[Editor’s note: This is a guest post from Sasha Orloff. He co-founded LendUp and Mission Lane and previously was Senior Vice President at Citi Ventures and in Citi’s Consumer lending divisions. Any views or opinions listed here are his own, or referenced in citations. They are not necessarily shared or endorsed by anyone else.]
Credit is one of the largest, most powerful, lucrative and important industries in the world. It also is one of the best tools for wealth creation – home ownership, small business ownership and growth, and, leveraged investing. This is readily accessible for prime consumers with more options now than ever before. But for the other half of the country that is non-prime, options are still limited and in many cases non-existent.
I was recently asked about what would it take to expand access to credit in the United States. I have thought a lot about this question from various points in my career, from one of the US’s largest banks, from the World Bank, from a non-profit bank focused on financial inclusion and most recently from a fintech company. There are a lot of implications here, and it is hard not to think of academic questions like ‘when is credit a good thing or a bad thing?’ without the memories of the subprime mortgage crisis, or fundamental questions like ‘what is the right structure of a loan?’ and not get overwhelmed with the complexities of federal and state laws, price and duration differences among credit across prime vs subprime, secured vs. unsecured, closed vs. revolving, etc.
There are far more smart and experienced people who can better answer those questions, so I wanted to try and focus on a few tactical and a few high level questions that could lead to profound changes in financial inclusion within the lens of the US consumer credit segment.
How deep and reliable are the sources of capital available?
There have been meaningful changes in the capital markets over the last decade, with additional pools of global capital motivated to invest in this sector. Early pioneers of securitizations like SoFi, the scaling of marketplace lending like Lending Club, Prosper and Best Egg, and new distribution models like Greensky and Affirm have contributed towards increasing comfort of these “new asset classes” that were mostly locked up in bank’s balance sheets. I am not sure many would have guessed that we would see billions of dollars (of mostly prime assets) being originated monthly by non-banks. And despite some hiccups over the last decade the markets seemed to recover quickly and even show an increasing demand across multiple asset classes, which is encouraging. [Read more…]