Indonesia, India. Those are, you know, big markets as big as China and they’re more open and they have a low starting point that you can grow much faster, even faster then China because, you know, China has certain size already and is tightly regulated that’s why we got interested in the Southeast Asia market. From there, we now branch out to Africa, to LatAm, it’s just a natural evolution and we’ve done our investment and research and we discovered local teams at the corners and we intentionally wanted to diversify our investment.

Peter: Right. So, what do you look for then in an investment in these emerging markets? Firstly, I presume, you’re doing mainly debt investment, correct, and you can correct me if I’m wrong, but what are you looking for, what makes a good investment in these places.

Jerry: First of all, we are looking for growth, right, and with growth comes returns and yield. Now, we’re looking for, you know, regulations and the teams, talents so a lot of things they have to come together to form a solid investment thesis but, at the end of the day, we’re looking for returns so what we can get out of those markets, can we mitigate that risk. So, for example, Southeast Asia, we have different investments…. for example, we buy technology stocks so, for example, EAC (?), they are e-commerce application and also payments, they have gaming too.

Those are still stocks, but our biggest investment has been through credit, we also have venture arm and we heavily invested in India companies, Indonesia companies, Singapore companies, mostly fintech, but our big investment has been through private credit so we lend to the local platform. For example, the e-commerce, they sell cell phones in the Indonesia market, we provide installment payments to the local consumers and also we have agriculture, loans to the local farmers. They borrow from the traders and, you know, buy the seeds and the produce, the goods they sell them and pay us back.

So, we are more like a platform, but we don’t do direct lending, we lend to the local platforms and then they work with, you know, local producers, borrowers and structure the loans so we’re more like a fund manager.

Peter: Right. The listeners will be well aware of that model. So, what kind of yields are you looking for because, I imagine, some of these things are pretty high risk, what sort of yields makes it interesting for you?

Jerry: So, we’re looking for, you know, risk-adjusted yield and he has to keep paying like a risk premium and for some of the stocks that we’re looking for like over 15%. In terms of credit, we’re looking around 15% so we can take 12%, we can take 18% and the rules are more structured product. So, we are working with local platforms, they provide, you know, proper guarantee for principal and interest and we want securitization of that underlying asset, you know, cell phone loan portfolio and, you know, collateralized by the phones itself, if you can’t pay then they can get your phone back, something like that.

We also have, you know, supply chain finance secured by the underlying goods and so that is why we have been…our performance has been stable in the past five/six years and has not been impacted much during the pandemic because we have structures in place and guaranteed, it’s also shorter term. So, our average duration has been, historically, four/five months and during the pandemic that was lowered to like two months so we can get our money back in a quarter even though we didn’t do so. We need to have some redemptions during the pandemic and we handled the liquidity well just because the underlying liquidity is there. So, it’s not as if we’re locking up the capital for five years like the private credit funds that we offer the most liquidity.

Peter: Right, right, that’s really interesting. So then, when you look across these companies, when you said you’ve got a team in Beijing that particularly works on the Southeast Asian market, I mean, what of verification, what kind of analysis do you do before you pull the trigger on one of these deals?

Jerry: First of all, we do kind of like a top-down approach, you know, we look at the macro data, we’re looking for a big population, over 100 million people, GDP growth over 5%, stable political structure and reasonable type of regulations, we look at all the macro. Well, if it was right, we would just start out there, look for local partners and we find the local platform to partner with. So, those are more like a top-down approach. Bottom line is we find the right team, they have the local expertise, they know the market, they speak the language, they can deal with the local consumers directly and also, we have the long term approach, we are talking like 10/15/20 years and its not like short term five months or ten months and we get our money back and then we are gone.

So, we spend a lot of time getting to know the market, getting to know the team, we also develop the API system, connecting their lending platform to our operation, our risk management platform so we can get the data on a daily basis then we consolidate all the risk factors, we can act fast. For example, during the depths of the pandemic we shut down the lending starting end of March for like a month just because the country shut down, right. They locked down part of India, the whole Jakarta area and we launched that program during the month so we’re pretty flexible and the team has to be flexible.

Most of the teams we partner with, they have the local expertise, they have the technology background so just like we spent a lot of time….I used to travel there like four times a year, every quarter and make the team conduct due diligence, we actually manage the process. It’s not like a traditional fund manager, you give the money, you just wait or hope that you will get the money back. We constantly manage the exposure.

Peter: Right. So, these lenders that you’re working with, it sounds like they’re building APIs so you’ve got APIs connected to your systems, I mean, these are all tech-enabled lenders, it sounds like. Is that true?

Jerry: Exactly. So, many of them work in traditional sectors, although not tech-enabled. For example, the commerce that we’re working with, the e-commerce website and e-commerce apps and for logistics, they all have their own system in place, you know, we know where the goods are we also have the rate sheet and we know if it’s onboard a boat or a ship and it’s on it’s way to Vietnam so we have all the information. We ask them to provide to us, it has to be managed by technology, otherwise, we just can’t keep track of every single investment on a daily basis.

Peter: Right, that makes perfect sense. You’ve talked about a few countries already, but like where do you think are the most promising opportunities today globally, what countries do you think have the best potential?

Jerry: Like I mentioned, we like the large populations and right now, you know, we’re pretty optimistic about the India market, Indonesia, Mexico and we like India just because those countries are going to come out of the pandemic and strong. Also, they’re going to continue their growth trajectory even though they’ve been down during the pandemic, they bounce back quickly coupled with the global trade and re-shaping of the global supply chain.

A lot of businesses are going to shift from China to India, to Indonesia, to Vietnam and also, you know, there are frictions between countries, but, mostly globalization is back on track, China signed the RCEP [Regional Comprehensive Economic Partnership] agreement with the ASEAN countries and also, I think, the US is going to be back on track with the TPP agreement. So, we’re betting on globalization affecting the trading and betting on the financial technology, global payment, how the global payment movement is going to help global trade. A lot of our businesses are cross border so those technology trends and demographic trends is going to help us a lot.

Peter: Right, right, okay, that makes sense. So, you’ve got a very curious, very interesting thesis, do you think it’s the technology then that differentiates you from other investors getting on the ground? I mean, what do you think differentiates your company from others trying to do a similar thing?

Jerry: I guess we are emerging markets-oriented, we have always been in Asia and we are just getting to know Africa and LatAm better so this is in our blood, right, we’re focused on emerging markets. Also, my background, you know, I started in my first job as a software engineer and so I have software engineering-type genes also because I worked for endowments before I went global, it’s more the institution mindset, you know, just now like a fintech entrepreneur, you start an app and you start working on peer-to-peer lending.

Eventually, it’s going to come back to me, you know, my Asian background, my institutional investing background so that’s why we shaped the financial, you know, had a global platform serving both individuals and institutional investors through technology, through emerging markets investment opportunities. I mean, a lot of institutional investors, they want to get into this market, but they don’t know how, right.

So, we provide the beta, we provide the technology platform and then we also, just like every now and then, we travel there. We have to go on the ground and just get to know the market, get to know the people better over time and it takes time. So, we spent the past six and a half year building the platform, setting up the infrastructure and now is the time to catalyze it.

Peter: Right. So, you talk about your travels, you’re on the ground in these markets, but this year that’ll be really difficult since March, I imagine, so how have you adapted your company this year without being able to travel. Are you doing exactly the same thing, you’re just doing it on Zoom, what are you doing?

Jerry: Well, yeah, that’s a good question. I canceled all my trips, my trip to India, to Nigeria, to Mexico so I stayed in New York for the whole year. I was in California early this year, that’s about it. So, a couple of things, one thing is that we have always been digital, you know, we have the technology platform, we do the Zoom calls way before the pandemic hit us so we continue to do the video conferencing and talking to different time zones, different continents, maybe more frequently as before, but always in that case.

Other than that, we are working with markets and teams we have always been working with. You know, we don’t get into jumping into something suddenly. For example, we’re attacking the Mexican market, working with a US team, the former CapitalOne team out of DC, we know the team for three years so we’ve been working with them in other markets. Now, we’re working together in Mexico and now we’re working with the local team we have known for five years.

So, either we’re working with the same team to go into different markets or same markets with different teams, it always has been something that we’ve been cooking for a long time and now we are fairly comfortable with. It’s not like we are jumping into new things right now. It’s just a natural branching out based on our past experience or based on our network, just like accumulation of knowledge and resources.

Peter: So, you haven’t met any new investors with people this year that you haven’t met face-to-face or have you?

Jerry: We have. We made one investment in Nigeria working with the team who work with local carriers and we never met the team, but we know the team fairly well, it comes through our network and the back office is in Shenzhen, the front office is in Nigeria. We know the team and the environment really well, I was there last year, October, I know the carrier, I know the cell phone manufacturer so that’s how it can help the business and it’s a trial.

We start small and get over frictions, how to smooth it out. I mean, our Beijing team flew to Shenzhen to visit the team, I haven’t seen them, we talk on Zoom from New York. You know, it’s like I said, we have always been working this way and I can’t spend half my year in Africa so we do go there at least once a year, twice a year in normal times.

Peter: So, Mexico, have you made a first investment in Mexico yet or are you still looking?

Jerry: It’s not launched so we work with the DC team and their back office is in Chengdu, China, you know that they have the engineer and reasonable cost. So, we actually committed three months ago and we’ve done all the market research in terms of product and we set up a registered company, it just registered like last week. So, I think we’re committed, but we haven’t launched the business yet.

Peter: Right, right.

Jerry: …so called US and the China partners, it’s a joint venture.

Peter: Right, I got it. So, do most of your investments have some kind of Chinese connection or it is not necessary?

Jerry: It is not necessary, but we try to add the Chinese component and that’s our value add. For example, we invested in a fintech company here in the US, in Texas, they do a kind of natural gas engine, we try to bring them to the China market and we offer them a leasing program so some try to buy the equipment, we just provide the lease about $15,000 for the equipment. So, there’s always been financial technology component in it and that we help them to expand into other emerging markets, not just China. We help them to get into the Philippines…..so that’s a new initiative you know, right, so protect the environment based on our agenda. We want to make money and also doing something good.

Peter: Right, right, for sure. So then, are your investors Chinese individuals, I mean, who are the LPs for your company?

Jerry: So, I’d like to mention, when we started if was more like a cross border LendingClub with many smaller investors and over time, we are consolidating so most of our investors right now are like family offices, high net worth individuals. We are trying to, you know, tap into the institutional world just at the beginning of this year. We set up the credit fund last year so it’s only 14 months check record, but it’s short.

Before that, we offered platform notes in the realty project, those are tailored for the middle class investors, but we have gradually evolved into more institutionalized investment platform partly because of my background and partly because this is a trend, right. For example, in LendingClub there are mostly ABS or institutional funding other than individuals and I think they’re going to completely shut it down to individual investors. It’s the same trend, this is a more efficient, this is how it worked, used to work.

Peter: Right, right. So, do you plan… all of the credit that you’re providing to these platforms, do you hold the loans all the way through? I guess these are short-term loans, aren’t they, so you hold them through the maturity, right?

Jerry: Yes. The way, you know, we source a loan, we structure loans, we invest in loans, we hold them through maturity then we recycle, we rotate, we reinvest in those same loans. The longest platform we’ve been working with is like four and a half years now unless there are some shifts in the market or on the platform, otherwise, we’re committed for the long term. Even though the loans are short, but our investment horizon is long.

Peter: Right, I get it, I get it, okay. So, I’m curious to get your perspectives on the trends in the fintech-enabled lending space specifically. I mean, you’ve got a very interesting viewpoint doing it. You obviously have the US market, but you’ve got a viewpoint on to the emerging markets, what are the trends you’re seeing there? Is there a similar kind of things going….obviously, we’ve talked about cell phones and mobile, but maybe you just talk about ….tell us some of the trends you’re seeing in these emerging markets.

Jerry: Well, I think the biggest tailwind is like the 5G, the smart phone penetration and the mobile payments. Surprisingly, in some of the emerging markets’ penetration rates are higher than the US so it’s easier adaption for them getting into online lending or installment loans. So, that’s why we like the emerging markets, they have the structure ready and they have the (inaudible) so people are…..you know, they’re making a few thousand dollars a year now and the average phone is $500, they have the money to spend, they want to borrow and, again, their earning power.

So, those are the trends that we’re seeing and also, many of the platforms we’ve been working with are like immersed with the Chinese component. Some platforms, they sell Oppo/Vivo phones, Huawei, Xiaomi phones, some are buying from Africa. For example, one producer they sell cashews to the Chinese market, we’re providing supply chain financing for them. In the China market, it’s incrementally becoming a consumption market, right, so they are upgrading what they’re buying globally, not just like exporter anymore, it’s a big importer.

So, those are the trends we’re seeing and there are a couple of different US models in the emerging markets too, for example the Affirm model, buy now pay later. It’s getting popular in the US and Australia, but they’re also popular in China and India. And the consumer, they want to buy but they want a fair treatment, they don’t want to pay for the, you know, high interest rate, not like a virtual credit card, a different model applying in any virtual market quickly so I see the adaption rate is really high, really fast and those markets have scale.

Also, the fintech model….winner takes all, right, so once you dominate the market then you can start making money and the investment period is short, it’s fast so you can….one business model it can maybe take you 10 years to get to a million users in the US. It will take you probably just two or three years in China or India. The younger generation are very, very, you know, interested in financial technology, they feel we can help them, they are tech savvy.

Peter: Okay. We’re recoding this on December 16th, but this is going to be published on the 31st of December, the last day of the year so I’d love to kind of get your perspective on 2021 as we turn the corner on 2020. What are your plans for the year and what do you think are some of the things you are looking for out of 2021?

Jerry: First of all, I want to go back to the emerging markets, I want to be able to travel again, go back and see our partners, see how they’re doing and also, continue to expand. You know, we have built the infrastructure to invest globally and we can attack (inaudible) again. I guess, we haven’t changed a thing, in terms of the investment thesis or our investment structure because our model was tested during the pandemic.

Also, I feel the emerging market is going to come back strong in a couple of countries like for example, China is going to have a positive GDP this year; Vietnam is going to be positive; India and Indonesia are going to bounce back next year. It’s going to be faster than, you know, the OECD countries so we see those will continue to be strong, promising markets. We just want to go back there, do what we have been doing the past years.

Peter: Right, right, okay, We’ll have to leave it there, Jerry, it’s been fascinating talking with you and we wish you all the best for the new year. Happy Holidays and have a great 2021.

Jerry: Thanks, Peter, let’s catch up again next year.

Peter: Sounds good, okay, see you.

Jerry: Okay, bye.

Peter: Bye.

You know, one of the reasons I wanted to get Jerry on was because the emerging markets really have….that’s where some of the outsized opportunities are going to be over the next few years and Haitou Global has got a really unique perspective and a unique approach to those markets.

We saw this in our Latin American event that we held early this month and there are huge opportunities. Part of the reason for that is it’s a pretty tech savvy population, a lot of the particularly….they skew younger, smart phone penetration is increasing and they don’t have traditional financial services in a lot of these economies, but they have demand for financing and that’s what, obviously, Haitou Global’s taking advantage of. It’s providing the funding for a lot of this demand and I think it’s going to be a big opportunity that more and more companies should be paying attention to, I think.

Anyway, before I sign off, this is the last episode of 2020, I am very happy to be turning the page on this year, looking forward to 2021. We’ve got a lot of great guests lined up and I want to thank everybody who has listened to the show this year, we really appreciate it and I’m looking forward to an exciting 2021. So on that note, I will sign off, thank you very much for listening and I’ll catch you next year. Bye.

Today’s episode was sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. LendIt’s flagship event is happening online this year on April 27 to 29 with the possibility of an exclusive VIP in-person component. The verdict is in on LendIt’s 2020 event that was held online with many people saying it was the best virtual event they’ve ever attended. LendIt is setting the bar even higher in 2021. So join the fintech community at LendIt Fintech USA where you will meet the people who matter, learn from the experts and get business done. Sign up today at lendit.com/usa.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

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Filed Under: Lending and Fintech Podcast Tagged With: asset allocators, emerging markets, Haitou Global, institutional investing

Views: 88

The Top Ten Biggest Fintech News Stories of 2020

It was a tumultuous year with the pandemic impacting fintech companies in different ways but here are the stories we think were most important

December 30, 2020 By Peter Renton Leave a Comment

Views: 682

As the sun sets on 2020 and we look back at this past year nearly everything is viewed through the lens of the pandemic. Many fintech companies did surprisingly well while others, particularly in the lending space, struggled. When we look at the year as a whole we see that it was M&A activity that consistently showed up in the news, some related to the pandemic, some not. But the biggest story 0f the year, in my opinion, was how fintech came to the aid of millions of small businesses in the PPP. Here are my top fintech news stories of 2020 (with my usual focus on lending and digital banking):

1. With the PPP Fintech Comes of Age

Rob Frohwein, CEO and Co-Founder of Kabbage, said it best on the LendIt keynote stage this year: “Kabbage was built for the PPP”. So, it was was for many fintech lenders in the small business space. Tasked with having to develop new systems for the Paycheck Protection Program in a matter of days, rather than months, the fintech industry responded and helped provide a huge number of small businesses with the loans they needed, saving millions of jobs in the process. It was not just Kabbage, we had Cross River Bank and Square as well as the loans marketplaces like Lendio leading the way.

2. Intuit to Acquire Credit Karma for $7 Billion

Credit Karma has almost singlehandedly increased the awareness of credit scores for tens of millions of Americans over the last decade. Intuit realized the value in the incredibly rich dataset that Credit Karma has created and wanted that, and the huge customer base, for themselves. And they were willing to pay to the tune of $7.1 billion. In the end this deal closed for $8.1 billion earlier this month with Credit Karma having to divest their fledgling tax preparation business, it was sold to Square for $50 million. For more on this deal read this interesting piece in Fortune.

3. Visa to Buy Plaid in $5.3 Billion Deal

[Read more…]

Filed Under: Fintech Tagged With: American Express, Credit Karma, Cross River Bank, Intuit, Kabbage, lendingclub, Plaid, PPP, Radius Bank, Upstart, Varo, Visa

Views: 682

The PPP is Back, What do Fintech Leaders Think?

As part of a huge 5,593-page bill Congress includes a new round of funding for the Paycheck Protection Program

December 22, 2020 By Peter Renton Leave a Comment

Views: 1,070

Last night Congress finally passed a new round of stimulus funding. The $900 billion Covid-19 relief package included $285 billion for a renewed Paycheck Protection Program. You can read the full text of the 5,593-bill here.

This is big news for fintech as our industry played a major role in the initial rollout of the PPP earlier this year. While the details are similar to first PPP there are some important differences. Here are just some of the details:

  • Companies that received a first PPP loan can apply again provided they have 300 or fewer employees AND experienced a 25% drop in revenue in any quarter compared to 2019.
  • First time borrowers will be subject to the rules of the initial PPP although public companies will not be eligible.
  • Maximum loan size is $2 million, down from $10 million.
  • Small businesses can apply for 2.5 times their monthly payroll (3.5 times for the hospitality industry).
  • Borrowers need to spend at least 60% of the proceeds on payroll for full forgiveness.
  • The SBA will be required to establish regulations no later than 10 days after the legislation is signed into law.
  • Both the House and the Senate have passed the legislation with large majorities and the President has until December 28 to sign into law.

So, early in the new year round two will begin. While we don’t know the details of the program yet we learned from the New York Times yesterday that the top four PPP lenders, Bank of America, JPMorgan Chase, Cross River Bank and Wells Fargo all intend to participate again.

I reached out to a number of fintech leaders to get their reaction to the new round of PPP. Here is what Adam Goller, General Manager of Strategic Partnerships at Cross River, said: [Read more…]

Filed Under: Fintech Tagged With: Paycheck Protection Program, PPP, regulation, small business, small business lending

Views: 1,070

Top 10 Fintech News Stories for the Week Ending December 19, 2020

December 19, 2020 By Peter Renton Leave a Comment

Views: 213

Here are what I consider to be the top 10 most important fintech news stories of the past week. Again, IPO news leads the top stories of the week.

Affirm Postpones Its Initial Public Offering from The Wall Street Journal – Affirm announced last weekend that they would be delaying their IPO until January at the earliest amid concerns about the first day price jumps of other tech companies.

Coinbase files to go public confidentially and we’re hyped from TechCrunch – The leading crypto exchange announced that it has filed confidentially to go public and will likely hit the public markets in early 2021.

Upstart Completes Their IPO, Soars 47% on Trading Debut from Lend Academy – And now to a company that actually did take the plunge this week. Upstart had a phenomenal trading debut and has continued to climb since this article was published.

Green Dot And The Future Of Banking-As-A-Service from Forbes – While the banking as a service sector heats up Ron Shevlin talks with the CEO of Green Dot about their plans there as well as how they are taking on the challenger banks.

Robinhood Financial to Pay $65 Million to Settle SEC Probe from The Wall Street Journal – Robinhood’s regulatory challenges keeps making news and this week we learned they settled with the SEC for $65 million on claims that they didn’t sufficiently disclose their business deals with high-speed trading firms.

Banks can’t ride fee income gravy train much longer from American Banker – Banks saw significant increase in fee income in 2020 but that is expected to reduce in 2021 and 2022.

German fintech N26 eyes more fundraising before IPO in 2023 -CEO from Reuters – Valentin Stalf, the CEO and founder of N26, said that while the digital bank is aiming to break even by the end of 2021 they will likely do one more fundraise before a 2023 (at the earliest) IPO.

Nubank: A LatAm Fintech Valued at $10 Billion and Growing Fast from Crowdfund Insider – Nubank is the largest digital bank in the world (excluding China) with more than 30 million customers. JD Alois digs into the recent keynote at LendIt Fintech LatAm with the CEO of Nubank, David Vélez.

Banks Have Made Big Digital Gains, But Is It A Double-Edged Sword? from Forbes – Banks made tremendous gains in digital engagement with their customers this year but in the world of digital a new bank relationship is just a click away.

Spring Labs Slashes Consumer Loan Fraud Using Novel Data Network from Fintech Finance – I love what Spring Labs is doing and as they start to ramp up they are making a real difference in fraud prevention.

Filed Under: News Roundup

Views: 213

Podcast 278: James Paris of Avant

The CEO of Avant discusses the rise of their credit card business, the impact of the pandemic. the Colorado decision and more

December 18, 2020 By Peter Renton Leave a Comment

Views: 256

The rallying cry of the online lending industry has been to eliminate high cost credit card debt. And while tens of billions of dollars of revolving credit has been refinanced with lower cost personal loans we are starting to see some companies branch out into credit cards. Avant is one such company.

Our next guest on the Lend Academy Podcast is James Paris, the CEO of Avant, a position he has held for about a year now. Avant have two main offerings: a personal loan and a credit card with the latter being the fastest growing part of their business.

In this podcast you will learn:

  • How James describes Avant today and a little history of the company.
  • How the idea for their sister company, Amount, developed.
  • The slightly different customer profile for their loan and card products.
  • The impact of the pandemic on their business.
  • How they approach the capital markets side of their business today.
  • The financing structure they have in place for the credit card business.
  • What the impact of the Colorado decision will have on Avant and the industry.
  • How True Lender might play out on the national stage.
  • How they think about financial health and improving the lives of their customers.
  • What James and the Avant team are focused on for 2021.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 278 – James Paris.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 278-JAMES PARIS

Welcome to the Lend Academy Podcast, Episode No. 278, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I am delighted to welcome James Paris, he is the CEO Of Avant. Now, Avant has been around for a long time, we’ve had Al Goldstein, the previous CEO and one of the co-founders on the show a couple of times, but James has been in the job for about a year now so I wanted to bring him on just to get an update on the business, what they’re doing. They’ve expanded into some new areas, credit cards, we go into that in some depth, we talk about the impact of the pandemic, we talk about the capital market side of the business, also the Colorado decision early this year that have affirmed the bank partnership model that was really important, we talk about the financial health of their customers and much more. It was a fascinating interview, we hope you enjoy the show.

Welcome to the podcast, James!

James Paris: Peter, thank you, great to be here today.

Peter: Okay, my pleasure. So, you know, I’d like to get this thing started by giving the listeners a bit of background. You’ve got an interesting career to date, why don’t you give the listeners some of the highlights before Avant.

James; Yeah, absolutely. So, maybe I’ll start sort of how I got to Avant kind of in the shortest possible way which is that I knew the one of the original founders and CEO, Al Goldstein, for I guess probably 15 years at the point in time when I joined the company because for me, anyway, life came full circle. Al started out working for me in our Analyst Program at Deutsche Bank when he graduated University of Illinois and I had the pleasure of going back to work for him in the summer of 2015 at Avant.

So, I had been an attorney, I had been doing investment banking and specifically a lot of work around capital markets and funding transactions. So, when I originally came to Avant it was to help the business set up around capital and funding, including the equity raise that we did in the fall of 2015 and then putting together the programs that the company uses with credit facilities and securitizations and loan sales and then sort of went a handful of other directions after that around kind of broader strategic things we were working on.

Peter: Right, right, okay. So then, you’ve been in Avant…. you’ve sort of been in several different roles there over the years and I know you were also with a sister company, Amount, but why don’t you tell us….how do you describe Avant today?

James: Yeah. I mean, happy to do that, I think it’s a great question and maybe I’ll touch a little bit on Amount too and give a little bit of history as well for folks. So, Avant was founded about seven and a half years ago, almost eight years ago now really with the mission of trying to supply responsible, transparent credit products to the near-prime, middle class consumer in the US. And, you know, this was back in sort of the early part of 2013, the financial crisis was still, you know, relatively close in historical proximity and what we were finding was just that banks that have traditionally been able to support these customer categories really were not. While we started to see others making inroads around prime consumers, we didn’t see as much in the near prime space, in particular.

We like that because we thought that although the banks had a big problem with technology in terms of their ability to deliver things digitally, ultimately, they would be able to close that gap. We had a really tough time competing with their cost of capital even if we had great technology because it would be hard for us to compete with them around rates on credit products so, hence, our focus on the near-prime category. We also ….a little bit different from some others, we’re focused on building our own balance sheet because we thought that would provide a lot of stability and consistency in times of either capital market disruption or broader economic disruption.

Well, certainly, we’ve seen quite a bit of….you know, in 2020, with COVID and, again, that’s the strategy that we thought the near-prime space supported well because there’s a bit more yield in that category with extra spread to fund yourself in the whole sub-capital markets. Along the way, as we were thinking about how to best serve customers in that category, we started to work and approach banks with the idea of partnering in different ways so that we could serve their near-prime customers because, of course, banks, you know, may have deposit customers ranging sort of the full gamut of the credit spectrum as opposed to just the prime and super prime that they wanted to lend to. So, when we were kind of engaged in a lot of those discussions, what we discovered was really the banks did want to be able to deliver that experience and those options to customers, but they wanted to be able to do it themselves.

That was really where the idea behind the Amount business started to take form which was the technology that we had developed within Avant which was really leading in terms of a number of things, not just underwriting but also around fraud prevention, account verification, all of the things that are required to be done from a legal and regulatory standpoint. We had, effectively, automated with proprietary technology that you could use across different categories of both products and for different categories of consumers. There was nothing that was sort of, you know, required the technology be applied in this near-prime category, it would effectively work across the board. And so, we started to build partnerships where we were putting together digital lending credit platforms on a customized basis for banks, a number of which can be publicly announced when Amount was still within the company, within Avant.

And then at the beginning of 2020, on January 1st, we spun Amount out as a separate business so Amount is a supplier to Avant of some of our back end core technology, the same way that they are for a number of banks like TD, PNC, Banco Popular, Regions Bank and a handful of others that have not been publicly announced yet. And so, you know, Avant today, back to the original question, so Amount is…..you know, we thought that in pursuing that strategy we’d give both businesses the opportunity to sort of achieve their potential because there’s different considerations for both of the businesses so split them apart.

Today, Avant is really the consumer-facing credit business where we have a unsecure personal loan product which was sort of the original flagship product. We now have a second flagship product which looks like it’s trending to be actually even quite a bit bigger than the loan product, which is our credit card product, where we’ve been in the market for nearly three years now and have over 300,000 active credit card customers on the platform.

Recently, we launched an auto product where we’re offering loans secured by consumers’ automobiles and we have a longer term strategy there of building that into kind of a multi-pronged auto product platform. In addition to that, we’re making big investments in Point of Sale technology and product as well in partnership with Amount who’s doing that with a number of other institutions as well.

So, a lot going on, but, effectively, we’re the consumer-facing digital bank although we don’t have deposits yet, that’s another thing we’re thinking hard about really for that near prime category. Just to kind of round out the summary, you know, we’ve done I think $7 or 8 Billion of unsecured personal loans. As I said, we have over 300,000 credit card customers, I think we’ll originate about 240,000/250,000 in 2020 and aiming toward an increment of 400,000 for next year in 2021 and we’ve very excited about that growth, still very excited about our lending business as well. It is also growing, but not at the rate that the car business is.

Peter: Sure, sure. So, is the customer profile pretty similar for the cards and the loans?

James: Well, it’s a little bit different, that’s intentional. So, for the loan product, the weighted average FICO which is, although we don’t use it in underwriting, is a good reference point that everybody’s familiar with is about 650 and the weighted average for the card product is about 625. So, it’s a slightly down market from the loan product and that was intentional because we saw an opportunity in the market where between kind of existing providers that sort of dabble in the near space as well as prime kind of pulling back. And then another group that’s quite a bit further down the spectrum into the sub-prime category, we saw a lot of white space between those two products and so have positioned our product in that white space seeing a lot of growth and adaption and really excited about the direction where that’s going.

In fact, this spring, kind of late Q1 early Q2, we feel like we got enough data and information that we’ll be able to start cross selling the products effectively in both directions where a credit card customer that’s, you know, maybe more than an emerging upwardly trending credit profile where we’ve got great data and their history with us with the credit card would be eligible for the loan products and vice versa. So, we’re quite excited about the opportunity for cross selling the products and give our customers more of what they need.

Peter: Right, right, okay. Maybe we can just talk about 2020 for a while and just give us some perspective about how….what the arc of your experience has been, obviously, from pre-COVID, through COVID to today, just give us a bit of a rundown, both on the cards and the loan product, how has demand been, how has performance been, that sort of thing.

James: Yeah, sure. I’ll just take them… start with loan and then talk about credit cards and then maybe a little bit on the overall business as well because, I think, like so many others we’ve been affected in a lot of ways beyond just sort of products and performance. But, on the loan side, demand was hit really hard out of the gates when COVID sort of first started to, you know, reveal how significant it was going to be back in early to mid-March where, you know, effectively as everyone knows, the country pretty rapidly started shutting down and, you know, people, consumers were really hunkered down. So, you know, for several months we saw savings rates much higher than what we would typically see and spending way, way down and that also translated because I think, in effect, if the consumer level….people’s individual balance sheets, if you will, kind of got stronger because of that savings and spending dynamic.

The demand for loans fell pretty significantly, you know, our use case for why consumers borrow from us tends to range into a lot of different categories. It’s not necessarily as simple as straight consolidation for customers in the near-prime category so some of its access to credit, some of its unexpected expenses that might be material, some of it, you know, may be more discretionary in nature so certainly we saw demand fall significantly for our near-prime category. It probably fell 70-ish% kind of out of the gates and we’ve seen that recover over the course of the summer and into the fall, but it’s still, at least for us, remains fairly subdued. I’d say it’s down at least 30/40% for our category of borrowers. So, we did a number of things along the way, both as it relates to tightening standards in the early days from an underwriting standpoint, all of which we’ve since effectively unwound and that’s really due to performance which I’ll touch on in a minute.

The other thing that we did very aggressively, very quickly was around making a variety of effectively treatments available to borrowers who were dealing with the hardships, including a newer option which became a primary option where we were able to customize a plan for a borrower based on sort of a specific hit to income level that they saw themselves affected with. And so, a number of things on the operational front that we did in order to sort of make borrowers very aware that they had options out there if they were dealing with any issues. And I think similar to many others in the lending space, you know, what we’ve seen since then has been extremely good delinquency performance and extremely good performance of borrowers that did take some form of treatment or plan, whether that was a forbearance plan or whether that ultimately was a more significant payment plan that resulted in the reduction of payments for them as a result of their hardship. So, we’ve seen this really, really strong adherence to these plans as well as very strong underlying delinquency performance for really the entire loan book.

So, as a result of that, the delinquency levels are really as low as they’ve been in years although, I think, we’re starting to see with some of the broader economic data that I think the whole market’s focused on that, you know, perhaps that will change as we get into 2021. I think a lot of that is going to depend on stimulus programs as well as the pace at which the various states and local areas open up and, you know, sort of ….I think, right now, with last week’s job report, we were at something like 6.7% unemployment, still somewhere in the neighborhood of 10 million or so jobs lower than where we were in February before the pandemic hit. So, I think there some big questions about how that last, you know, few hundred basis points of full employment, you know, how long it takes to get there and how that plays out, but we saw really strong performance on the loan front.

On the credit card front, it’s a little bit of different story from the standpoint that while we did see a little bit of a dip in demand for the first few weeks after COVID hit, it resumed pretty quickly. And so, we did see our level of issuance drop for a couple of months, but based on what we were seeing in terms of performance and all the indicators that we look at, we felt pretty good about the credit profiles and so we leaned in a little bit more on the credit cards side and had several months of record issuance and we were able to nearly make up what our original goal for the year had been which was 250,000 cards. I think we’ll wind up being just a little bit short of that, but a lot of that sort of backend waited after we sort of stepped on the gas on the credit card side.

So, similarly, performance has really, really been strong, delinquencies are very, very low, I’d say card utilization is also a little bit lower which means that average balances, relative to size of lines, has come down from what we would typically see. But, that’s also just very consistent with kind of a healthy individual balance sheet at the consumer level, meaning that they pay down debt levels of their own, including with the card product. So, we see a really, really healthy consumer, in general, and hope that that can continue, but, again, a lot of the broader national policies and state level policies are going to have a huge impact on how things play out in the broader economy and that’ll affect our business, you know, as well, obviously.

Peter: Yeah, yeah, understood, understood. So, maybe we can talk about the capital markets side of business which I know you’re very familiar with having that role previously. Who are you mainly using to fund the loans and the credit lines? I saw recently you extended your warehouse lines with JP Morgan and Waterfall, tell us a little bit about how that side of the business is going right now.

James: Yeah, sure. We have a few different credit facilities with different providers without necessarily naming them. I would say, we’ve got, you know, a mix of big banks and bankruptcy remote facilities, we’ve also got one with a large insurance company. All of our primary facilities we extended, effectively, during the pandemic, extended out the maturities and one of the cases we significantly increased the size and the facility because it’s primarily financing the credit card business which, as I’ve mentioned, has been expanding very rapidly. So, we’ve been very pleased with our lenders and with the processes around extension and expansion there and we’ve been watching the capital markets very closely.

I think, clearly, there was a lot of disruption back in the spring and then, you know, as additional data became available across I think many, many lenders in different categories and, you know, the data sort of spoke for itself. I think the strength that we’re seeing in the consumer is something that’s been broadly seen. We’ve seen a pretty significant recovery in the capital markets so, you know, deals are getting done in our space, we have not done one recently in terms of the capital markets.

We did one back in late February/early March, sort of right as things were getting pretty wacky and because of our substantial balance sheet capital ourselves, cash and the facilities we have, we’ve got quite a bit of flexibility about when we come to market so we’re sort of evaluating timing. I doubt we’ll do something before the end of the year, but look to do something early in 2021, but the markets feel fine if we wanted to do something. We feel like the terms will be fine right now, it’s just not the right time for us.

Peter: Right. What about the credit card side, are you going to go out and do a securitization there?

James: Yeah, I think we will. We haven’t exactly nailed down the timing of one that will take place, but we’ve been contemplating that for many years. So, the financing structure that we have in place essentially contemplates that a typical kind of master trust structure that you often see in credit cards securitization in terms of being, you know, set up in a way to facilitate moving in that direction so that’s something that I think we want to get a little bit more scale in the business, but It’s something that I would expect . We’ll probably do our maiden offering in 2021.

Peter: Right, right, okay. I want to switch gears a little bit and talk about the decision that happened in Colorado earlier this year that was…..you guys were part of that. Basically, the state of Colorado affirmed the banking partnership model. The OCC has since issued a final rule on True Lender so, maybe we can just start off with asking how has this impacted business since then?

James: Sure. I think it’s a pretty big decision and fairly far reaching from the standpoint that the Colorado case or cases which involved both ourselves and Marlette in sort of independent cases, but effectively we were being worked through the system jointly which meant that we were coordinating to the extent that we could on some of the defense issues because it was the first time that a state had really alleged this True Lender issue in any cases that involved lenders that exclusively lent below 36%.

You know, historically, there had been a handful of these cases which all sort of revolved around deep, deep sub-prime lenders and I think largely players that were perceived to be weak on regulatory considerations or maybe not great actors, that kind of thing. You know, the doctrine around True Lender was probably extended a little bit because of some of those considerations, but it had never really been applied in a case like ours where we worked incredibly closely with our issuing bank partner around the bank’s policies and the practices and services that we perform and it’s highly structured and monitored which I think is fundamentally different than some of these other cases.

So, in any event, what happened was that the state of Colorado ultimately agreed with us as after I think about three and a half years proceeding with the litigation, we finally got into you know, very, I guess, deep aspects of the discovery there, including depositions and I think as Colorado better understood our business, I think they were in a position to support it from the standpoint of help to craft a safe harbor that they thought would protect consumers even in cases where it’s above the state of Colorado’s usury limits because they saw real benefits and they saw appropriate governance and controls on institutions involved, both the bank and a fintech like ourselves.

So, in fact, we actually had a study that demonstrated that consumers in New York, for example, where the Madden case had been decided and where a lot of fintech lenders pulled out after that decision that consumers in the state of New York were, essentially, forced to adapt or accept inferior credit products that were higher rate relative than what they were able to get when that market was available to them. I think Colorado found that to be pretty persuasive as well.

So, ultimately, really what they saw was that I think what we’re doing, if done properly, is good for consumers because it’s creating liquidity in these credit markets for middle class consumers that might have a harder time accessing it otherwise. So, that’s, I think, why they were focused on it and why it’s important is that it could be a roadmap that potentially other states could look to as well. It’s much more detailed than the OCC’s version of the final rule on True Lender, not to say that one’s better or worse. I think the OCC’s is far more simpler, but the standard that we agreed to with Colorado is one that we feel very comfortable about working within and one that we would happy to adopt more broadly as well.

It’s, frankly, very close to what we had been doing historically. So, there’s been a lot of uncertainty over the industry around these issues, both Madden and True Lender, and different times affecting sort of the liquidity within the industry from the standpoint of capital markets and lending. So, bringing clarity on that issue would be really helpful and important, we’ll see if other states adopt it over time, but it’s a good step in that direction for sure.

Peter: Yeah, yeah. We should point out too that the state of Colorado….I live in Colorado so I know it pretty well. You know, the Attorney General and the Governor of Colorado are both Democrats and, obviously, we’ve got a new Democrat administration in Washington ….sometimes I feel like this is a great case because…. there is a criticism of the bank partnership model because it’s a way to circumvent, it’s a way to kind of charge high interest. I guess, I’m curious about how you think about it playing out on the national states given that….there is, definitely, a small position to it and not everyone agreed with what Colorado decided.

James: Yeah, that’s true. I think that there’s a lot more to come on these issues, I think it will be very interesting to see how the new administration chooses to handle it and sort of what happens from the standpoint of who’s put in-charge of some of regulators like the OCC where I think we’ve probably seen the most innovation coming most recently. I think it’s possible even that some of the rule making that’s been done more recently could come back under review potentially which is another reason why I think the state decision to the extent….the OCC, you know, effectively pulls back on any of the guidance they’ve done within this area.

The state case in Colorado could be very helpful as something to point to and you’re right about Colorado having a Democratic administration of it’s own and I think it goes to the point that I was trying to make earlier that these products can be very helpful for the consumers and that there’s really good data and information that demonstrates that. So, I think when you see the overall effect and the intention of the parties around this, you just got to make sure that there is appropriate governance and controls and that it’s been done in an appropriate way from a regulatory standpoint that there is a way to have everybody win here is a good thing. And, I think that’s what got recognized in Colorado. So, we’re hopeful that that could be a roadmap.

Peter: Right, right, okay. I just want to pick up on one thing you said there. There’s a lot of a knock on this whole model, the consumers are harmed and that this is not good for the consumer. You just said that you’ve got data that demonstrates that that’s not the case, what kind of data do you have and are you sort of benchmarking the typical consumer as far as credit score or credit health, what do you have?

James: Well, specifically, what I was referring to is a study that was conducted by an economist named Michael Turner who’s based in Columbia University. What he studied was this impact from Madden that happened in New York state versus what was happening in Colorado during the same timeframe and just a relative differences in access to credit sort of in those different states based on the prevailing sort of legal regime at that time where in New York these types of fintech partnerships were no longer occurring, but they had before. So, you have a pretty distinct data set where you could look at what was happening when that product was available, what was happening after it have been taken away.

What was very clear was, essentially, people within narrow credit score bands, you would see the cost of credit increase pretty materially for that credit band after that service with fintech being partnerships went away. And so, I think, that study is publicly available, was filed as part of the court case and it’s pretty powerful in terms of what it shows, it’s very clear and Dr. Turner is a very well-regarded independent economist, so I think that was pretty persuasive for Colorado.

In terms of what we do specifically, it’s been a little while since I’ve looked at the data closely myself, but I know, historically, we have seen peoples’ credit scores increasing over time as they’re consistently making payments on our products. Certainly, part of what we try to do as a business is to continue to provide better products, lower cost products to customers when they’ve demonstrated the wherewithal that they should be eligible for that.

So, what that translates to in practice is that we’re actually expending our credit card offering in terms of a range of card products, including one we have not launched yet, but which will have things like promotional periods with no interest, with rewards and cash back. They are more consistent with the higher credit spectrum than where we’re at today with our card product, it’s kind of around 625 FICO.

Similarly, on the loan side, you know, we have an active refinancing program where we…for customers that have demonstrated strong payment history, we’re refinancing customers into lower rate loans on a proactive offering basis. So, things like that which….you know, small steps along the way, but make a big difference in people’s lives. So, I think we’ll continue to do those things and we’re excited about the opportunities we think we have in the auto space to do some more things.

Peter: Okay. So, last question just on that. I mean, as we turn the page to 2021, what are the main opportunities you ate looking for? You mentioned auto, where do you see Avant moving in 2021.

James: Sure. There’s a few things that we’re most focused on. I’ve mentioned a couple of these, but….number one is continue to grow the credit card business. As I said, we’re looking to do about 400,000 cards next year, a big part of that is going to be expanding into some new spaces from a customer standpoint. So, I mentioned moving up market with rewards and promotional offers. I think we’ll also experiment a little bit further down the credit spectrum as well and we’re looking at doing more underwriting in both loan and credit card for thin file customers.

So, I’d say number one is continue to push and grow the credit card business. Number two, I mentioned, we’re going to be launching cross sell capability between those two products to where we’re able to offer, you know, the other product, a loan to a card customer, a card to a loan customer. That’s coming early in 2021 and then really making significant progress both on our auto product suite where ultimately we think it is a big opportunity in refinancing auto loans direct to consumer.

Also, Point of Sale is a big push for next year. So, we have a lot on our plates, there’s a lot that we want to get done, but we’re very excited about how the company is positioned. I think just on that point, Avant has been profitable now for a few years, kind of hovering right around break even and a lot of that being a function of growth because we do have our own balance sheet and some of the accounting around that. So, the company is in a good position from a capital and liquidity standpoint. We’re still very cautious on the broader economy in what’s happening at the consumer level. So, we’re carefully watching that, but assuming things continue to play out pretty well, we’re excited to see some pretty meaningful growth in both our card and loan business next year based on all these investments.

Peter: Okay, James, it’s really fascinating chatting with you. Best of luck for next year and thanks for coming on the show.

James: Peter, it was my pleasure, thanks for having me.

Peter: Okay, see you.

James: Alright, take care.

Peter: Avant is, I think, a great example of a company that started in unsecured consumer loans and has expanded out into other areas. We talked about credit cards, they’re becoming a decent-sized credit card provider, auto loans, obviously, James has talked about. What they’re doing is they’ve got a certain customer they’re trying to serve them in multiple ways and serving them with multiple financial products like traditional financial institutions.

I wrote about this a few weeks back where I really see a blurring of the lines between traditional financial institutions and fintechs that really…..it already started to happen, obviously, but fintechs are becoming diversified financial institutions and banks are becoming far more tech-enabled. James even teased that there might be bank offerings down the road, we didn’t get a chance to chat about that, but that makes my point, they have their market, they’ve got multiple products and they really want to be able to serve this customer really well. I think that’s what’s successful fintechs will be doing this decade.

Anyway, before I sign off, I just want to wish everybody a Merry Christmas, Happy Hanukkah, however you celebrate the holidays. This is our last one before Christmas, thank you all so much, wishing you a safe and happy holiday season,

On that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts.

Sign up today at digital.lendit.com.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

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Filed Under: Lending and Fintech Podcast Tagged With: Amount, Avant, Colorado, credit cards, Personal Loans

Views: 256

Upstart Completes Their IPO, Soars 47% on Trading Debut

The latest fintech IPO is consumer lender Upstart who enjoyed a successful first day as they began life as a public company

December 16, 2020 By Peter Renton 1 Comment

Views: 363

Leading fintech lender Upstart went public on Nasdaq today (ticker: UPST) in a successful IPO that saw the company raise $240 million as it sold 12 million shares. They priced the IPO late yesterday at $20, the low end of their $20-$22 range but shares finished today at $29.47, a solid 47% gain.

We first wrote about Upstart back in 2014 soon after the company pivoted from income share agreements to focus on personal loans. They have been a marketplace lender offering unsecured consumer loans but in the last couple of years they have also moved into the banking as a service market, offering their AI-enabled lending models to banks.

They are powering the personal loan programs of several banks including First National Bank of Omaha, TCF Bank and First Federal Bank of Kansas City to name a few. Last year at LendIt Fintech USA Upstart CEO Dave Girouard spoke with Marc Butterfield of FNBO and Robert Perrelli of TCF Bank (audio here) where they went into some detail about this bank partnership model.

Upstart describes themselves as a cloud-based artificial intelligence lending platform. They have been talking about artificial intelligence-enabled lending since they launched the company and for a while they were really the only one talking about it. They have always maintained that using AI helps expand the credit box and automate the lending process while also reducing the credit risk for investors. They have an eight year track record now where their AI models have continued to be improved.

Digging in to Upstart’s S-1 filing it is interesting to note how much bank partnerships have become a key part of their business. While 22% of loans originated in Q3 2020 were retained by one of the originating bank partners they certainly wanted to stress that side of their business. The term “bank partner” appears 370 times in the S-1.

Upstart has seen impressive growth this year despite the pandemic. The number of loans originated in the nine months ended September 30, 2020 was 176,983 up 30% from 2019. Revenue for the period was up 44% to $147 million and they even turned a $5 million profit. Of course, it wasn’t all smooth sailing this year. Upstart saw an 86% reduction in the number of loans originated in Q2 but by Q3 they had recovered and saw strong originations again.

History has not been kind to fintech lenders on the public markets. Consumer lenders LendingClub, GreenSky and Elevate are all trading for a fraction of their IPO price today. Upstart no doubt believes their story will be different, citing both their bank partnership strategy and their differentiated AI-enabled underwriting model.

They are off to a great start in the public markets. But many other fintech lenders had successful first days as well. It is going to be fascinating to see if they can write a different story over the long term.

Filed Under: Fintech Tagged With: AI, bank partnerships, consumer lending, IPO, Upstart

Views: 363

White Paper: STIR/SHAKEN Set to Shake up Contact Centers

Sponsored white paper by LiveVox helps to get contact centers ready for new call standards.

December 15, 2020 By Todd Anderson Leave a Comment

Views: 117

Contact centers should be on high alert for coming changes starting June 30, 2021. The FCC’s new STIR/SHAKEN standards are designed to cut down on fraudulent robocalls. A new white paper by LiveVox gives a great breakdown of the coming changes and how contact centers can be prepared.

STIR stands for Secure Telephone Identity Revisited and SHAKEN stands for Signature-based Handling of Asserted Information Using toKENs. STIR/SHAKEN intends to address the more than 185,000 yearly complaints about scams through robocalling. The new standards will help to cut down on fraud and better protect the consumer.

Consumers in the U.S. receive more than 100,000 unwanted robocalls every minute, 47 percent are fraudulent and cost Americans $10.5bn annually.

As explained by the FCC, “Calls traveling through interconnected phone networks would have their caller ID ‘signed’ as legitimate by originating carriers and validated by other carriers before reaching consumers.” This would help the phone company know the call is legitimate and therefore let the call reach the consumer.

At the same time it protects the consumer it will also help law enforcement to catch spoofers. Calls will be given ratings, A as the highest rating where the level of validation is 100 percent, to B and C where some details are not 100 percent verified.

Contact centers need to be proactive starting today. Leaving it up to the carriers and service providers could put your firm in a precarious position. LiveVox says you should start doing your due diligence immediately.

As the white paper states, “Nobody really knows for sure at this point if your calls will be blocked right out of the gate if you don’t have a token for those calls. But what will happen is that your level of attestation will be lowered if you don’t have arrangements in place to have your token at the highest level from call inception.”

LiveVox put together a list of items you can begin working on today to help ensure you are prepared when June 30 comes.

  1. Contact your carriers and service providers – find out if your platform is capable of supporting new standards
  2. Inventory your phone numbers – know the numbers you will use to make calls and if they will be problematic
  3. Validate your phone numbers – validate with multiple carriers and their analytics partners to limit call blocking
  4. Understand your equipment – ensure your platform is up to date from a hardware and software standpoint
  5. Confirm signing Authority – use a third party that is trusted by all service providers

FCC Chairman Ajit Pai recently said, “American consumers are sick and tired of unwanted robocalls, this consumer among them. Caller ID authentication will be a significant step towards ending the scourge of spoofed robocalls. It’s time for carriers to implement robust caller ID authentication.”

Doing nothing is not something contact centers can afford. In order to be prepared you need to begin working on changes today, LiveVox can help your firm ensure you and your providers are making the necessary changes for the fast approaching deadline.

Download the white paper today.

Filed Under: Fintech Tagged With: contact centers, LiveVox, STIR/SHAKEN, white paper

Views: 117

Top 10 Fintech News Stories for the Week Ending December 12, 2020

December 12, 2020 By Peter Renton Leave a Comment

Views: 709

Here are what I consider to be the top 10 most important fintech news stories of the past week.

Online lender SoFi explores deal to go public, report says from CNBC – SoFi might be the next fintech to go public, possibly via a SPAC, having held discussions with a number of so-called blank-check acquisition companies.

Affirm: The Morality of Money from The Generalist – This may be the most in depth analysis of Affirm ever written starting with Max Levchin’s childhood in the former Soviet Union and providing a detailed examination of Affirm’s S-1.

Robinhood is preparing for its 2021 IPO launch with Goldman Sachs from Business Insider – In keeping with our IPO theme this week we hear news of Robinhood having selected bankers for their IPO next year.

Two cryptocurrency firms seek OCC approval to charter trust banks from American Banker – Paxos and BitPay have applied to the OCC to become national trust banks, a type of bank that does not require FDIC insurance.

Why Square’s Expanding Ecosystem Threatens Banking’s Future from The Financial Brand – Many very small businesses are using Square as they would a bank because it is so easy and convenient, and this is before Square has set up its FDIC-approved industrial bank.

Synctera raises $12.4 million seed to connect community banks and fintechs from FinLedger – The former head of Uber Money, Peter Hazlehurst, has launched his new company, Synctera, which aims to make it easier for community banks and fintechs to partner with each other.

Jack Ma’s Ant Group Ramped Up Loans, Exposing Achilles’ Heel of China’s Banking System from The Wall Street Journal – The scale of Ant Group’s lending program is staggering so it is worth a deep dive into their lending practices.

Capital One bans buy now, pay later transactions on its credit cards from Business Insider – Capital One becomes the first major bank to hit back at the BNPL trend that has been sweeping the country this year.

The new challenger banks: ‘A lot of these are going to fail’ from American Banker – Penny Crosman analyzes the rapidly expanding challenger bank space with some analysts concluding that many of these new digital banks are not going to survive.

Betterment CEO Jon Stein Steps Down from The Wall Street Journal – The CEO and founder of Betterment has stepped down and he will be succeeded by Sarah Kirshbaum Levy, a former ViacomCBS executive who has been consulting with the company since October 1.

Filed Under: News Roundup

Views: 709

Podcast 277: Joe Bayen of Grow Credit

The CEO and founder of Grow Credit explains why it is so hard for people starting out to build their credit score and what can be done about it

December 11, 2020 By Peter Renton Leave a Comment

Views: 206

For young adults just starting out in life or immigrants arriving to this country, there is no clear path to establishing a credit history. I know for myself, arriving in this country 29 years ago, I was rejected for a $500 credit limit card time and time again. For many people it is a catch-22, you can’t get credit because you have no credit history. This may be about to change.

The next guest on the Lend Academy Podcast is Joy Bayen, the CEO and founder of Grow Credit. They have a free service that helps people build their credit at no cost. To do this they use a credit card with a low limit that is only able to be used for certain subscriptions such as Netflix, Spotify or Disney+. It is a simple and smart solution to a challenging problem.

In this podcast you will learn:

  • The origins of the Grow Credit story.
  • A description of their product and the three different plans.
  • The impact on consumers credit scores with their free product.
  • The way their platform works.
  • What is attractive about their paid memberships.
  • Who is their primary target market.
  • Who their core partners are in providing this innovative product.
  • Details of their revenue model.
  • How they are getting the word out about Grow Credit.
  • How Grow Credit compares with Experian Boost.
  • How they have actually benefited from the pandemic.
  • Why they only add platforms with fixed monthly costs.
  • How they are planning to scale the business next year and beyond.
  • Joe’s vision for Grow Credit.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 277 – Joe Bayen.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 277-JOE BAYEN

Welcome to the Lend Academy Podcast, Episode No. 277, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I am delighted to welcome Joe Bayen, he is the CEO and Founder of Grow Credit. Now, Grow Credit’s a pretty new company, I think they’ve been around for about a year, but I think they’re super interesting. They have a unique product for people who want to try and build their credit score. It’s a real credit card, a real Mastercard that is free and that you can use only for subscriptions and we get into this in some detail, but really it’s a unique product that they have and it does help people, you know, grow their credit score as the name says.

So, we talk about how Joe got the idea for this, how it evolved, you know, the mechanics of how it works, the types of partners that they’re working with. We talk about how they’re growing the business and the different types of revenue and also what his vision is for the company, they’re a unique company and they have a unique vision, I think so. It was a fascinating interview, we hope you enjoy the show.

Welcome to the podcast, Joe!

Joe Bayen:  Hey, how are you?

Peter: I am doing great. So, I’d like to get this thing started by giving the listeners a bit of background. You’ve had an interesting career, so far, so why don’t you give the listeners some of the highlights.

Joe: Yeah. So, you know, very unusual background. First of all, I was born in Cameroon in Africa, raised in Paris in France, moved to France when I was two years old and then as a senior in high school, I decided that the United States was the best place for me to be. So, I decided to run track as a senior in high school and fortunately, finished fifth at the French Nationals…

Peter: Wow!

Joe: ….and that’s how I booked my ticket essentially here and I ended up with a full track and field scholarship at the University of Miami.

Peter: Wow, that’s a great way to do it if you’ve got the sporting ability, that’s a great way to get your free education.

Joe: Yeah, exactly, yeah. So, I went to Miami, I graduated in International Finance & Marketing there. After that, you know, my entrepreneurial journey started in a very unusual way where I met my first boss on a train actually in Paris on the way to Clermont-Ferrand which is a city in the middle of nowhere in France. They built an amazing technology that was literally 20 years ahead of their time and the name of the company is Allegorithmic and they built procedural  textures for After Effects and Photoshop. Basically, it’s a texturing platform for special effects for movies and video games.

They were really ahead of their time back then and most of their clients were out here in LA. You know, we met randomly on the train and we talked and I told him that I had a Marketing & Finance major, maybe I could help him out and he invited me to his office. You know, it took me about six to eight weeks to learn their technology and they gave me the gig. I flew back to Miami and traveled across the country to LA to start helping them with their business. So, that’s how it all started and the company actually was purchased by Adobe last year, one of the biggest acquisition in France, I was employee number eight, I think.

Peter: Wow, wow, that’s great, it’s a great story. So, maybe tell us then a little bit of the origins of Grow Credit, where did that start?

Joe: So, Grow Credit is an amazing story. First of all, when I came to the United States, you know, I went to college, I didn’t know anything about the credit score system, the credit cards, you know, I was offered a card, of course, and I was late here and there and it took me, you know, four/five years to rebuild my credit score.

In 2010, I started a company that was called FreeAppADay.com that did really well and, unfortunately, Apple had to change their rules and they basically kicked our industry out of the App Store. We were the largest…it was a promotional platform back then and, you know, Apple changed the rules to prevent apps from promoting other apps in the App Store so, you know, we bootstrapped the company to $18 million in revenue and all of sudden, we were generating half to 1 Million a month and instantly, we had to essentially close shop.

I went on to work at a VC fund called Science, Inc. and they’re pretty famous for having seed funded the Dollar Shave Club which was purchased $1 Billion by Unilever a couple of years ago. So, I was there for about two years to really teach them anything related to promoting apps in the App Store and then Venmo became popular, you know, Acorns and Robinhood and all those fintech apps started to become popular in around 2014 and this is when I thought this would be a good idea to basically help my younger self, you know, by introducing micro lending over the phone and credit score education as well.

So, you know, I partnered with FICO back in 2015 to launch a platform that was called Lenny Credit and Lenny Credit was an iPhone app that offered micro loans from $100 to $500 and free FICO score and credit score education. That’s how it all started with Lenny Credit. And then, you know, it’s a story of pivots after pivots (Peter laughs). You know, I bootstrapped that company as well, but this time around I needed some debt financing to grow the business. But we were the first one, first market entrant and it’s good to be first, but it’s very tough in the fintech world because banks had no idea what we were doing, and it was really hard to raise debt financing.

We almost had to close shop again until at the very last minute, a Chinese fund reached out to us to invest…I thought they wanted to invest in Lenny Credit, but, you know, we met with them in San Francisco and after talking to them for about 30 minutes, they informed me that they actually wanted me to pivot to launch a Bike-Share program (Peter laughs). It was like 2017, I had no idea what a Bike-Share program was and they told me that they would invest $1.2 million if we made that pivot. Well, we didn’t have, we pretty much had almost zero in the bank account, so it was an easy decision, but what I did was I stuck with the vision and just adjusted the tactic.

I actually merged Lenny Credit with the Bike-Share Program that ended up calling Lenny Bike and I created a subscription-based Bike-Share Program that would also help, I know, consumers, in this case students, establish and build credit. Essentially, we extended a $600 line to students and they would pay us $20-30 a month and they could use the bike in an unlimited way and report the payments to credit bureaus. So, we were scheduled to launch that platform in of June 2018 and then, you know, Lime Bike raised $330 million, Bird raised $300 million and we didn’t have much, you know, to compete so we had basically shut down that business model.

But then, I realized that…I came up with the solution that used subscription-based subscriptions to build or establish credit and it was fortunate that a gentlemen named Peter Mansfield who was a founding member at Marqeta was also one of our advisors and he put us in contact with their CEO, with their team and over the following six months we, essentially, created the infrastructure around Grow Credit which is basically, which is essentially the first Mastercard, the first credit card actually that is strictly dedicated to processing subscription payments. So, it’s a credit card can only be used to pay for services like Netflix, HBO Max, Disney Plus.

You know, when we have premium plans where actually consumers can apply…..you know, their balance is towards their cell phone plan, from AT&T, T-Mobile, Verizon and Sprint so, you know, the platform basically lives between a secured card and an unsecured card in the sense that it is an unsecured loan, but the funds can only be used towards specific subscriptions. So, we launched the platform back in December 2019, about a year ago, and so far, so good, you know, everything is….you know, we have…closing in on the 10,000 users organically and we are planning on ramping pretty aggressively in the coming weeks actually.

Peter: Right, right. So, it’s really interesting, a really interesting, Joe, it’s such an innovative product. I just want to be clear, these people get a card and they might have a Netflix subscription…well, maybe you take us through the different sort of levels that you have, I know you’ve got multiple plans. It starts off with a free plan that’s really pretty basic, tell us a little bit about the different levels.

Joe: Yeah. So, we have three plans and we are the first platform to actually help consumers establish or build credit for free with our free plan which is completely free, but consumers have access to $15 in credit that they can use towards any subscription. I mean, usually maybe a Netflix or Spotify, but the way our platform is structured, you know, we are actually reporting a credit line of $180 to the credit bureaus so it’s 15 payments, 12 payments of $15 essentially. So, we are essentially extending unsecured loan of $180 which has a significant impact on the credit score.

You know, 81% of our consumers increase their scores by 30 points in four months and it’s trending towards about 61 points in nine months so the platform as a free service is effective. Then we have two Premium Plans, the first one is called the Grow Membership which is $4.99 and it has access to $50 that consumers can use towards the subscription that we offer as well as their cell phone plan and we have the Accelerate Membership which is $9.99 and gives access to $150 in credit and they can apply those funds to their cell phone bills as well.

Peter: Right, right, okay. So, a couple of questions as a follow up on that. So, when you get the card, do you have to say….like you’ve got a Netflix subscription, do you say, I’m going to use this for Netflix or does the card come along and says, Netflix is okay, Spotify is okay, Amazon Prime is okay, how does it actually work?

Joe: Yeah. So, the way the platform works is, you know, the users sign up on the web or download the app and they go through the onboarding process. We’re working with Plaid so we are approved using Plaid and the minimum income required is $1,200 so it’s fairly accessible for most consumers. And then once we’ve finalized, once we’ve confirmed that they have enough funds, enough income, we give them the opportunity to select one of the three plans.

It works just like a catalogue, essentially. Within the app itself you have all the lists of the apps that we’re offering and the consumers also have the option to essentially ….they can submit a subscription that they’re interested in and we select the most voted subscription essentially to add on a regular basis. So, it’s a user-generated platform, but we have 40 of the top subscriptions already on the platform and then we’re adding new ones, about two new subscriptions on a weekly basis.

Peter: Right, right, interesting to know. I read in a book recently, for the sub-prime population, one in eight Netflix charges result in a bank overdraft so that one in eight for the sub-prime population which I thought was just staggering that the Netflix fee is not costing them whatever is $12 a month or whatever. I know it’s more than that now, but it’s costing them, you know……

Joe:  $35.00 extra

Peter: ….yeah, for $35 extra so that to me was a staggering stat….but I wanted to just dig in a little bit. I’m curious about why would someone pay the $5 or $10, is it worth that much to have that extra credit. I mean, I’m just trying to see why they would do that.

Joe: So, you know, you want to look at those plans as an accelerant. You know, the basic plan, the free plan works, the other plans….you know, keep in mind that with the free plan….you know, we are reporting $180 to the credit bureaus, right, but with the Grow Membership we are reporting a $600 loan to the credit bureaus and with Accelerate Membership, we are reporting an $1,800 loan to the credit bureaus and the larger balance has a significant impact on the credit score. So, for users who are trying to purchase a home or purchase a car are looking for an extra 30 or 40 points on their credit score. You know, it makes sense because the savings that they generate by benefiting from a cheaper financing cost are very significant.

We are talking about…..you know, I remember, when I had no credit score, my first car was a Ford ZX2 that cost me $350 a month, okay, because my score was maybe in the 590 or something like that. With my score, with a score of 700 or 720, actually 719 or 720, we are looking at a savings, substantial savings. You know, a friend of mine, she had a great credit score, an 800 credit score, actually I remember, and the car payments for her Volkswagen Jetta was just $200. So, we are talking about $150 savings times 12 so that’s $1,800 in savings for the Grow Membership for $60 cost so it just makes total sense, you know, when a consumer is trying to basically improve their scores to obtain cheaper financing cost.

Peter: So, who is your target market? Is it the student just out of college or school, is it someone who is trying to rebuild, I mean, who is the target market?

Joe:  So, that’s the interesting part, right. According to Experian, it’s on the Experian website, before COVID-19, it was over a 100 million consumers with no credit or thin credit files, pre- COVID-19. Post COVID-19, we are looking at maybe 130 to 150 million consumers who need our platform so they are using Grow to either establish credit or build credit.

For instance, a student after coming out of college, they need to add more credit products. Essentially, a consumer is considered a thin file consumer if they have less than five trade lines on a credit report. We were able to add a trade line for free to consumers so for free, it gives an opportunity to escape being considered a thin file user. When you have more than five trade lines, the credit score will be significantly higher so that’s the reason why it makes sense to use Grow, for instance.

But, we have users who are coming out of bankruptcy and who are trying to re-establish their score, we have users who are trying to purchase a car or a home. Essentially, a vast large number of the population need to build their credit because, otherwise, it’s very expensive to be poor. So, it’s an opportunity to really have…to benefit from a cheaper cost of financing, in general.

Peter: Right, right, that makes sense. So, do you have a national footprint or you’re just working in certain states right now?

Joe: Yeah. So, we’re national and just launched nationally about a month ago and we had a major press release and we also announced our partnership with Mastercard who joined us as a strategic partner to help us expand Grow nationwide. You know, they have a similar vision as Grow in the sense that they are really focusing on financial inclusion and that’s why our partnership made total sense.

We’ve been working with Dave, they’ve been following us for the past year and they saw us going through an enormous amount of hurdles, they saw us partner with four banks, with Bridge Bank, MRV Banks, with Sutton Bank and they saw us partner with Marqeta so they saw us overcoming enormous amounts of challenges to reach this stage.

And, finally, when we completed actually our partnership with Blue Ridge Bank which gave us nationwide coverage….you know, this is really where it was a signal for them to give it a go and we signed the partnership deal back in August. We’re really, really proud of working with them and being part of their financial inclusion initiative, yeah, so the platform is available nationwide since January. Previously, we were available only in California for our Premium Plan, but our Free Plan had been available nationwide since July.

Peter: Okay, okay, got it, got it. So then, what are the sources of revenue are you going after? I imagine, there’s a lot of ways you can take this, but maybe give us some ideas. Is this just going to be purely a consumer play or are you going after other sources of revenue?

Joe: Yeah. So, we are generating revenue from the interchange revenue. When consumers are upgrading to our Premium Plans, we’re generating revenue this way. We have….a good chunk of our users are actually tipping us and also we’ve got a certain amount of users who are giving us tips because we are delivering a true service that is valuable so we’re getting a good chunk of tips as well.

We are going to release a graduation credit card in April 2021 in partnership with MRV Banks, our bank partner, so that’s a card that we will offer to consumers who have spent at least a year on the platform and if they made their payment on time and reached specific FICO score level, we will extend them that credit card. We are also generating revenue from subscription companies because our platform is essentially….we are delivering a high LTV audience, they are using our platform to establish or build credit and subscription companies are more than happy to advertise on our platform to acquire those very valuable users.

Peter: Right. I was wondering about that because that’s the thing, they’re not going to cancel their Netflix subscription if they’re using Netflix to establish their credit.

Joe: Exactly, exactly.

Peter: Very interesting, very interesting. So, how are you getting the word out like what’s your marketing plan, how are people finding out about Grow Credit?

Joe: So, remember, I ran a marketing platform, a mobile marketing platform, FreeAppADay back in 2010 so acquiring users and mobile is my expertise, my core expertise so we have a lot of strategies….I mean, the usual suspects, of course, Instagram and Facebook, social media. But, influencer marketing is going to be a good way, a good channel for us specifically because we have a pretty large amount of influencers who are focusing on helping their audience establish or build credit so it makes a lot of sense for them to promote us, it validates, essentially, their channel.

Then we have a very interesting channel where we are going to be working with corporations to offer Grow as an employee benefit so that’s going to be a pretty significant channel for us. We already completed a partnership with a company called College HUNKS Moving, you know, it’s over a $100 million revenue company with close to 3,000 employees across the nation and they are using us essentially as a financial inclusion tool to help their workers, their employees establish or build credit. If their employees want to upgrade to one of our premium plans, they receive a 20% discount so it’s a “win-win” for the employees and for the employers as well and that’s a program that we’re planning on expanding to much larger corporations. We are trying to talk to the Walmarts, McDonalds’, complete “win-win” value proposition, you know, for any corporation actually.

Peter: Well, I could see the corporation paying the whole fee and encouraging their……I think that’s a huge market and in many ways that might be an easier way to scale your business. I mean, long lead time I know to get those deals closed, but suddenly you add users by the thousands or tens of thousands potentially because it’s such a big problem.

The thing that’s interesting to me is that there is more awareness it feels like, about credit scores today then there even was like three or four years ago, it feels like. Everyone…it just feels like it’s everywhere, you see it on TV, Experian Boost and other things that are really out there in the public eye and I think it’s good timing, I imagine, for you. I mean, that company, the consumers are hyper aware of their credit scores much more than they used to be.

Joe: That is correct. You know, it all started with Credit Karma, they did a fantastic job. They were really the first one, especially pushing the free educational platform that they have, they monetize, of course, by promoting credit cards, but the awareness….they have over 100 million consumers, I think, by now so they did a fantastic job creating more awareness providing with the credit score.

Experian Boost launched their platform actually, I think last year and their platform is solid, however, the credit improvement only happens on Experian and the credit boost is actually very limited and that’s because there is no credit extension involved with Experian Boost. They are looking at the repayment history for utilities, but, you know, the entire FICO system was built to assess the repayment capability of a consumer and to assess the repayment capability of consumers, you need a lot, you need to extend credit to see whether or not the consumers will overextend themselves.

So, without that credit extension, the impact on the FICO score is very, very limited. So, that’s how we essentially contrast ourselves with Experian Boost because we’re actually extending some real credit, an unsecured credit line and the impact is actually on all three credit bureaus. Essentially, extending credit matters a lot if a consumer is attempting to add significant impact on their credit scores.

Peter: Right, right. But, the thing that Boost does is, you know, it’s free, it’s simple and it brings awareness to a credit score. In some ways, I can see how, in some ways you can think it’s a competitor of yours, but in other ways it’s almost like a lead-gen in some ways.

Joe: It’s complimentary.

Peter: Complimentary, yeah, exactly. So, what’s it been like, you know, building this company? You said you launched in December of 2019, the pandemic hit in March, how has the pandemic impacted your company this year, particularly from your consumers, but also just in growing your company.

Joe: Well, that’s very unusual because…of course, the pandemic is a sad event, it’s been traumatic, but on the other hand, for us, we are one of those companies where it actually benefited us which is really unusual. You know, there was an article in The New York Times back in April that identified that the industries that were gaining the most during the pandemic were video streaming and music streaming.

Peter: Right.

Joe: Everything else was going down, but music streaming….and this is where we benefit from it in the sense that consumers, they might have cut off their cable or other services, but Netflix has become sort of a necessity. Now, we have consumers who are at home working, now they can actually establish and build credit with them, you know, a product that’s an actual necessity. So, it’s been an unusual good match for us to a certain extent where we make a lot of sense, you know, during the current COVID-19 times.

Peter: Right, right, okay. So then, as you think about adding new services on, do you have criteria like, I imagine, it’ll be difficult for you to add something like a utility bill or something because that it varies so wildly, I mean, is this something you have to…. does it have to be a fixed price, how do you think about having new services?

Joe: That is correct. You know, we are adding DirecTV, we are planning on adding……you are correct, we are avoiding services with variable costs because it’s too dangerous.

Peter: Right.

Joe:  You know, what makes our platform secure is the fact that….by the way, that is one core reason why we added cell phone bills because over the past six/seven years the cell phone industry has changed, has revolutionized itself by focusing more on a subscription type of service. You know, we have plans for $30 unlimited plans nowadays so that’s why we focused on those type of services, but in the future, we are working with…. we cannot mention the name of the players right now, but we are expecting to complete our partnership with a platform which enables us to instantly extend our reach to a variety of products, of services that we can integrate seamlessly with the Grow credit app. Right now, we only have 40 subscriptions, but by Q2 of 2021, it will probably grow to about 100. So, that’s through a partner that we’re working with.

Peter: Right, right, okay. And you said earlier, you’re about to ramp-up in 2021, I mean, how are you planning to scale this in 2021?

Joe: So, we have a pretty aggressive pipeline, we’re planning on acquiring about a million users in 2021 and four million users in 2022. We are partnering with a lot of actually fintech apps, you know, Chime. At present, Chime is a complimentary platform to ours…a lot of fintech platforms that we’re going to do some co-branding and co-marketing with, for instance. So, we started to talk to Chime and I think we’re going to complete a partnership fairly soon.

Of course, YouTube…as I mentioned earlier, our corporate initiative…you know, it’s going to be a multi-faceted strategy for us to reach consumers, but something that’s interesting is the fact that, you know, our ad assets are shared pretty extensively on social media because the ability to build credit for free with Netflix is a pretty powerful value proposition.

Peter: Right. I can see that.

Joe: Yeah. We already tested it and it’s been incredibly powerful so we believe that social media and influencer marketing will be our top channels, from a value proposition standpoint and fairly cheap because of the variety of the app itself. We also have something pretty interesting, I think, I’ve never seen it in any other fintech apps before, we are enabling consumers to earn a $5 balance increase by sharing the app with their friends and that’s been working pretty well.

But, what’s interesting with the system is it’s a complete “win-win” for everyone involved, right, you know, the consumers share the app with their friends, they increase their balance by $5 and there’s a direct correlation, of course, between a higher balance and a higher credit score. So, you have a higher balance, a higher credit score and your friends get to build their credit score at the same time. It’s a complete “win-win” system that we built and that’s generated a good chunk of our installs right now. So, that embedded virality has worked out pretty well for us, so far.

Peter: That’s super interesting plus, you know, the added benefit there where it becomes a social pressure almost to keep it going kind of thing, you know, how’s your credit score going, that sort of thing.

Joe: And it’s a lot of interesting play on that front later on to challenge, to drive people challenging themselves to increase their score.

Peter: Sure, sure. So, that brings on my last question and that is, you know, there are a lot of ways you can take this. What’s your vision for Grow Credit, where are you taking this company?

Joe: So, our goal is to conquer the world (Peter laughs).

Peter: Good for you, yes, might as well aim high.

Joe: That’s our goal. We have, you know, really the ability to become….our entire goal is to deliver an enormous amount of value for our consumers, right, and with our initiatives to deliver discounts to our users, we believe that it’s going to help us grow dramatically because not only are consumers able to, of course, build their credit, that’s number one, but once they are able to save $50/100 on the overall subscriptions, that’s going to give us a lot of purchasing power to be able to potentially demand lower rates on cell phone bills, for instance.

So, the idea is we need to build a community which allows consumers to really obtain an enormous amount of savings and this is really where we’re all going, really the ability to use Grow to build credit, obtain savings and maybe there’s the banking down the road, the neobank…you know, this is a possibility, we could head into the banking realm, down the road possibility, not sure, but who knows.

Peter: Okay, Well, it’s super interesting, Joe, I appreciate your coming on the show today and sharing your story.

Joe: Thank you, thank you, Peter.

Peter: Okay, see you.

You know, one of the big challenges, I think, for consumers starting out, either arriving in this country as an immigrant or they’re just leaving college and they’re really starting out and getting a credit file for the first time. It’s hard to break into the system because you can get maybe a secured credit card with a $500 limit, that doesn’t really increase your credit score dramatically, it’s not a way that really is going to help that much.

What Grow Credit provides is a free way to really get a trade line, pay it down and then graduate it up. I can see how this…there hasn’t been this sort of one company that say, okay, when you start out and you want to establish your credit score, this is what you need to go do and that is what I think Grow Credit provides. So, I wanted to get Joe on, even though his company is very young, but I think it provides sort of a missing link in a way in the credit system. I think a company like this could be sort of the first natural step in a few years time that everyone goes into when they’re trying to establish their credit score. So, I think it’s a great idea, as I said.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com.

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Filed Under: Lending and Fintech Podcast Tagged With: credit scores, financial inclusion, Grow Credit

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Highlights from LendIt Fintech LatAm 2020 and Why Latin America is the Most Exciting Region of the World for Fintech

LendIt Fintech LatAm 2020 was held online this week and it featured most of the leaders of fintech in Latin America

December 11, 2020 By Peter Renton Leave a Comment

Views: 235

This week the Latin American fintech community came together for the second annual LendIt Fintech LatAm event. Just over 700 people enjoyed two full days of great content, networking and more.

In December last year we held our first Latin American event in Miami but this year, like all events, it was conducted online. This was actually LendIt’s third big online event so we have really started to get the hang of things, as everything went quite smoothly.

I came away with a much greater understanding and appreciation for the fintech community in Latin America. Many of the fastest growing fintech companies on the planet are located in this region. There are three main factors underpinning this growth: the large number of unbanked consumers, the deep penetration of smartphones and the poor job the incumbents are doing in serving consumers and small businesses. These things, combined with an indomitable entrepreneurial spirit, have led to several fintech companies achieving significant scale.

When it comes to scale no Latin American fintech company can come close to Nubank. Based in Brazil, with a population just over 200 million people, they have already attracted over 30 million customers to their digital banking platform. David Vélez is the CEO and co-founder of Nubank and he kicked off our keynote “stage” with Nigel Morris, the co-founder and Managing Partner of QED Investors. Nigel was also the co-founder and President of Capital One back in the ‘90s and he reflected on the many similarities between the early days of Capital One and the early days of Nubank. David also shared that, despite Nubank’s growth, the big banks in Brazil still have about the same market share as they did a decade ago demonstrating that Nubank is really growing the market. [Read more…]

Filed Under: Fintech Tagged With: Conference, LendIt Fintech LatAm, virtual event

Views: 235

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