Today, Pave, an online lending platform, announced a large investment commitment of $300 million on the Pave platform. Seer Capital will provide the bulk of this debt capital and will also contribute some equity, but those terms were not disclosed. Pave is a company that is focusing on the millennial generation who commonly have thinner credit profiles. We were able to catch up with Oren Bass, Co-Founder and David Rosen who is Pave’s Head of Underwriting to learn more about their company.
We asked Oren about what kind of platform they see themselves as right now: a balance sheet or a marketplace. Oren stated that a majority of the loans will now be funded by Seer Capital, but they still can take on more investors which will allow for capital diversification. At this point they don’t want to be a balance sheet lender, but they may look into doing so in the future. Oren noted that they hope to be on the Orchard platform shortly and at some point hope to attract investors through that channel.
When we asked about growth, Oren said they want to continue lend responsibly and do not want to go down the lending spectrum. However, there may be opportunities to grow more quickly as they have several partnerships in the works. Pave plans to lend $100 million over the next 12 months.
The typical borrower is around the age of 30 and receives an average interest rate of 12%. Pave focuses on borrowers with FICO scores from 660 to 750. These borrowers are typically graduates who have a thin credit profile where the FICO score doesn’t necessarily price the risk accurately. Thus, they use other data points to underwrite including income, industry, work history and education.
One of the things they focus on is the stability of the borrowers and the industry a borrower works in is often a good measure of this. Professionals such as nurses, unionized teachers, engineers and those who have attended coding schools are examples of the more stable professions. While unionized teachers certainly aren’t on the high end of income, David pointed out that they tend to continue to be employed with a steady income. Some careers considered to be less stable or more risky are entrepreneurs, or those who work in hospitality, entertainment, art or sales. They continue to look at these data points to see where they can more accurately price the risk.
Finally, we asked Oren and David about their borrower acquisition strategy. Oren mentioned that a lot of their borrowers come to them organically and they haven’t focused much attention yet on marketing. They also source leads through sites like LendingTree and Credible. Oren also pointed out that relocation companies can also be a great source of leads. Every year, 47 million people move and this fits perfectly with Pave’s focus since people tend to move earlier in life.
While there is certainly competition for Pave with companies like Upstart, SoFi, Earnest and even Avant as they move up the credit spectrum, the commitment from Seer Capital speaks volumes to their belief in this demographic and Pave’s underwriting. Oren stated that 35% of the age group of 19 to 35 year olds falls into the 660-720 credit range which means this is a massive addressable market. It seems as though this market is large enough to allow for multiple large platforms like Pave and we look forward to watching their progress over the next year.