Last week the fintech world gathered in San Francisco for the 7th annual LendIt Fintech USA conference. As I do every year at this time I will share many of the highlights from the keynote presentations and other parts of the event.
We kicked off the event with a fascinating discussion that encapsulated so much of what is important in finance right now. We had the CEO of Discover, Roger Hochschild and the CEO of ZestFinance, Douglas Merrill on stage talking about bank-fintech partnerships and how machine learning is helping both banks and fintech companies expand their credit box to the previously underserved. Hochschild said that partnerships are so important for banks because they can get access to talent that they might otherwise not. My favorite quote from the session was from Merrill, “There is a moral beauty in finding people who have been mistreated by the [financial] system and fixing that”.
The CEO and Co-founder of Affirm, Max Levchin, had some harsh words to say about credit cards in his session. He basically compared them to pay day loans in that in both instances borrowers are allowed to refinance their own debt in perpetuity. Their business model is based to some extent on deceiving the customer. Far better to have an installment loan where you know exactly how much you are paying with a fixed payment every month. He also talked about Affirm’s groundbreaking partnership with Walmart and how both companies, while very different when it comes to scale, have a very similar customer-centric approach. He appreciated Walmart no longer offers a deferred interest payment option, something that Levchin dislikes intensely. He said that 2019 will be the year of big partnerships for Affirm both within finance and outside.
Sallie Krawcheck is the CEO of Ellevest and previously ran the wealth management operations for some of the largest Wall Street firms. She talked about an amazingly underserved investor segment: women. Investment management is such a male dominated industry with 90% of mutual fund managers and 95% of hedge fund managers being male. She made the interesting point that we have been socialized to think that something “for women” means it is inferior and likely just a marketing ploy. Women have not made the progress either in finance or other industries that we all expected a couple of decades ago. The gender pay gap is decades away from closing and one of the ways to help close this gap is to help women invest in a smarter way.
Mike Cagney, the CEO and Co-Founder of Figure, gave an engaging presentation on the impact that the blockchain is going to have on securitization. He laid out a completely new paradigm that takes 150 to 200 bps of cost out of the traditional securitization ecosystem. With complete transparency into every loan and payments on the blockchain you don’t need an auditor, a custody bank or a payee agent. There are lower deal costs, more efficient ratings and there is also improved liquidity with real time visibility into collateral. This is not just a theoretical exercise, Figure has been originating HELOCs on the blockchain since fall of last year. They are in the process of doing a private securitization right now with a public rated securitization right behind that. Both will happen in Q2 and will be the world’s first securitizations to happen completely on the blockchain.
The CEO of Green Dot, Steven Streit and the CEO of Stash, Brandon Kreig had a fascinating conversation about digital banking. Stash has three million customers and they recently launched banking products in partnership with Green Dot. Neither company focuses on fee revenue where the customer is penalized. The beauty of technology today is that you can get rid of unnecessary fees and put the money back in the consumers pocket. To win today you need to have a hyper focus on solving your customer problems. You have to be willing to custom tailor your product to your customer segment.
Rob Frohwein, the CEO of Kabbage, always gives an entertaining presentation. You got a sense from his title, You Might Need Glasses, Your Vision Sucks, that this was going to be a little different. He described what makes a good company vision statement, providing several examples along the way. He described Steve Jobs vision for Apple when he returned to the company in the 1990s, “You need to start with the customer experience and work backwards to the technology”. Amazon’s vision remains the same in 1997 as it is today. Fintech companies should not try to be the Uber or Amazon of anything, you need a vision that is all yours. Another great one from a tech company today is Instagram, “Bringing you closer to the people and things you love”.
Paul Watkins is the head of the Office of Innovation at the CFPB and Jan Lynn Owen is the head of the California Department of Business Oversight and they had an interesting discussion with Jo Ann Barefoot on federal versus state regulatory oversight. They talked about regulatory sandboxes with Jan Lynn Owen expressing concern about the public being exposed to new products in such sandboxes, although she did say her reasoning is evolving. She also said that fintech companies and associations should be working hard to change the laws because regulators can only become modernized through new laws. Paul Watkins talked about the importance of international cooperation among regulators and his advice for fintech companies is to be transparent with regulators and engage as much as possible.
We kicked off day two on the keynote stage with a family office session featured Greg Wasson, the former CEO of Walgreens and Kevin McGovern, founder of 25 companies including SoBe Beverages, now running McGovern Capital. Both speakers run their own family office and they pointed out that family offices are more prevalent today than ever before with more than 10,000 now globally representing $4.5 trillion of wealth. They are basically super angels, providing patient capital to startups often with the focus on impact rather than a financial return.
Renaud Laplanche, CEO of Upgrade, shared his three most important questions for fintech today. One, What banking products should Fintech focus on in 2019 and beyond? Lending actually produces the most revenue for banks but has a low fintech penetration today. Two, What rebundling strategy is most effective for Fintech firms? He gave examples of rebundling that Upgrade is doing today. He also announced details of the new Upgrade credit card that rewards responsible use of credit. Three, how to build a winning bank/fintech partnership in 2019? The industry is now ready for a new kind of partnership designed to take advantage of the strengths of banks and the strengths of fintechs.
Will Lansing, the CEO of FICO and Alex Lintner, Experian Group President talked about innovations in credit analytics that both companies have been undertaking. They talked about the new UltraFICO score and how they are able to score more people by allowing thin file customers to contribute more data. There are tens of millions of consumers who will potentially be brought into the traditional financial system because of this. The big battleground in lending today is in thin file and the lenders who can capitalize on alternative data and alternative scores will be able to have a competitive advantage.
Karen Mills was the head of the Small Business Administration under President Obama and she has recently written a book called Fintech, Small Business and the American Dream. She talked about how small business lending has evolved over the past four years and the pain points that still exist today. She painted an optimistic picture of the future she calls “small business utopia” where rich data is presented to the small business owner in an easy to understand dashboard. But she also said that regulations need to change and described the best way to get that done. She talked about relationship lending and how that can work in the online world and she left us with some predictions for the future of small business lending.
Yihan Fang is the CEO of Yirendai and talked about the growing wealth management industry in China. There is a huge need for wealth management in China but most of the mass affluent are underserved today. These people used to mostly be focused on real estate investment because there were very few other choices. They don’t understand the importance of asset allocation but they do like to learn so investor education is an important part of the Yiren Wealth platform. There is no fiduciary requirement for investment advisors in China and the average age of these advisors is just 29. There is a real need for good advice that can be delivered to the mass affluent in a cost effective way.
Steve McLaughlin is the CEO and Co-Founder of FT Partners and he was interviewed on stage by the Godfather of Fintech, Ron Suber in a very entertaining session. Steve talked about how difficult it is to build a brand in financial services. He thinks that there are not that many companies that are ready to IPO in fintech yet and valuations have often got ahead of themselves. The fundraising market is hot right now but only for good companies. Where the market is underhyped are those companies who are not growing super fast but are filling a need and have solid fundamentals.
Boe Hartman, the CTO of Marcus, revealed that Marcus is already at $45 billion in deposits and $5 billion in outstanding loans and they have a total customer base now of 3 million since launching in 2016. Also, it was less than 12 months from writing the first line of code until public launch of the digital bank. The introduction of the iPhone led to the fintech revolution and changed the expectations of consumers. Marcus has worked relentlessly on customer experience and they were pleased to receive the recent JD Power award for best consumer lending platform.
While those are some of the highlights of the keynote stage there was a huge amount of content happening on our breakout tracks. We had six simultaneous tracks of content running over two days covering a variety of lending, digital banking, blockchain and other fintech topics. Our expo hall was buzzing for the entire event with around 200 sponsors having a presence at the show. At our Innovation Zone on the expo floor we had the popular PitchIt @ LendIt startup competition that was won this year by Possible Finance. I also conducted a live podcast at the Innovation Zone as did many other fintech podcasters. Also in the expo hall was our 1 to 1 meeting zone managed by Brella. More than 10,000 meetings were organized by LendIt Fintech attendees this year.
We also had a full Women in Fintech program this year with several new initiatives. We launched our first ever Women in Fintech Speed Networking session that was a big hit, we had our always popular Women in Fintech luncheon and we also started a mentoring program for up and coming women.
The grand finale of the event was our third annual LendIt Fintech Industry Awards. This became the hottest ticket in town as we sold out weeks in advance of the event this year. This is one of my favorite nights of the year as we celebrate success in the fintech industry. Winners were awarded in 20 different categories and the list of winners is available here.
Finally, I would like to thank all the sponsors, the attendees, the speakers and of course the entire LendIt Fintech team who all worked extremely hard to bring you the best LendIt yet. Next year we will be back in New York again (on May 13-14) where the conversation will continue.