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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


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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: 405

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: 405

It is Almost Becoming a Flood: Fintech Companies Want to Become Banks

More fintech companies are applying and being approved for banking licenses, it is a trend that is here to stay

November 24, 2020 By Peter Renton 3 Comments

Views: 1,372

First, we had Varo. Then came Square. More recently SoFi, then Figure, now Oportun is joining the party. Let’s not forget LendingClub who are going the acquisition route and Jiko have done the same. Robinhood have toyed with the idea and Revolut is thinking about it. All these fintech companies want to become fully regulated banks.

Varo was the first one off the mark and were fully approved earlier this year. It was a long three-and-a-half-year process, but they have paved the way for other fintech companies seeking a full national bank charter. Square went the ILC route and they were also approved this year. SoFi has received conditional approval just last month from the OCC for their national bank charter.

Figure announced their charter application just a couple of weeks ago and we had an absolutely fascinating session yesterday on LendIt Fintech Digital with Ashley Harris, the General Counsel of Figure speaking with Michele Alt of the Klaros Group. Figure’s application is somewhat unique in that they are applying for a national bank charter with the OCC but not the FDIC as they will not be taking deposits directly. Ashley went into some detail on the reasoning here and how Figure Bank will operate.

Now, yesterday we heard the news that Oportun will be the latest company to apply for a national bank charter. In a blog post penned by CEO Raul Vazquez he shared the thinking here:

A national bank charter will allow us to reach all of the estimated 100 million low-and-moderate income (LMI) consumers in the U.S. that we seek to serve. Currently, Oportun maintains dozens of state licenses in order to offer affordable and responsible financial services to LMI communities. As a national bank, we can efficiently provide the security of dealing with a federally regulated and supervised bank to our customers and other stakeholders.

This is a theme we are hearing from many companies. Maintaining dozens of state licenses makes little sense when you are trying to serve consumers nationwide. Even for companies like Oportun, that operate hundreds of brick-and-mortar locations as well as offer loans online, they see the benefit in a national charter.

Fintech Charter Anyone? Anyone?

I have been following the fintech charter ever since former OCC head, Thomas Curry, proposed the idea back in December 2016. Since formally introducing the fintech charter in 2018 there has been significant pushback with multiple lawsuits and a federal judge ruling a year ago that the OCC does not have the authority to issue bank charters to non-banks.

Acting Comptroller, Brian Brooks, has openly challenged this argument and has proposed having potentially multiple special purpose charters issued by the OCC. He said at LendIt Fintech USA a few weeks ago that as fintech has unbundled banking there could be a payments charter as well as one for lenders. With 38% of lending being done outside the banking system Brooks thinks it would be better for consumers if banking regulators supervised more of the total lending pie.

But right now no company has come forward, at least publicly, and applied for one of these special purpose charters. And it seems that momentum has shifted towards a full national bank charter.

If You Can’t Beat Them Join Them

I was talking with a reporter recently about the changed narrative since the early days of fintech when fintech companies were going to disrupt or at least disintermediate banks. Now, that story is pretty much over as the majority of fintech companies are seeking to become banks or at least more “bank like”.

It is not that long ago (less than five years) that SoFi was launching a TV ad campaign, including a Superbowl ad, that ended with the tagline: Don’t bank. SoFi. Fast forward to 2020 and SoFi is well on their way to becoming a bank.

Fintech and banking are converging. There will be a time in the near future when there will be little distinction between banks and fintech companies. Even those companies that are happy without a banking license use partner banks to offer various to their customers.

The future of fintech is in banking. And the future of banking is in fintech. Similar to the way that e-commerce has evolved banking will have some traditional players who have embraced technology and thrive, and fintech will have created some national behemoths, with banking licenses, that will be approaching the scale of some of the largest banks.

So, you can expect many more bank charter applications from fintech companies in the months and years ahead.

Filed Under: Fintech Tagged With: bank charter, bank partnerships, fintech charter, National Bank Charter

Views: 1,372

Podcast 274: Jared Kaplan of OppLoans

The CEO of OppLoans talks small dollar lending, the impact of the pandemic, the True Lender rule and why banks are the key to the future of the space

November 20, 2020 By Peter Renton Leave a Comment

Views: 348

The small dollar lending space is starting to see some real innovation. After banks have basically ignored this population for years, with the gentle push from regulators, some are now entering the space for the first time. One of the companies that is helping to enable this shift is OppLoans.

Our next guest on the Lend Academy Podcast is Jared Kaplan, CEO of OppLoans. He was last on the show 18 months ago and so much has changed since then. Their customer base has come through the pandemic in better shape than expected so loan demand has still not returned to pre-pandemic levels. OppLoans is focused on working with banks and have developed their Powered by OppLoans program with that end in mind.

In this podcast you will learn:

  • How Jared describes Opploans today.
  • A description of their typical customer.
  • How this customer has fared this year during the pandemic.
  • How loan demand has trended this year.
  • Details of their TurnUp program.
  • Jared’s views on the increased interest in small dollar lending from banks.
  • How their Powered by OppLoans offering works.
  • The adjustments they made to their underwriting this year.
  • How they verify consistency of income of their borrowers.
  • The impact of the new True Lender rule from the OCC.
  • How Jared responds to those people who believe his product should not exist.
  • How they measure whether their customer is doing better.
  • Details of their partnership with Experian, Steady and BillShark.
  • How Jared thinks about the future of small dollar lending.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech LatAm 2020. Latin America’s largest fintech event dedicated to lending and digital banking is going virtual in 2020.

Download a PDF of the transcription of Podcast 274 – Jared Kaplan.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 274-JARED KAPLAN

Welcome to the Lend Academy Podcast, Episode No. 274. 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 LatAm, the largest fintech event dedicated to lending, payments and digital banking in Latin America. It’s happening online December 8th and 9th. Despite the pandemic, Latin America still remains the hottest region in the world when it comes to fintech with so much innovation happening. So, join the LatAm fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/latam

Peter Renton: Today on the show, I am delighted to be talking again with Jared Kaplan, he is the CEO of OppLoans. Now, OppLoans is focused on the sub-prime consumer and they partner with banks which we get into in some depth in this episode. Jared believes that the future of the sub-prime lending space belongs with banks, we talk about why that is, we go into, obviously, what’s happened this year with his customer base, with his company.

We also talk about the new True Lender finalized rule from the OCC and what that means, we talk about the changes that he’s had to make with underwriting and why this sort of was finally great in some ways to have a recession data because that’s something that obviously many online lenders have never been able to provide before so we talk about that. Also, we talk about the future of the industry and much more. It was a fascinating interview, hope you enjoy the show.

Welcome to the podcast, Jared!

Jared Kaplan: It is great to be back, Peter, thanks for having me.

Peter: Yes, of course, I should say welcome back. It’s been 18 months thereabouts since you were last on and I know a lot has changed in that time, but why don’t we just kick it off by just giving the listeners a quick description of OppLoans so we all know what we’re talking about here.

Jared: Sure. We’re a financial technology platform that powers community banks to provide credit access to what we define as the “credit challenged” middle-income population. So, it’s not low-income consumers, it’s middle-income consumers, your US median consumer, and the idea behind the business is that half of the country lives paycheck to paycheck. You have 60 million Americans that lack access to traditional financial products and that’s not my number, that’s the New York Fed’s number, they came up with a great study last September.

Essentially, if you have less than 620 FICO you’re abandoned to the markets of last resort so banks are looking away to arrange credit in that population through our platform. They’ll be able to do it in a seamless manner that gets the customer the best available product in …a product that’s structured in a way that should rebuild credit and ultimately graduate them back to mainstream financial credit products.

Peter: Right, right. Maybe can we just dig into that a little bit, the typical customer. I mean, you said they’re like all sub-620, is that primarily who you’re talking about here, what sort of income levels they are, that sort of thing.

Jared: Sure. So, the average customer makes $50,000 a year if they have a job, they have a bank account and they have a thick credit file, it’s a not thin credit file customer. It’s someone that did something terrible to their credit based upon traditional credit metrics. And so, the whole model is about finding that customer who did something bad to their credit actually has the willingness and the ability to repay and deserves a fair product to pay for whatever they need to pay for and then ultimately get back to the world that they used to live in.

Peter: Right, right. So, this might have been like a 740/750 FICOs at one point and then something happened and they went down to about 550 and now they’re trying to claw their way back, is that fair to say?

Jared: Yeah, I mean, they could have been mid-600’s, they could have been early 700’s. What we find…you know, our customer on average, if you look at FICO data 550 to 620 customers’ kind of a sweet spot, but they all had, at some point, access to more traditional financial products before their traditional score fell below that magical 620 line and that’s where we’re able to help these banks figure out who the best customers are and getting them a product that’s more structured in line with their risk profile.

Peter: Right, okay, So then, let’s talk about this year for that customer base and for your business….you know, take us through obviously from the beginning in March all the way through to day. We’re recording this on the 2nd of November so take us through how this customer has…what’s happened to them this year?

Jared: So, you know, back in late February, we started looking at the potential impact and we have this recession playbook that we had put together…I can’t tell you how many times we are asked, what happens to the business in a recession. You know, we had the best answers, the only thing we didn’t have was any data. (Peter laughs) The business was founded after the last recession so no one believed us so we were like, okay, now is the time to prove the resiliency of this customer, it is played out kind counter intuitively.

The customer, in some respect, has never been healthier from a credit and a cash perspective. One of the key alternative data points that the banks have adapted as per their underwriting models is how much money they have in the bank account and when stimulus hit in mid-April, these customers had five or six times the amount of cash that you would expect to see in their bank account in a normal market environment and so the addition of stimulus….the fact that they were not spending money on discretionary things like vacations, the fact that the number one deriver of the product is someone trying to fix their car that broke so they can get to work….our customer was healthy and they repaid debt at rates that we had not seen in the company’s history and demand fell as a result.

So, what you had is a consumer base that was not borrowing because they didn’t need the money and for this product which is a high cost product, it’s a great thing, right. Customers shouldn’t be willy-nilly taking money, taking loans if they don’t have an emergency or unexpected expense they have to fulfill. Now, just from the second quarter on, very, very, healthy customer and that was great to see. We did see like 10% of our base skip a payment, we took a very, very generous approach in tandem with the bank partners when someone had any difficulty paying and out of that population 99% plus had become current so…..

Peter: That’s great.

Jared: ….That’s been quite a successful story, I think has built a tremendous amount of loyalty with the customer base. But now, we’re at a really inflection point, you know, seven to eight months past the onset of the crisis, we have seen those same bank accounts dip to below where you would expect them to be. At this time, Peter, and that’s a phenomenon here in the last couple of weeks and I think a direct result of a lack of additional stimulus, the fact that there is a portion of the population that’s making less money than they did last year, you’re seeing delinquencies return back to what we could consider normal.

That is a trend, well, we’ll see what happens with stimulus, we all believe stimulus is going to happen ……you know, we can argue whether it’s right after elections or early next year, but it will happen at some point. And that probably is enough to hopefully get the customer to the other side of this thing when the vaccine is more prevalent and spending patterns return more to normal. So, we’ll see how it all plays out, but, certainly, not as we had thought early on, but thankfully for the customer, they’ve been able to navigate pretty well.

Peter: So, does that mean that loan demand has picked up. I imagine, it’s picked up from second quarter levels, but has it picked up to pre-pandemic levels yet?

Jared: It’s picked up considerably. I will tell you though, a large part of our acquisition is driven through search engine optimization through Google and other search engine traffic and so we tracked the major key words that drive that traffic. I would say we’re still only about 60%, six-zero of what you would expect at this time of year so it’s still actually quite muted. It looks like a traditional tax refund season still and….it’s not surprising, right, because people are so….if anything, were gone, you know, backwards a little bit here the last couple of weeks, it’s certainly in some regions, so it’ still quite daunting from the peak which I would consider the early March.

Peter: Even though like stimulus is really….I mean, the unemployment stuff ended at the end of July, I mean, the stimulus checks went out April time frame so it’s been months, months, so you’re still seeing like a typical tax refund season?

Jared: Yeah.

Peter: It’s really interesting.

Jared: It’s just that the consumers are not spending as much nor do they have…I mean, I think some of the same drivers as before are still relevant. People aren’t going on a vacation, right, you know, people don’t typically use these products to go on vacation, but vacation drains the bank account so when something unexpected pops up, you don’t have the cash so they have a little bit of extra cash because of that. And then, you know, we talked about car repair being a big driver so…. people are certainly driving less still.

And then the other major driver we see is payment for health care deductibles, for consumer driven health plans and people are less comfortable to go to the doctors still so there’s still less of that activity going. So, I think it’s a combination of factors, but it certainly is a moment in time. I would describe the demand in the space to be almost insatiable as late as early March of this year in the space. And so, we do think on the other side of this, it probably returns and maybe even returns with greater impact because we still have seen a number of the lending platforms above us stay relatively tight.

Peter: Right.

Jared: And that’s a very….it’s not as tight as it was in the second quarter, but certainly hasn’t returned to normal. There’s certainly a larger percent of those customers that don’t have access to what they used to.

Peter: Right. So, that’s ….I mean, you’ve had this, we talked about this last time, but you call your TurnUp Program, rather than turning down, you refer people on to the lower cost platforms, but are you finding that’s happening less now because, you know, as you mentioned, a lot of them are much tighter than they were before. So, are you still doing that program and is it as successful as what it was before, as far as conversions?

Jared: So, the TurnUp Program, just to describe that, at the beginning of the application process is as a customer is applying, they are given the option of whether they’d like us to do a diligence search on their behalf for some 36% APR products. And so we go out to about 15 near-prime lenders and see if anyone has an appetite to the 96% of customers that opt into that process. Prior to COVID, we saw about 7% offer rates, 93% of the time there were no offers.

Seven percent of the time, a customer received at least one offer and through this period, we actually saw that the match rates dip a little bit. We were less successful at being able to find them other products out there and that’s come up to about 7% again so we’re a little bit lower than we were that’s why I say it’s still a little bit tighter. But, yeah, it definitely showed up in the April, May, June time period and it’s come back a little bit, but not all the way.

 

Peter: Right, right. So, I want to talk about the industry as a whole. We’ve seen commentary from some of the Federal regulators that they want to see more banks get involved in the small dollar loan space. We had US Bank for many years now, their Small Dollar Program, recently, Bank of America are getting into it and Varo announced that they’re going to be doing a very small dollar program, we’ve got Square. What do you make of sort of this increased kind of awareness of this product?

Jared: So, it’s obviously a large percentage of the population that struggles to get access, right, so the regulators, for the longest time, have been trying to get more and more banks involved. For a number of reasons, banks are best positioned to offer products to this customer space, they can do it at the lowest price points, they have the lowest cost of capital, the cross sell is essentially free to them, if they have customer, if they have deposits which puts them first in line to get repayment, they have transaction data which help underwriting and you’re thankfully seeing more banks get into the space now along with some of the financial technology companies that have bank-like products, like CashApp for instance, and that’s a terrific trend, we’ve been surprised it’s taken this long.

US Bank Simple Loan product launched in mid-2018 and it was….up until now, you haven’t really seen many new entrants, but there clearly is a need and the more players you see in the space, the more ferocious the competition is and so consumers should have more choice.

The banks’ offerings are highly regulated away so they should have the consumer protection and our thesis all along has been that banks should be the one leading access in the space and the big guys should be able to do it themselves. The community banks and the credit unions probably can’t do it themselves and should be partnering with financial technology companies like OppLoans to provide the product and we’re big believers that you can have access with appropriate consumer protection to create the best pathway for the consumer. We’re finally seeing that happen and i think there can be a lot more to come on that note.

Peter: Right. So on that, I mean, you talked about when you described your company, you described it a little bit differently I think from in the past and you have this Powered by OppLoans offering. I was on your website last week and you have three banks that are on there now, I mean, it sounds like, from the way you’re talking, this is what you see as the offering is. You want to power all these smaller banks to give them like a sub-prime offering.

Jared: Yeah. From our point of view, you know, there’s 10,000 or so banks in the country, give or take, and more and more market share is shifted to the top ten guys over time.

Peter: Right.

Jared: The credit unions and the community banks have really been left out and financial technology is a great way to even the playing field for them. And so, we love the model, we’ve got three tremendous banks that we have partnered with that have outsourced potentially their small dollar platforms to us to power with our servicing and our technology and that gives them a really interesting product to compete in the marketplace. We just feel like it’s the right answer for the space.

This space has a long history, right, and as you have coined a bit over the last couple of years…..and there’s always this debate. I spent time in Washington talking to members of Congress, right, it’s this debate over access, access at what price, what does the right guard rails look like and so we have taken the approach that banks provide the best medium for the reasons that we talked about earlier and we want to be the leading player empowering them into the marketplace.

Peter: Right, right, okay. So, you expect then that you’re going to see dozens of these banks, you know, in the near future that will be powered by OppLoans? I mean, is this a core part of your strategy going forward?

Jared: Yeah. You know, I’m not sure if we’ll have dozens of banks. I think that these banks….each one is a tremendous administrative burden reform to make it work. It’s a great thing, right, I mean, banks are difficult, they need to be given the regulatory compliance and oversight that is demanded of them. And so, that is by nature passed on to us and we’re lucky to have the partners we have, please, I mean, that is for sure, but it is a ton of work and creates numerous hurdles for us to go through to be able to get to market. So, I’m not sure how many more we’ll add, but I think the space will see a lot more activity and a lot more innovation. So, that is ultimately a great thing for more credit access.

Peter: Sure, okay So, I want to go back and talk about this year again as far as the changes. Obviously, you’ve talked about how you’d never been through recession and now you’ve got that kind of ….the history of what has happened this year in your playbook, but how did you approach underwriting this year? Did you make any adjustments, were you using different data sources, what were the adjustments that you’ve made?

Jared: So, the recommendations we made to the bank partners, as far as the running models are concerned, always base on alternative data with heavy emphasis on bank data, on verifying income, on verifying consistency of income and that all played out quite strongly through this period of time. So, I would not say there were changes that were made, material changes that were made by the bank partners as we headed into COVID even with some of the uncertainty and the thesis played out pretty well.

You know, a lot of the customer base just given some of the underwriting attributes is concentrated in Amazon, in the post office, in drug stores, municipalities…parts of the economy that have proven to be quite resilient for this. So, I think that that was helpful as far as the banks and their books of performance through this process and it’s one of the advantages that the alternative data has compared to the traditional data that many still rely on.

You’re going to see that heightened even more coming out, there’s been some press on what the credit score means now given so many customers who are flush with cash, have paid down debt and improved their scores is ….you know, yesterday’s 680 is still the same today and what does all that mean. That will be very, very interesting to play out on the other side of this whereas the underwriting models that the banks use are still finely tuned to the same key points which is making sure someone’s got the ability to repay and that’s heavily driven by you make what you said you make and the consistency of income is such that you should be able to repay the loan over a period of time.

Peter: Right, that’s interesting. I noticed that this consistency of income….you said this at LendIt a few weeks ago,  you were talking about how it’s really important not just to verify income, but to verify the consistency of income. How are you doing that? Are you doing that just through bank transaction data or are there other methods that you can use to verify consistency because, obviously, it has not been the most consistent year for many, many people.

Jared: Yeah. So, it’s really a combination of data points all rolled into proprietary scoring, but at it’s core it’s very complex to judge consistency because that is driven by how many jobs you’ve got and what the frequency of how you’re paid in those jobs and it can come in many forms of fashions. So, the proprietary technology that we developed can ingest all those data points in real-time and determine whether consistency is at the appropriate level that would allow someone to be able to repay a loan. I think that’s a big part of our success when it comes to understanding who a customer is beyond some of these more traditional metrics that have been used historically.

Peter: Right. So, you’re doing 1099 data, they might be driving for Uber or InstaCart or something and then they’ve got a W2 job as well, they might have a little consulting gig as well. I mean, you’re able to kind of gather all that stuff in.

Jared: That’s right. Gather all in and look at the history, look at the recency and have it all boil down to what is ultimately a proprietary score and whether it makes sense or not.

Peter: Right, right, okay. So, I want talk about True Lender because we had some movements. I think it was just last week. The OCC issued their final rule on True Lender and it was pretty much what they said earlier in the summer, how the new acting head of the OCC, Brian Brooks, was pretty adamant about this. You know, it’s a pretty simple rule, I mean, it’s like two sentences, so I wanted to get your take on the impact on the space in general and on your business.

Jared: I think even backing up beyond the installment loan space, the true lender thing is fascinating. If you look at the way that many credit card companies and mortgage companies work in tandem with banks, these partnerships are not novel. I think they are new in the installment world, but the shape and form of a bank partnering with another company to provide an asset in consumer finance is not new.

Clearly, lots of noise in the installment space for a long period of time and it’s great to see the OCC come out with a bright line test and I think it’s a big step forward for the industry. We know just in the way that we work with banks what those relationships look like and the amount of the control that they have over the programs and what we think are structures ……and, again, we just think it’s another data point on the road to more mainstream credibility for these products which ultimately will create better opportunities for the consumer and so, hopefully, this will give lots more banks confidence to enter the space in some forward fashion.

Peter: Right, right. I do want to address….there’s obviously opposition to this ruling and it may end up being lawsuits, we don’t know, but …..and there’s been several people that I’ve seen in public settings that have been highly critical of the space, highly critical of your company saying things that I thought were just horrible, but I wanted to give you a chance to address those. I know you’ve seen these criticisms, it must rankle you to some extent because I feel like what you’re doing is good work and these people just don’t appreciate it and they think what you’re doing is actually opposite and is really bad for everybody.

You know, sometimes I think these people have wishful thinking where they just do magical thinking where…..you know, we’ve had AOC in Congress, there should be a 15% limit, no one should get charged interest above 15% ever, obviously, there’s a 36% limit and there’s people that really believe that your product should not exist. How do you respond to those people?

Jared: We respond with data. You know, we have a credit access crisis in the country, right, and so I have had lots of interesting conversations across the board and it’s true, a lot of the opposition takes the point of view that 36% is the loan that (inaudible) right. It’s almost…it’s a very matter of fact point of view and so we love bringing the data from the top to bottom to that conversation and say, hey, we’re trying to give the business away, trying to give it away and as you hear in big conversation before we launched TurnUp and we said, well, what if we’re successful here and given the business away and no one needs the product anymore.

That will be amazing, we’re fooling ourselves, I don’t want to go to work everyday at a company that is taking someone in a really difficult situation because we can be fast, they’re taking the product. That’s not a business I want to be in. So, I think we have proven very clearly that there’s tremendous demand out there, there’s tremendous demand out there because access doesn’t exist for the sub-625 population at sub-36% APR, it just doesn’t exist.

That does not mean that there should be more legislation or regulation as it relates to consumer protection. I actually think we can do a lot more there as it relates to guard rails to ensuring that we have both access and consumer protection and there has been, you know lots of potential law and proposed law that have been pushed back that at OppLoans we are big supporters of, right, the CFPB payment rule being one of them.

Peter: Yeah.

Jared: And I think actually the space doesn’t do itself any favors when it pushes back and what is common sense legislation or regulation to make sure there is appropriate balance. But, listen, if your point of view is you shouldn’t get credit if it’s higher than 36% APR or hey, the customer will just figure it out, we just fundamentally believe both of those are wrong. What we believe is that from an access standpoint, it is crucial that consumers have access, crucial.

It’s crucial to have access with the appropriate protection and it can’t be perpetual and this is where the big test in the space will come over the next 12 to 18 months, is which firms can prove that they really can help consumers rebuild credit and get back to the more mainstream financial credit products and that’s where we’re focused on, right. It’s access with best-developed products approach, if there is another product, it’s fantastic, if it’s one of the bank products, great. Let’s structure in the way that we build credit and then let’s get them something that looks more like traditional mainstream credit product within a reasonable period of time and I don’t see I’d argue with them.

Peter: Right, right. Obviously, you said you got them with data, I mean, what data do you have because I think it’s a really good point. I mean, if we, as an industry, are not making the consumers’ lives better and making them really more financially stable then we’ve failed, right. But I’d love to get some data that you can share about how that’s actually working like your customer base, I mean, how are they doing better.

Jared: Right. So, that will ultimately be driven by two potential outcomes, right. Can you quantifiably prove that your credit score’s improved over time with these products and/or you’re able to get them to what we would define as sub-36% APR credit over a reasonable period of time.

Peter: Right.

Jared: You know, there are lots of data points that go into the first question, right. The loans that are offered on our platform are typically $1,500, right, and there are lots of other things customers can do with their behavior that will ultimately affect those traditional scores. So, we’re working really hard with the bureaus to be able to tease out all of the potential impacts there and come with something that is incredibly quantitative that we can publicly report on to say, hey, customers that look like XYZ in this product, here’s what happens to their traditional credit score and hope to be able to present that in real-time and we want a public dashboard, right, public dashboards shout out from the rooftops, here’s what we have.

Peter: Right.

Jared: The other part we’re also actively working on which is we are in the best position. For the longest time, we went around trying to convince near-prime lenders to take a chance on these customers once they’ve taken an installment loan and repaid it, right, and what’s frustrating is that the 550 customer that improved to 570 or 590 or 619 still had no options, that the products on our platform were still the best option in town. So, as we’ve grown the business and gotten bigger, we’ve been able to generate more data and now in tandem with the bank partners, we’re able to get much more about pricing on a long term basis in the current products so that, I think, is a big improvement.

But also, we’re working on some real innovative products that will look like traditional mainstream products that these customers will be able to graduate to in a reasonable period of time. I hope they have some big announcement on that, it really is the first step next year.

Peter: Okay, that’ll be interesting because I remember when we last chatted, I asked you about that, you know, you should be able to keep these in the OppLoans ecosystem. We’ll look forward to announcements there. I want to move on and talk about something that I thought was interesting, you just recently announced this last month, partnership with Experian, Steady and BillShark, tell us about what you’re doing there.

Jared: So, this is all as a result…. as it relates to our Social Impact Team which is doing a terrific job and the idea that financial education has to be a big part of our process in the way that we communicate with customers and there are really great innovative firms out there than can help our consumers, right.

Those three partners, I think, are at the top of the list and they all serve a different part of how we can help customers, but we are constantly looking for ways to expand the brand by bringing better products, by educating customers in how they can take care of their financial health and so that was our first foray after SpringFour, actually, which is the first one to launch earlier this year, which is another terrific company that helps customers find the methods and income that allows them to repay their loans. So, more to come there, but we want to have partners with the best companies in the space from a social impact perspective just to make sure that our folks know what’s out there to help them.

Peter: Right, right, that makes sense, okay. So, we’re almost out of time, but I’d like to sort of close with your thoughts on the future of the industry. I feel like this space….I mean, as you say I would have thought by now that you would have many direct competitors that are doing just what you’re doing, but it feels like everyone’s still focused in the more prime, near-prime space. It’s not like you have no competitors, but this is less competitive, I think, you would agree than the prime space. So, maybe just talk about the future and what you would like to see happen to make this space a lot more mainstream.

Jared: So, unless everyone’s income goes up and the cost of housing, child care and everything go down, you know, you’re still going to have a major pain in the country, right, which is this dearth of savings. I mean, that is just the reality and there hasn’t been much competition, historically, I think there’s a number of reasons for that. I think it’s hard, right, this is a riskier customer base, you can’t rely on the traditional ways of doing business to do this profitably.

I think there’s also been an overhang, right, there’s, you know, reputational risk, some people think about headline risk, all of which we feel very strongly about. There’s a right way to do this and our hope is to get sold to the banks, that’s our hope. You know, banks are credible, they are mainstream, they are highly regulated and either by themselves or in partnership with financial technology companies should be able to provide much broader access and much broader access is more competition, means lower pricing and that’s what I think you’ll see.

I think the Fed regulators recognize that, I think they work with the banks, you’ve seen some great innovations so Bank of America’s product is $5 for $500, right. I mean, that’s a terrific product that they’re able to get that up to scale and offer to their customer base so that’s terrific, but it’s not enough to fix your car, right, so there is that aspect of it, you know, the typical car repair cost $2,000 so there’s still a gap there.

But, we’re seeing the right signs and my guess is a couple of years from now, you’ll see many more banks in the space, you’ll see other financial technology providers powering them and, you know, what I said earlier rings true, companies are going to build their brand based upon customer outcomes here and the customer outcomes are ultimately going to be driven by how quickly you can graduate that customer to whatever we can agree as a mainstream financial product. So, we hope to leave the charge there and if there’s some more competition on the way that will make us help to be that be much better, but it will also be a great thing for consumers and the space, in general, so we’re actually big proponents of that and we hope it happens.

Peter: Right, okay. Well, we’ll have to leave it there, Jared, but it’s always great chatting with you and best of luck. We look forward to those announcements next year and good luck with everything.

Jared: Thank you so much, Peter, always a pleasure.

Peter: Okay, see you.

You know, one of the things that struck me the most in that interview with Jared there was he talked about the future really of the sub-prime space is with banks and it’s really the reason why companies like OppLoans have done so well is because banks have ignored this group. But, you know, now that they really are aligning with banks, they got the Powered by OppLoans, product really focusing on providing banks with the opportunity to serve this population and….you know, it makes sense to me.

Banks have typically not been able to work out how to make money out of this population, how to serve them in a fiscally responsible way while also making a profit, it looks like what OppLoans is doing really is providing the playbook for banks in how to do that. So, it’s going to be super interesting to see how this develops going forward.

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 is sponsored by Lendit Fintech LatAm, the largest fintech event dedicated to lending, payments and digital banking in Latin America. It’s happening online December 8th and 9th. Despite the pandemic, Latin America still remains the hottest region in the world when it comes to fintech with so much innovation happening. So, join the LatAm fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/latam.

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Filed Under: Lending and Fintech Podcast Tagged With: bank partnerships, Opploans, small dollar lending, Small Dollar Rule, true lender

Views: 348

The Bank Partnership Model Affirmed in Settlement With Colorado

This groundbreaking settlement resolves the "true lender" issue in Colorado and could be used as a regulatory framework across the country

August 18, 2020 By Peter Renton Leave a Comment

Views: 1,352

The issue of “true lender” has been one that has dogged the marketplace lending industry virtually since its inception. When a borrower takes out a loan from most marketplace lenders the loan is often originated by a partner bank then held on their balance sheet for a short time before being sold to the lending platform. There has been debate about who is the true lender in these circumstances.

In 2017, the Colorado Attorney General filed two separate lawsuits against Marlette Funding and Avant alleging violations of the state’s Uniform Consumer Credit Code by charging interest rates in excess of those allowed under Colorado law. These loans were originated by out of state banks, Cross River Bank and WebBank, who were also party to these lawsuits. These banks are allowed to export higher interest rate caps across state lines but Colorado was saying that this was all a scheme to lend above Colorado’s usury rate limited.

The upshot of these lawsuits was that Colorado consumers had less choice as both Avant and Marlette, along with WebBank, started excluding Colorado consumers from their loan offerings. And it even called into question the business models of Cross River Bank and WebBank as both banks have established long running partnerships with many marketplace lenders.

After years of back and forth, and much time and expense, today the Colorado Attorney General announced a settlement with all parties. It is hard to overstate how important this is for the industry. These lawsuits have been hanging over the industry for years and even though the OCC recently proposed a new true lender rule there was still a great deal of uncertainty.

With this settlement, which amounts to $1.55 million in total, the companies have “committed that they will not lend to Colorado consumers at rates above 36% and will provide consumers with other protections required by Colorado law. In addition, non-bank partners will maintain a Colorado lending license.” There are also certain oversight requirements and they laid out a model for successful bank-fintech partnerships in Colorado. It is this model that could be adopted by other states and become a de facto national standard. Which is why this is big news today.

The industry was clearly pleased with this settlement. I reached out to several parties to get their commentary on what this means. First, Nat Hoopes from the Marketplace Lending Association: [Read more…]

Filed Under: Fintech Tagged With: Avant, bank partnerships, Colorado, Cross River Bank, Madden v Midland, Marlette Funding, true lender, WebBank

Views: 1,352

Podcast 259: Rochelle Gorey of SpringFour

The CEO and Co-Founder of SpringFour talks financial health and the resources that can be made available to consumers who are struggling

August 7, 2020 By Peter Renton Leave a Comment

Views: 109

There never been an environment like this for consumers. Even with some government assistance many people are struggling like never before, struggling to pay their rent, put food on the table and to pay back their loans. There are resources all over the country to help people in need but sadly not enough people know about them.

Our next guest on the Lend Academy Podcast is working hard to change that. Rochelle Gorey is the co-founder and CEO of SpringFour, a cloud-based platform of more than 15,000 vetted financial resources to help consumers regain financial control of their lives. As you can imagine this has been a busy year for them.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

  • The aha moment that led to the founding of SpringFour.
  • What SpringFour does exactly.
  • The unprecedented level of demand SpringFour has seen since the beginning of the crisis.
  • The kinds of financial institutions they are working with today.
  • An example of how their tool works in a call center.
  • The different categories of resources they have for borrowers.
  • How they vet these non-profit and government resources.
  • How they position their service as a strong ROI for lenders.
  • The other, less quantifiable benefits.
  • How the number of referrals have increased this year.
  • How some of their clients are using the SpringFour service proactively.
  • What is different with this crisis and the 2008-09 financial crisis.
  • What SpringFour does exactly when they implement their system.
  • What is next for SpringFour.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA 2020. The world’s largest fintech event dedicated to lending and digital banking is going virtual in 2020.

Download a PDF of the transcription of Podcast 259 – Rochelle Gorey.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 259-ROCHELLE GOREY

Welcome to the Lend Academy Podcast, Episode No. 259. 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 is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show ever. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa.

Peter Renton: Today on the show, I am delighted to welcome Rochelle Gorey, she is the CEO and Co-Founder of SpringFour. Now, SpringFour is a super interesting company, they’re in the financial wellness space and what they’re really focused on is helping lenders who have borrowers who may be struggling, but help those lenders provide resources to these borrowers, vetted resources that can really help these borrowers get back on their feet and therefore, help them repay the loan.

So, we get into that in some detail, how it all works, Rochelle goes through some examples, she talks about what the increased engagement has been like. Obviously, for her this has been a very busy time as consumers are struggling like never before, certainly, more consumers than ever before are struggling to repay their loans. So, we talk about the different types of services they offer to different types of resources that they provide, how they’re able to keep this list up-to-date and there’s a huge number of resources that they’re focusing on here.

They talk about what a difference it makes for the consumer and for the lender itself and they talk about the recent report they’ve released that demonstrates sort of what’s been happening this year because it certainly has not been a very typical year. We talk about how the banks made of this and how they kind of implement it into collections departments and really what they’ve got planned for the future. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Rochelle!

Rochelle Gorey: Thank you, Peter, great to be here.

Peter: Okay, great having you. So, let’s just get started. I know you’ve been doing SpringFour for quite some time now, but let’s just get started with giving the listeners a little bit of background about what you’ve done in your career, particularly before SpringFour.

Rochelle: Oh, yeah, sure. So, I spent my entire career, more than 25 years, working with financial institutions and non-profits to create affordable lending products, helping people get into  homeownership and then, of course, how do we make certain when people are in homes that we can create sustainable home ownership opportunities so, that led me to do a lot of work around foreclosure intervention.

I helped create some of the first ever foreclosure intervention program in the country, home ownership preservation initiative through Chicago, Neighborhood Housing Services of Chicago along with the city of Chicago and I actually worked with then Senator Obama to create some of the first state regulations against predatory lending. So, my experience ranges from program development to policy and advocacy work, focusing in how do we help create good, affordable lending products that help increase and revitalize neighborhoods and increase people’s opportunity to home ownership.

Peter: Right, right, okay. So then, what led to the founding of SpringFour, what was sort of the catalyst, the idea you had there?

Rochelle: Yeah. So, I had been working on a consulting project…so I left Neighborhood Housing Services of Chicago in 2005 when my first daughter was born and I started consulting and I was working for a large mortgage servicer trying to better understand their work flow when they were serving delinquent borrowers.

In a conversation I had with the servicer at that time, they were sharing and telling me that their call center agents were able to look upon their screens and look at the foreclosure log because foreclosure log vary state by state and so they needed to understand what those logs were when they were dealing with the delinquent borrowers. And I really had an Aha moment that led me to think, well, is it possible for a call center agent to see various foreclosure logs, what if were able to populate their screen with the various different non-profit and government resources that were available to assist borrowers when they were behind on their mortgage.

So, that was the idea behind SpringFour and my Co-Founder and I, Dr. Michael Collins, he now leads the Center for Financial Security at the University of Wisconsin, Madison. He and I decided we would figure out a way to build the technology that would make it easy and efficient for lenders to connect borrowers to vetted non-profits and government resources where they live.

Peter: Okay, okay. So, you launched before the last financial crisis, right, so…..

Rochelle: We did, we found the writing on the wall and you know, we had been working in the communities and really had an understanding that when people get into financial difficulties and challenges, they really don’t know where to turn for help. I think today it’s still true, there’s a lot of shame attached to financial difficulties so people weren’t sharing their issues, their troubles so they didn’t know about resources often right in their own backyard and yet we knew there were a lot of different non-profits available to assist people and so we wanted to build that bridge, to make that connection happen.

We also knew that banks who had very large portfolios of troubled borrowers right across the country, they too needed that information because it’s really—–you know, a lender, it’s not really their job to understand and figure out all of the various different non-profits in all of the communities that they have loans and borrowers.

Peter: Right, right. Obviously, the last financial crisis was really led by real estate and some of the bad real estate practices. It sounds like your background was very well suited to that, but this crisis is different and it’s not led by real estate. It may end up…..we don’t know exactly how bad it’s going to be, we just found out today that the GDP in the second quarter was negative 32 point something percent so it’s an all-time record.

We know that people are going to be struggling and I know people have been struggling….obviously, a lot of people have become unemployed so, I’d love to get a sense of the overall….the act of your company and your offerings this year. We started January and February and things were pretty normal, how have things kind of escalated for you guys since March?

Rochelle: Escalation is a good word to describe it. You know, I think the word of the year is “unprecedented,” we’re seeing an unprecedented level of interest and demand for SpringFour. Right when COVID hit, we knew that we were and we should be part of the solution. SpringFour was built to help people when they experience a financial crisis so this is really right now so this is really what we were built to do. Certainly, I never imagined that we would be operating during a global pandemic, but I’m very proud of what we’ve built and our ability to get it out quickly to assist the financial institutions and their borrowers.

So, our team quickly got to work to increase our tech capacities so that we could increase our timely deployment. We already have a fast timely deployment with large financial institutions because we’re not directly integrating inside any of their systems. We took that time from 30 days down to two weeks so anyone that’s interested in working with SpringFour, they can get our solution out very quickly to be able to assist their borrowers and their customers.

And then we also….our data team knew from our experience what type of resources people would need and they got busy researching and vetting additional COVID-19 resources so within two weeks, we built out three new service categories, COVID-19, Financial Help and Financial Assistance so that our customers/our clients could present those to their borrowers front and center and be part,,,,utilize SpringFour as part of their COVID-19 response.

Peter: Right, right. So, who are the kind of lenders that you’re working with? I know you’ve worked with some traditional banks and fintechs, but maybe I’d love to get a sense of who you were working with before and who has come calling in the last past few months?

Rochelle: Yeah, sure. So, we have built up a very impressive track record working with financial institutions of all sizes and types, including fintechs and credit unions, and we also work with non-profit organizations. So, we work with anyone from BMO Harris Bank, US Bank, e-Bay to fintech organizations like LendUp, Oportun, Enova, Elevate is one of our newest client. We are super excited to see that many banks, again, of all types and sizes have come to us when COVID-19 hit, we’ve actually done ten deployments since January. So, as you know, in this area of fintech and building relationships with banks, it can take a long time to put those partnerships together.

So, the fact that we’ve done ten already this year and we have several more in the pipeline, meaning that we’re working through the contracts right now and already working to do deployment documents with those organizations……so, I can’t name everyone today and I wish I could, but I will say that a handful of them represent institutions in the top ten financial institutions category.

So, I believe that financial institutions understand that they should and can be part of the solution for people who are suffering as a result of COVID-19. So, they have come to us, they understand that we deliver and we can create impact for the banks’ bottom line and for their customers.

So, I think what we’re seeing is the result of a 15-year journey, right, like it doesn’t happen overnight, it takes a lot of hard work, patience and the ability to deliver and we have all of those things and we have what people need right now. So, it’s been very validating, but yet humbling too and we’re just very proud to be able to serve during this time.

Peter: So, I’d like to sort of dig into a real concrete example, if we could. Let’s just say I’m a borrower, I have a loan with XYZ Bank that happens to be…they have the SpringFour system and I call in and I say, you know what, I don’t have a job anymore, I can’t pay down this loan, what does the call center representative say?

Rochelle: Yeah. So, that’s a perfect example. A call center rep that has access to the SpringFour Pro tool which is a call center tool built for call center agents to be able to deliver vetted, curated financial help resources when someone is struggling to pay, so there’s a couple of ways that our clients do it. They either, just off the butt, offer SpringFour referrals to every client understanding and knowing that most people will react positively and benefit from vetted financial help resources.

The other thing that can happen is they’re listening, they’re trained to listen in for cues to understand what is getting in the way of that person making a payment and then being able to provide directed resources in that category. So, with SpringFour we’ve built up essentially a database of over 25 pending or serviced categories so anything from food savings to help reducing prescription drug cost, reducing feeding and utility costs, financial counseling, employment refer to the big one right now certainly.

So, when they hear those cues, they can ask that borrower…well, Peter, it sounds like you’re really struggling with unexpected medical expenses or high prescription drug cost, would you like to receive a referral for a non-profit that provides assistance in those areas and then they’ll go ahead and either verbally give that to the borrower over the phone and/or send off an email to that borrower so that they know where to turn for help.

It’s really important to know that with SpringFour, we’re only making referrals to non-profits and government agencies. The idea is we want to refer people to organizations whose mission it is to assist them. Unfortunately, what we saw during the last crisis and unfortunately, it’s not any different today with the pandemic, there’s lots of unscrupulous actors out there that prey on people who are experiencing financial challenges.

Peter: Right, right. So, I want to just dig in a little bit…..you know, you talk about non-profits and government agencies and, obviously, not all non-profits are created equal, not all government agencies are created equal.

Rochelle: Right, right.

Peter: This is a local problem, you want to send someone to their local neighborhood, how do you know…….here in Denver, Colorado where I’m sitting, how do you know that the food security help or the employment help or whatever it is you’re referring to, how do you know they are still doing a good job, they’re not like completely overwhelmed, how do you know that?

Rochelle: Yeah, that’s a great question and I’m happy to answer that because it’s truly one of our differentiators. So, the way that our solution works is we employ a professional data team. Everyone that is on our data team has a background in community development and non-profit work so they really have an understanding or a kind of foundation or core understanding of non-profits, how they deliver their services and what it takes to make a good organization.

So, we are not doing any screen scraping, we do this the old fashioned way with real people calling organizations, finding out about, you know, assessing their track record, reputation to assist and funding levels. I am glad you also mentioned, you know, funding because it is a challenge right now, organizations are seeing, you know, huge surges in demand for their resources. So, one of the values that we deliver to our clients is we are consistently…..I’m constantly revealing the organizations in our database making sure that they have the capacity to serve.

We never want to direct the borrower to a dead end and you can imagine working with financial institutions, very high reputational risks so we make sure our data is very clean, very up-to-date, very accurate. We built a proprietary data portal and we have systems in place that allow us to regularly vet those organizations and once an organization is in the SpringFour platform, we go back in and make certain that they’re still able to deliver on that promise of service. One of the reasons we built the COVID-19 category was to really stay on top of what is happening in those highly needed categories so that, again, any organization that is in SpringFour has the ability to provide services.

Peter: Right, right, okay, that makes sense. Like your going back, is that monthly, six months, how often do you go back to every single……

Rochelle: It’s weekly now, yeah, it’s that important. You know, we have built our company on a record of trust and integrity in providing good quality resources. Also, I should add, our intention was never to be the Google of every organization in a particular market, we really are drilling down to make certain that the organizations that we have in our database are really great at what they do. You’re right, not all non-profits are created equally so we’re making sure that any organization in there is doing a great job servicing its clients.

Peter: Right, right, So, how many in the database?

Rochelle: Over 15,000 and that number continues to grow. We’re in 575 cities today, that will continue to grow as well. We also have state national resources so that’s why we’re really well suited to work with the large financial institutions that has, you know, customers all across the country. So, no matter where a person lives, they can find the systems and help through SpringFour.

Peter: Right, right, okay. I’m curious about your customers and obviously, when you pitch this they’re not going to take it on unless they feel like there’s a real return on the investment. What is the return on investment for your clients here because, obviously, it’s going to cost money, probably a significant money for large banks to have your service so, what do you tell them?

Rochelle: Yeah. Well, number one, it’s going to impact their bottom line. So, we believe that when people are experiencing financial challenges it’s because something’s happening in their life, they’ve just been in the way of that payment so by utilizing SpringFour we address that root cause and we get people paying and saving again. So, each of our subscribers is different, but they see significant repayment rate increase as a result of utilizing SpringFour. But, what’s great and what we’ve learned through the years is that was our number one sort of thesis or premise was that we would definitely be able to impact repayment rates, but what we’ve also seen is the huge benefit to our subscribers on our engagement thrust.

The borrowers are appreciative of getting these referrals. In addition, the call center employees that utilize SpringFour were able to provide better customer service, they feel more positive about the role that they’re playing as the banks……we’re really changing the tone of the conversation and the outcome that’s happening at the call center because now we’ve equipped a call center agent with the ability to provide empathy, to be able to provide, you know, that they’re listening to what’s happening in that borrower’s life down that journey to a positive resolution.

And, we consistently survey the agents that utilize our tool and it’s always in the 90 percentile that they feel better efficiency, more positive resolutions or outcomes because it’s SpringFour. So, it really is a “win win, win”, but I think number one, you have to start with what is a banks’ self-interest and it is repayment rates, but then all these other things combined to really create a full package. We hear time and time again when we’re on calls with our clients that…well, this seems like a no brainer (both laugh).

Peter: Right, that’s not so. So, I am curious, do any of your clients use this proactively as sort of a marketing tool where…..I mean, you don’t want to encourage people to postpone payment, but I think as a resources I could imagine, particularly there’s always going to be a certain segment, I mean, before this crisis as well, a certain segment that are always struggling.

Rochelle: Right.

Peter: So, is this is a proactive tool or is it always reactive?

Rochelle: It’s not always reactive and I think it’s really great and interesting to see a client of ours or subscriber uses it proactively. So, many of our subscribers will utilize it to tweet out the availability of this product or the resources that …..and when they do, they see their usage skyrocket. A lot of our subscribers have positioned SpringFour now on their COVID-19 response pages so, yes, its starting to…..you know, the current situation wherein with COVID-19 and the pandemic, but it’s also proactive, right, so they’re putting that out there front and center…hey, if you need assistance, we’re here for you and the usage has really dramatically increased when they do that. We also have some clients who are using it in bank branches although, you know, many branches are not open today, but they have used it in bank branches to further that conversation or have something to be helpful if somebody comes in with issues.

Peter: Right, right, okay. And I want to get to this report that you emailed me which I thought was really interesting…..

Rochelle: Thank you.

Peter: …showing that the trends you’ve seen in your business, in the referrals particularly for financial assistance, maybe you can give us just a quick summary of the report that you just recently put out.

Rochelle: Sure. Well, I guess most importantly, it’s been a huge increase in demand in the referrals that are going out. So, I think, collectively, with our subscribers we are having an impact in delivering native resources in a moment of, you know, crisis for many consumers so, already this year, we’ve made over 1.6 million referrals. In the month of May alone, we made nearly a half a million referrals so that is dramatically increased. Last year, we made a total of 1.2 million referrals so by the end of June, we’ve already eclipsed that significantly and we know the demand is continuing.

We, actually, have been hearing from a lot of drivers and a lot of organizations in our pipeline that they’re very fearful that this fall is going to be even worse because, you know, assistance is running out, right. Tomorrow, I believe it’s tomorrow, the eviction moratorium ends and 23 million people could find themselves in periods of jeopardy of not having anywhere to live. So, it’s pretty dramatic what’s going on out there.

So, we have demands for referrals increasing, we’re seeing demand for referrals and food is number one, financial assistance, number two so food, financial, employment, of course, is number three, followed by utility assistance. So, I think that really paints the picture of what people are facing, having food be the number one or most frequently requested. Referral refers means that people are very much struggling.

Peter: Yeah, you see it on the news and people are saying, I never went to a Food Bank in my life and here I am because I need assistance and I’ve lots of….the Food Banks throughout the country are really full right now, they are really providing more assistance more than ever before. So, I want to ask about…is this always used in the collections area or in the loans servicing type area, are there any other use cases for your product?

Rochelle: Yeah, it’s interesting that you ask that, Peter, because we’ll be releasing a report next month, so mid-August, where we did a survey of low and moderate income consumers about the availability of resources and do they know where to turn.

What was interesting to me was that 60% of people said that they did not know where to turn for resources when they were experiencing financial difficulty, but over 80% of people said that they would want to receive information and believe that their bank is a trusted source of that information. So, I think there’s a use case for making certain that people can have this information from a bank so that they will be interested in receiving it after applying for a loan a credit card for opening a checking account.

Peter: Interesting.

Rochelle: So, I think that there should be……and, you know, there’s been a great movement, we now have a Financial House Movement which is so exciting to me. When we started SpringFour, you know, nobody was talking about these underlying issues, there wasn’t this concept that it’s all connected like if we work on one area, you know, make a person stronger and better. So, I think this is super exciting and it’s an opportunity that collectively, as an industry, we can help people get more financially healthy, right. It’s not that difficult to present people with options and resources and I think the time has come.

Peter: Right.

Rochelle: You know, we are seeing now that SpringFour is not a nice to have, it’s a necessity and our clients who are already using SpringFour are seeing the benefit of that during the pandemic.

Peter: Right, right, I know. Financial health, it’s good…in some ways you are like ten years ahead of your time, I think, because certainly now, there’s a lot more awareness even before the pandemic. I mean, we know….here at LendIt, 2017 we started focusing on financial health and having its own standalone track. In 2017, we got a small number of people and each year the interest has doubled pretty much.

Rochelle: Right, yeah.

Peter: And now, at our 2019 event there was a queue to get into the track, everyone was interested. I feel like that’s one thing that I keep harping on. Fintech can make more of an impact here in financial health and should. This really should be….. I think the main purpose of fintech is to really help increase financial health for everybody. A lot of it is information, I mean, let’s face it, a lot of it is just a lack of information.

Rochelle: And choices.

Peter: Yeah, exactly. So, I think we’ve really…..it’s good that we’ve made progress over the last five years because I think now, we really are bearing the fruits of that. So, I’d like to get your perspective…..you mentioned the last financial crisis and I’d love to kind of get your perspective on what’s different now from your perspective as far as the end user of your services, the borrowers that are struggling. What’s different between 2008/2009 and 2020?

Rochelle: Well, I mean, I think 2008 was really about home ownership and mortgage foreclosures and so the people that were affected were homeowners. I think now, it’s so vast. right, I mean, does anyone know anyone that has not been impacted or affected by COVID-19 and the pandemic, whether you’ve gotten sick or not. I mean, it’s infiltrated every aspect of our lives so this is going to be so much bigger, it’s beyond just one industry, it’s every single consumer out there which, I think, is one of the reasons why SpringFour is definitely a part of the solution because we are almost a one-stop-shop for any need that the consumer is facing and we intentionally built it that way.

So, that’s why we have 25+ service or spending categories. Really, when you think about anything that goes into a person’s household budget, we try to make certain that we have a resource available for them to decrease the spend in that area. So, I think that’s one way that it’s different and I think the positive is that we’ve, in the last 10 or 12 years, have built up a lot of different information around financial health and products and innovation. It’s so exciting, all of this.

To me, the innovative fintech products that exist that are serving people who have not perfect credit or have financial emergencies or challenges and I don’t think that was there in 2008. I really think we had a very much….a dual finance market where it was traditional banking and, you know, predatory, I believe, products. So, we’ve seen a really nice growth and innovative, affordable, responsible lending product. So, that’s my take on the end user.

Peter: For sure, for sure. I’ve said that there’s much more …..there are many more options for the consumer when it comes to credit than there has ever been before. So, we’re running out of time so a couple more questions to I want get to. So, what’s actually involved? If there’s a lender that’s listening and says, ah, that sounds interesting, what do you actually do? When you said it’s two weeks to get up and running and obviously, you said it’s independent of what kind of software they’re running, what do you actually do? What do you implement at the lender so they can get up and running SpringFour?

Rochelle: Sure. And one of the things that I realize is I didn’t talk about our digital solution. Our digital solution is having a huge success right now because, you know, a lot of people can’t get into a bank, bank telephone lines can be overwhelmed and busy so, our digital solution as for directing something,……again, it can be up and running in two weeks where we’re covering on the financial institutions to put SpringFour on their website, it can be presented in many different ways.

As I mentioned, a lot of banks are moving their SpringFour direct tool to their COVID-19 page, but it can be in their financial health page, their savings page, you know, mortgage assistance page where essentially you’re branding it and asking your customer, your buyer. They’re looking for ways to save and then they simply enter a couple of questions, put in their zip code and they’re directed to resources in their area for the categories that they want. But, as far as working with us, it’s a matter of, you know, getting in touch us, we’ll work through the requirements on our digital solution because it’s all…..the tech is all on our site, we run all the backend so it really is one to two hours of IT time for our subscribers.

We even host a landing page in the website if a subscriber doesn’t want to get into the lead with our marketing team. As for Pro tool, the call center agent tool, is really a matter of we will train your team or we can do a train the trainor approach, it usually takes about half an hour, we assign  user names and passwords and the bank is up and running and utilizing it in their call center.

Now, of course, that doesn’t take into account like all the vendor compliance and risk management, they go through both working banks. Understand that this is something that’s really needed and so they’re putting more resources on that to get us through compliance quicker. It’s not that we’re not doing the compliance, but it’s just the timeline has moved up which is great so the tool gets out there sooner.

Peter: Right, right. So, I just want to be clear, you said go to the Pro tool which is digital as well, I mean, it’s all digital, right (cross talking).

Rochelle: Yes, yes, it’s all in the Cloud.

Peter: Digital, is that more consumer- facing when you said that…….

Rochelle: Yeah, it’s consumer-facing, sorry, so it’s, for lack of a better word, a widget that would appear on the lender’s website and the borrowers click on it and be able to self-serve 24/7 and get those referrals themselves. What we’re seeing really well is when a call center agent has access to our Pro tool, which is in the Cloud as well. They just log-in at the beginning of their shift, they access SpringFour….when they send an email to that borrower, if a bank also has SpringFour Direct, they could include the link which allows that borrower to continue to go back to their bank to get resources whenever they need them.

Unfortunately, there’s a lot of multiple issues happening in people’s lives so, you know, they could be facing…… you know need food assistance one week and a few weeks later looking for help with a home repair or help with medical care cost. So, paired together we feel a really great usage.

Peter: Right, right. So, last question. You know, this has been a crazy year for many of us and a crazy year, it sounds like, for SpringFour, what are you working on strategically, what’s next? Obviously, you’re just getting through, getting through the pandemic is probably the first goal for all of us, right, but I’d love to sort of see where you’re taking this.

Rochelle: Yeah. Well, one thing that is front and center is that we launched two employer relationship/partnership this year. I believe that, you know, we started this financial services industry that’s as best we knew, that was the problem we were trying to solve, but I’m very encouraged by this idea that employers understand that an employee who has good financial health is a positive for their company for productivity, their reputation as an employer and so are looking to launch more relationships and partnerships with employers so that employees can be better financially healthy.

We’re always enhancing our tech and increasing the number of markets, the number of service categories so that’s really where we’re mostly focused. We’re seeing a lot of increased desire for SpringFour to do API feeds and integrate into some financial app for that as well. And then, the other thing is, you know, we may be going international, this is a worldwide problem and we’re seeing interest from companies in other countries, mostly Canada and Australia so, you’ll never know.

Peter: Interesting. Well, good luck, we’ll have to leave it there. I really appreciate your coming on the show today, Rochelle.

Rochelle: Thank you, it was a pleasure.

Peter: Okay, see you.

Rochelle: Take care, Peter.

Peter: Bye.

You know, as you can probably tell, I’m pretty bullish on SpringFour and what they’ve done. They were a finalist in our Partnership Award back last year and I’ve been following them since then. Obviously, this is the time that really their services are sorely needed and I never really say this, but I really feel like if you’re a lender and you don’t have….you’re not helping your borrowers in this way, shame on you.

I really think that every single lender should be helping their borrowers any way they can in this environment that we’re in today and this provides resources, it provides information. And, really, when it comes down to it, it’s going to increase your bottom line by helping your collections. I never really say this, but I think everyone, every lender in the country should be using SpringFour or resources like it.

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

Today’s episode was sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa.

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Filed Under: Lending and Fintech Podcast Tagged With: bank partnerships, financial health, SpringFour

Views: 109

OnDeck Pursuing Bank Charter, Loses Chase

OnDeck shared a flurry of updates on the business in their Q2 earnings results.

July 29, 2019 By Ryan Lichtenwald 1 Comment

Views: 1,309

OnDeck had some pretty interesting updates in their earnings release which took place earlier today. CEO Noah Breslow shared that the company has decided to pursue a bank charter which will enable the company to offer their small business customers a wider range of products. OnDeck has been studying their options for some time and felt that the timing was right. While OnDeck didn’t want to divulge their vision or timing for what the company may offer they did mention that the bank charter would be accomplished through a transaction or a de novo bank application. 

To date, OnDeck has operated as a non-bank lending institutions, but they believe the opportunity is much bigger, even mentioning “digital banking for small businesses” as well as increasing product and services both in lending and non-lending on the call. There will also be benefits as it relates to funding. While this may be a costly endeavor they believe the benefits outweigh the costs. At this point this announcement leaves a lot to the imagination but it alludes to a number of interesting opportunities for OnDeck in how their business could transform.

OnDeck also shared plans for a $50 million stock repurchase program noting that even with the investment they will still have capital for further growth and a buffer against economic uncertainty.

Probably the biggest shock was that Chase is concluding their partnership with OnDeck. When this partnership was announced it created quite the buzz in the fintech community. To be working with Chase was a huge vote of confidence for OnDeck and I too thought it would radically change OnDeck’s business.

Chase will stop originating loans through OnDeck and OnDeck will continue to service the loans for two years. Breslow stated that the decision on Chase’s side was due to a change in strategic priorities and spanned more than just their small business lending plans. This decision makes one think about the long term plans of the bank as perhaps they look to build their own technology platform.

Despite the bad news with Chase, we learned that the pipeline has never been stronger with OnDeck’s ODX offering and that they are making progress in converting new customers. We should hear more announcements before year end.

In the quarter OnDeck also closed the transaction with Evolocity to combine their Canadian operations. Moving on to financials in Q2 2019, net income was $4.3 million compared to $5.6 million from the prior year period and $5.7 million in Q1 2019. Gross revenues were $110.2 million and originations were $592 million in what is typical for the second quarter.

 

You can view OnDeck’s Q2 earnings press release here.

Conclusion

It’s hard to sugarcoat losing the largest bank in the US as a client. Since the relationship was announced many have been looking to get a better understanding of the traction of the partnership. Now we have an understanding of perhaps why we never got the details. Since the Chase partnership was announced OnDeck created a new division called ODX to house this part of the business and signed up PNC on their ODX platform. There is clearly still opportunity in the ODX business but going forward OnDeck is going to have to work harder to prove the model out to their investors.

Filed Under: Peer to Peer Lending Tagged With: bank charter, bank partnerships, JPMorgan Chase, ODX, OnDeck

Views: 1,309

Ten Years of Investing in Marketplace Lending

I look back at my ten years of involvement in marketplace lending and share the major changes I have seen in the last decade

July 3, 2019 By Peter Renton 9 Comments

Views: 1,775

This month marks ten years since I made my first investment in what was then called peer to peer lending. In July, 2009 I transferred $500 in to LendingClub to give it a try. Little did I know that first small investment would end up changing my life.

I had first read about peer to peer lending back in 2008 and I was immediately intrigued. I discovered Prosper but when I tried to open an account there they were in a quiet period. So I went looking for an alternative platform and found LendingClub. Within a few months I added $10,000 to that initial $500 investment. Then, I became so enamored with the whole idea of peer to peer lending that I was soon rolling over 401(k) accounts for my wife and I, as well as telling all my friends about it.

It was just over a year later that I decided to start blogging about this industry. Back then no one was writing about it and I really believed the industry had so much potential. So, I started the blog that would become Lend Academy back in November, 2010. The more I learned about peer to peer lending the more convinced I became that it had tremendous potential.

In 2013 as the industry was getting ready to take off I started LendIt, along with my fellow co-founders. It was the first ever conference focused on online lending and the one day event sold out. Then came the go-go years of 2014 and 2015 where dozens of new platforms got under way and venture capital was flowing into the space. The industry had its biggest setback in 2016 with the LendingClub crisis but the strong platforms endured and industry moved to focus on profitability.

Now, as I look back on the last 10 years I see so much has changed. The industry is now known as marketplace lending (thanks to Charles Moldow of Foundation Capital) and it has driven a resurgence in consumer lending and small business lending.

Ten Ways Marketplace Lending Has Changed Since 2009

1. Scale [Read more…]

Filed Under: Peer to Peer Lending Tagged With: bank partnerships, fintech, institutional investing, Lending Club, Prosper, Returns, securitization

Views: 1,775

Upstart Riding Automation and Bank Partnerships to Profitability

The online consumer lender has turned the corner in profitability during a year of strong growth

December 10, 2018 By Peter Renton 1 Comment

Views: 2,041

Dave Girouard, CEO of Upstart, speaking at LendIt in 2017

Upstart has been quietly doing something that many others have found difficult: building a profitable online consumer lending business. I caught up with Upstart CEO, Dave Girouard, recently to talk about the state of his business and where he sees the biggest opportunities today.

To date Upstart has issued $2.8 billion in consumer loans which equates to 230,000 loans and they are doing about $180 million a month right now. They will end the year with double the loan volume they did last year. But Dave was quick to point out that they are not all that focused on loan volume. The metric they are most focused on is profitability. They have just completed five profitable months in a row and are now generating $1-2 million a month in profits. They expect to be profitable on a quarterly basis going forward.

How have they been able to move to profitability? One contributing factor is automation. Given Dave’s background (and many others on the team) at Google they have been very focused on technology at Upstart from day one. They have created an underwriting engine that is built for automation. Today, two-thirds of their loans are entirely automated and the median time to close a loan deal is 28 minutes. Most of that time is waiting for the user to respond, Dave said it would take less than five minutes if the customer was completely responsive. Manually underwritten loans have a median close time of 50 hours, still a pretty good user experience. They have also kept customer acquisition costs in check as their cost per loan has remained stable even as loan volume has accelerated.

Upstart made a name for themselves as being the first lending platform to leverage artificial intelligence and machine learning in their underwriting. They have also always used alternative data to build their models and have used this data in new ways. To provide investors comfort that all this was blessed by the regulators they sought and received a no-action letter from the CFPB in 2017. They continue to report to the CFPB on a quarterly basis. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: artificial intelligence, bank partnerships, Machine Learning, Upstart

Views: 2,041

OnDeck Announces PNC Will Be The Second Bank On The ODX Platform

The ninth largest bank in the country is partnering with OnDeck subsidiary ODX to offer unsecured lines of credit for small business owners

October 22, 2018 By Peter Renton 1 Comment

Views: 1,011

It was back in December of 2015 that we first learned about OnDeck’s partnership with JPMorgan Chase. This was the first significant partnership between a large American bank and an online lending platform and it caused a lot of excitement in the industry back then.

A couple of times this year we have heard OnDeck CEO Noah Breslow hint that a second major bank was coming on as a partner soon. Today, we learned who that partner will be: PNC Bank. They are the ninth largest bank in the country, so this gives OnDeck two of the top ten largest banks as clients.

I caught up with Noah and Brian Geary, who heads up OnDeck’s new ODX division (we covered the story of ODX just last week) to talk about this new deal.

Noah started out by saying that the response to the ODX announcement has been very positive. Banks are excited to see OnDeck’s commitment to the banking channel and so that is helping conversations there. He also reminded me that OnDeck’s deal with Chase was renewed last year for another four years so Chase is clearly happy with their partnership with OnDeck.

As a reminder the Chase partnership is for term loans and only for existing Chase clients. Brian Geary said that the new deal with PNC is going to be different in two key ways. First, PNC will be offering an unsecured line of credit, not a term loan. Second, PNC will be offering this to existing as well as prospective clients.

ODX and PNC are still in the testing phase right now. They don’t expect to officially launch the offering until Q1 of next year. A quick look around the PNC website reveals they do currently offer an unsecured line of credit they call Choice Credit with lines up to $100,000. This is the product that ODX will be powering and when they launch it will have a completely different look than the somewhat dated offering on the PNC website today.

Speaking of user experience ODX will be providing the look and feel for PNC’s new offering. This will be a fully white labeled product with a mobile first design built within PNC’s branding guidelines. The bank is not changing their credit risk appetite so all loans will be made within PNC’s existing credit box.

Noah pointed out that what they are offering is not just the technology but the insights they have learned from lending over $10 billion. Not only that but OnDeck and ODX have people with deep expertise who can run this entire lending program for the bank.

My Take

When Chase came on board with OnDeck almost three years I would have expected that by now they would have had several large bank clients. In fact, I would have thought most banks by the end of 2018 would have online offerings for both consumers and small businesses. That has not been the case.

Eventually this will happen and all of the top 50 banks will have a broad product suite of online offerings. But when you look at bank websites today opening a new account (other than a credit card) still requires a trip to the branch in most instances. Moving to a 100% online customer onboarding process is inevitable for all bank products but the change is not happening as quickly as I expected.

I joked with Noah that I hope it is not almost three years before we see the third client for ODX’s lending as a service product. He is highly confident that won’t be the case as banks are now much more receptive to partnering with companies like ODX. Banks know they need to move online or they will be left behind by their competitors.

Filed Under: News Tagged With: bank partnerships, ODX, OnDeck Capital, PNC Bank, small business lending

Views: 1,011

An Inside Look at the GreenSky-American Express Partnership

The multifaceted partnership is the first of its kind between a leading fintech platform and major credit card company

August 9, 2018 By Peter Renton 3 Comments

Views: 2,025

We heard on Monday that newly public fintech company, GreenSky, has partnered with American Express in a wide ranging deal. While we have seen some interesting fintech/bank partnerships over the last few years this is one of the most significant. It is also one of the first examples of a company that facilitates installment loans partnering with a large credit card company.

I reached out to both GreenSky and American Express to find out more. But before I get to our conversations there let’s tease out the three ways in which GreenSky is partnering with American Express.

  1. Select American Express merchants will be able to offer financing through GreenSky

American Express merchants will be able to offer GreenSky point of sale financing as an option for consumers. This will happen in the two main verticals where GreenSky operates: home improvement and elective healthcare. Merchants are able to offer financing through the GreenSky Merchant app available for Android or iOS.

  1. American Express consumer card members can apply for an installment loan

This is a pilot project that will be available in the home improvement category in five U.S. cities initially. Consumers will be able to apply for an installment loan through their American Express login. The technology for this program will be provided by GreenSky and development is still ongoing before this will be a production offering.

  1. Access to American Express vPayment

American Express vPayment is a virtual payments solution that provides a virtual account number for each transaction. In this system a token can be provided to a customer for a single use. This obviously makes the digital payment more secure and reduces fraud risk.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: American Express, bank partnerships, GreenSky, Point of Sale Finance

Views: 2,025

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