PODCAST TRANSCRIPTION SESSION NO. 249-STEPHEN DASH

Welcome to the Lend Academy Podcast, Episode No. 249, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of the LendIt Fintech Conference.

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

Peter Renton: Today on the show, I am delighted to welcome back Stephen Dash, he is the CEO and Founder of Credible. Now, Credible is a really interesting company, they’re an online loan and marketplace in several different loan verticals and we get into all the details of that, of course. They’re also interesting because they did something that very few fintech companies do, actually went public on the Australian Stock Exchange back in 2017.

Stephen talks about why he did that, he’s a fellow Aussie just like me so, there’s certainly a connection there and he also sold his company in 2019 to Fox Corporation which was a very interesting move and so we go into some depth into the details of that transaction, why Credible did it, why Fox Corporation did it and what it means for the future.

We also talk, obviously, about the current situation today with, obviously, loan volume down in many verticals. Stephen goes through all the different verticals and so gives us an update on what’s happening and what his loan partners are doing. It was a fascinating interview, I hope you enjoy the show.

Welcome back to the podcast, Stephen!

Stephen Dash: Thanks for having me, Peter.

Peter: Of course. So, last time we chatted it was back in 2016 and quite a bit has happened since then, irregardless of what’s happened in the last two months. So, maybe we can get started by giving the listeners just a little bit of background about the last couple of months, what it’s been like for Credible. We’ll get into sort of the acquisition thing a bit later, but let’s just start there.

Stephen: Yeah. Well, like a lot people, it’s been a challenging couple of months in the operating environment, obviously, with shutdowns and all that kind of thing. The way we’ve dealt with that, the whole company started working from home in sort of mid-March, before the official shutdown started, and that was I guess a real benefit of being built on modern infrastructure.

We were able to very quickly mobilize the team to be working from home, we had all of the kind of core infrastructure in place to do so and so we implemented a couple of policies and procedures and a little bit of training for the team, but that was…..you know, looking back over the last few months, it’s been really quite seamless, that’s been good.

The second thing we did is we implemented….. we paid for everyone’s health insurance in the company for six months to take some pressure off a lot of the stresses that we knew that our team members and the families of our team members we fighting so, that was also very well received, but, it’s been a tough environment from a lender perspective. Our lenders have been under some pressure, particularly those that are funded through wholesale funding markets and ABS, etc.

So, we’ve been doing a lot of work with our lenders trying to help them through and where we can, you know, try to provide data insights and things like that, but it’s certainly been a different operating environment over the last couple of months, not just for us, but for everyone. We’re carrying through and very happy with how the team is working in this more difficult operating environment.

Peter: Right, right, okay. So then, I want to go back and start this sort of conversation back in 2017, right, when you did an IPO, an IPO in the Australian Stock Exchange, it’s not typical for a Silicon Valley-based, or California-based fintech. So, tell us a little bit about why you decided to go public, one, and then why you decided to go public in Australia.

Stephen: They are linked, I’ll say that, and also say that it’s becoming more popular. We were one of the first, we’re certainly one of the first, it’s becoming more popular as an alternative to growth stage capital, go public in Australia. Now, the ASX, the Australian Securities Exchange, is positioned as, or is positioning itself as a junior NASDAQ and I think I use those words where a growth stage company can go public much earlier than they would in the US or the NASDAQ, or the New York Exchange. And so, we basically lined-up our capital alternatives, our funding alternatives in really was private capital in the US, or would go public on the Australian Exchange. And, when you do the metrics of pros and cons, going public in Australia made sense for us and there are really three reasons.

The first, majority of our investors pre the IPO, so our seed investors, our Series A investors, our Series B investors, are all from Australia, or that part of Australia and Asia and so, we had a reason in that sense from an investor perspective and a following in the investment community Down Under made it attractive.

Second reason was ongoing access to capital. So, many people don’t know that in Australia, on the Australian Exchange, it’s very normal to raise capital on an ongoing basis in the secondary market and that’s a function, as you’d know, of having many mining companies and mining explorers listed on the Exchange down there. So, there’s a mechanism where you can raise up to 15% of your market cap per year and it’s actually waived at the moment. I think it is 25% through the crisis through, basically, placement of securities so it’s a low dock, quick process to raise additional capital. Ultimately, we never needed that, but that ability to raise capital…you know, of course things need to be going well and so on, but raise capital quickly was really appealing when I lined it up against private capital.

And then, the third reason, from a capital perspective that the ASX was attractive, is when you IPO, as you know, the capital stack falls away. So, all of the terms and things, the preference stack, etc. associated with any capital that sits ahead of common stock for the employees and myself falls away when you go public, whether you go public in Australia, or you go public in the US. So, when lined up against private capital, for us it made sense and it was an attractive alternative so we went down that path, we listed in December 2017.

Peter: Right. We should also point out what the Australian…..it’s unusual for smaller companies to list in the US, but it’s really very typical in Australia because it’s not the VC money that you get in Australia, companies tend to go public early on, Afterpay have been in public for a long time. Whereas, in the US, most of the companies are just staying private for a very long time.

Stephen: Yeah. Incidentally, we were the largest technology IPO in Australia in 2017, US$200 Million so…

Peter: Yeah, yeah, wouldn’t have made the top ten in the US.

Stephen: Not quite, and the costs are different as well. The cost of listing is different in Australia, it’s sort of set up for growth stage. The growth stage investment market is really a listed…a public market.

Peter: Right, right. So, I want to fast forward through to 2019. Yeah, you were a public company for a little while and then we all heard of it one day that Fox Corporation had agreed to acquire you guys. So, maybe start with telling us a little bit of the back story there. I mean, did you have connections at Fox, it did not seem like an obvious acquiror of someone like Credible.

Stephen: Yeah. So, the short back story is we were talking with Fox about a commercial partnership. For a lot of fintech companies, customer acquisition is the number one thing that keeps people up at night, like I’ve got a great product and they’re obviously all linked, but how do I acquire customers, how do I scale the business. And so, we’ve got hundreds of partners ranging from alumni associations for our student loan business, to financial aid officers, to online affiliates and publishers and content sites, and the media was a natural conversation as a category for us to have conversations with.

So, we started the conversation with Fox principally around the Fox Business and FTS, the local TV stations that are owned and operated by Fox Corporation, but, principally, Fox was looking to and is now in the process of implementing a strategy around Fox Business that’s focused on personal finance, among other things so, that’s where the conversation started. We pretty quickly realized, and this conversation started at the start of 2019, we pretty quickly realized that there was a bigger opportunity here.

I call it a one + one equals three, to basically join forces on building out an experience for a mass market where we could take what we do best at Credible which is provide an unbiased marketplace for lending products where a borrower can come in and in three minutes can understand what they’re eligible for from different lenders and they can execute that transaction all within our platform, take that technology which is unique and scale it through a mass market distribution platform which is what Fox has across business, news, sports, local TV. And so, it moved pretty quickly once we sort of saw all that opportunity and we were all very aligned on the size of the prize early and yet the transaction went through due diligence, we announced in August 2019 and we closed the transaction in October.

Another really important part of the transaction was the capital commitment to fund our operations. So, we had $75 Million commitment of capital from Fox in addition which as we build out our mortgage marketplace which is our newest marketplace, is important to scale that as we make some meaningful investments on the mortgage side which is a massive market as everyone knows, $1.6/1.7 Trillion a year of originations and a lot of opportunity to be doing that more efficiently.

So, that was a very big part of the transaction as well that we were able to secure ongoing funding. And really, the structure is we’ve gone private, but we are an independent entity with an independent board so we’re really a private company again with a major shareholder and we’re a business unit of Fox, obviously, but we are running the company independently. I’m still the CEO, the Executive Team is still the same and we’re executing against Fox, but we’re also executing against all our other, you know, non-Fox business as well.

Peter: That’s not impacting…….like I know, when I’m in the office in New York, it hasn’t… it hasn’t happened for a while now, but when we watched this off on TV, on CNBC, and I’ll tell you what, I see your face multiple times a day on CNBC advertising and I presume…..are all those relationships, like I presume Fox’s….you’re still running independently and there’s no input into how you are supposed to market yourself.

Stephen: Exactly, that’s exactly right. So, yeah, that’s a good example, you know, we’re on CNBC, we’re on Bloomberg, we’re on, you know, the Food Network, we’re on all sorts of channels from a linear advertising perspective. Obviously, we’ve built distribution with many partners, we’ve built distribution digitally with lots of affiliates, so, yeah, we’re independent. But, we do have a partnership with Fox which gives us an opportunity to access what is a very engaged, very large audience across all of their different business units and categories from sports to business, local news, etc.

And so it gives us just a broader platform for distribution, you know, which if you ask any fintech CEO, as I said, this is the major….. for most of them will be the major thing that they worry about, in terms of how to find customers, how to find new customers, how to build a brand so, our ability to partner with Fox on that side of things is a real benefit.

Peter: Yeah. I certainly get what’s in it for Credible and it’s still not as clear to me what’s in it for Fox. I know you probably can’t speak on behalf of them directly, but, obviously, you had conversations. What was exciting about Credible for them?

Stephen: So, for those who don’t know the kind of the nuance of what Credible does, that’s different, I think that’s an important place to start. So, the way you think about Credible is for a consumer, we’re not a lead gen site, although we might look like it from the outside, because we’re a comparison tool, we are not a lead gen site as we define it.

We provide a borrower in three minutes with accurate rates based on their customer situation, their credit history, their employment, the current loans that they have if they’re looking at a refi. We give the borrowers a dashboard of options in an impartial way and we don’t filter by whichever lender pays us the most, we filter by the lowest total cost.

So, it’s an impartial platform where a borrower can make that selection and like a lot of sort of lead gen platforms, typically the borrower would then click off and apply to the lender they selected and they’ll put more information, the same information again and now go and speak to the bank or the non-bank lender they’re working with. With Credible, you finish the process on Credible so, regardless of which lender you select, the check out process so, for mortgage that’s a significant part of the process, filling out the 1003 top loaning documents, signing the various disclaimers and disclosures, signing the promissory, that occurs on the Credible side.

So, we’re really the end-to-end marketplace from comparison to check out, that’s probably in an e-commerce sense is quite a bit to think about. With Fox, because that was understood, I think that was sort of the important moment where the clarity of where the synergy was clear because for a media company that’s…..for any media company as they think about where the opportunities are for them for growth, it’s about transforming a business into being……and this is not just a Fox thing. I mean, you’re seeing it with a lot of media companies, how they become more part of the transaction, how they play deeper in the value chain, and that is where there’s real opportunity to leverage the technology that we’ve built against a bigger audience.

So, their audience is highly engaged, it’s broad, it’s big and so how do they add value to that audience, you know, in a way that is doing the right thing by the customer. And so, when you understand the nuance of what Credible is and why it’s different, I think it makes a lot of sense for someone with an engaged audience to want to add value to that audience, to want to provide more value and that’s sort of where the conversation started.

For us with mortgage, there’s obviously a…..mortgage can be a very localized product, unlike an online personal loan, or unlike a credit card, really unlike a student loan, a mortgage is something that the local expertise can really help. So, local testimonials, local realtors and so that access into the local market through FTS, Fox TV Network, is another big benefit. You can take that same concept and you can add value to the geographic footprint.

Peter: Right, okay. So, said you closed in October last year, we’re recording this in late May so it’s more than six months, you know, what have you noticed? I mean, are you gathering a whole bunch of Fox subscribers, or Fox viewers into your company?

Stephen: First thing I’d say is it’s early on in the integration, in the partnership. We’ve done a lot of planning which has been good and we’re live on Fox Business, so you can go on to Fox Business and in the Personal Finance Section can find out a whole series of content that’s produced in partnership between Credible and Fox. There are integrations we just calculate as tools, etc. throughout the content, we’re now live on the local TV CMS on the digital side so, whether it’s KTVU in Auckland, or the Dallas Network in Texas, you can access Credible through the Fox digital properties today.

I would say we’ve been number one, and this is probably the most important part, very pleased with the fit between the audience and our products. We started in student loans, but we now have a student loan origination and refi product, we have personal loans product, we have a credit card product, we have a mortgage origination product and a mortgage refi product so we really have a broad array of products in the lending space. So, the important litmus test for us early on with the partnership was, is there a match with the audience?

That was always a risk and it’s very clear when you look at response rates and you look at approval rates. We’re seeing very high quality traffic and I think that speaks to the thesis of having a highly engaged audience and having a great product experience. So, the early signs are very positive and we really are just getting started, in terms of ….you know, we’ve been live for a few months now, but there’s certainly big ambition for…and there’ll be more things that you’ll see over time as we launch them, but more opportunities to, again, bring together audience plus a great product to make it available to more people.

Peter: Okay. So then, let’s switch gears to today’s world and…you know, we have basically loan volume down across the board, maybe with the exception of mortgage refi, I’d love to sort of …you know, given you’ve got great window into the different verticals, what are you seeing? Are you seeing any of the verticals you mentioned starting to tick back up yet, or what are you seeing?

Stephen: Yeah. Vertical by vertical, as you say, the different factors apply. So, I’ll start on student loans, still our biggest category. On student loans, obviously, the Federal loan interest waiver was announced and that runs for six months, so we’ve seen some impact from that. Ultimately, federal loans are not the majority of loans that are re-financed through the product lenders. They’re typically skewed towards product lines, they often are mixed, so that’s one factor that’s influencing that business, but for the most part, I’d say student refi has been pretty resilient.

Student loan origination, this is busy season coming up now, summertime, it’s been delayed as schools are deciding whether they’re going back to the classroom, there’s question marks on cost of tuition, there’s question marks on is it an online course this year, etc. etc. So, that’s in the state of flat at the moment, I would say, but our expectation is there’s a delay, but, ultimately, there’s still plenty of demand for college and, therefore, there’s plenty of demand for student loans to attend college and private student loans, in particular, to fund the gap in costs.

On the personal loan side, I would say that’s the hardest hit, in terms of impact, and I’m sure you’ve seen that with a lot of people in the fintech community, particularly wholesale-funded lenders have seen some challenges on the funding side. So, we’ve been working with our lending partners where we can to provide data, to be flexible and we’ve seen a reduction in volume, not surprisingly, in that category and so, we’re now seeing that we’ve sort of got through…..I think we’ve through the worst of it and we’re starting to see recovery in terms of capacity to lend and underwriting criteria normalizing.

Yes, some lenders, through that period, did expose some challenges for some of those lenders and we saw some lenders pull out of the market completely. For others, we saw some power through and pick up market share during that time so, every market lender reacted a little bit differently. One interesting anecdote is not on personal, but maybe a little bit on personal loans, more so on other categories. Because you’ve seen how Amazon has done very well through this crisis as there’s acceleration towards digital, as it pertains to e-commerce, we actually saw a similar thing on the lending side where we were increasing volume where branch network volume originated for some of our lenders was reducing.

So, we were able to help them plug that hole because branches were closed so, that was, I thought, a pretty interesting dynamic where even though funding capacity might not have increased, channel mix for a lender changed more towards digital than the branch network which is not every lender, but, certainly, bigger lenders and mid-sized lenders have a branch network. So, I thought that was an interesting dynamic.

On mortgage rates are low, the media would say this is time to refi, but lenders, they’re being more cautious, I would say, as it pertains to things like employment verification because we’ve seen record unemployment, how old….yes, that’s a pay stub for March, but how do we know you’re still employed today. So, lenders are certainly looking at those type of things very closely, but, generally speaking, mortgage refi volume is up a lot, mortgage purchase, given it’s spring home buying season now which is sort of the peak season for mortgage origination, that’s been delayed because you can’t inspect a home when you’re in lockdown. I expect that will bounce back, but we’re seeing a delay there.

Peter: Right. And so, you work, obviously, with non-banks, banks and credit unions, are you seeing differences between those kind of three, kind of broad categories in how they’ve reacted to this crisis?

Stephen: Yeah. Deposit-funded lenders are in a very strong position because they’ve got sticky deposits, that’s not a groundbreaking insight. We saw rates increase across the board in like the end of March, even though official interest rates came down. So, across all products, more or less saw an increase as people are just a little conservative about their underwriting and then very quickly, we saw adjustments. I think lenders’ first reaction was, we must be going into recession here, let’s increase rates, we just want to make sure that we glide up.

Once I look at the numbers and performance, etc., there were movements again so, everyone reacted a little bit differently, but I would say the deposit-funded lenders…..as you say, we work with everyone across the board, with different funding profiles, etc. Deposit-funded lenders were probably the most aggressive, in terms of picking up market share through the dislocation.

Peter: Right, right. And so, when you say you do things end-to-end on Credible, do you do that with every single lender because, I imagine, there’s going to be some that are going to be a little bit more reticent to give you access…the information needed to do end-to-end. So, how does it work?

Stephen: So, it differs by product category, it does not differ by lender so I’ll say for the most part. So, let me give you a couple of examples. So, for a more complex process on mortgage, student loans, they are more complex than say personal loans or credit cards. So, our credit card marketplace is not end-to-end because it’s a straightforward, very easy, quick off experience and applying for a credit card takes 25 seconds.

Personal loans falls somewhere between those two categories where on Credible you can compare how pre-qualified rights are described. We build integrations with our lending partners on personal loans where once you decide on the accurate, right loan from the dashboard, based on your personal situation, the accurate rates that are provided once you select your loan product, you finish the process from there with the lender directly and that’s a relatively straightforward process because it’s a personal loan.

For student loans, student loan refi, mortgage, mortgage refi, the end-to-end process occurs on the Credible side. So, we house the underwriting models of our lending partners, we collect the 1003 on mortgage, for example, we collect all documents so, mortgage is the most comprehensive end-to-end experience because it’s the most challenging. So, we’re able to provide a really slick user journey because we’re built on a, you know, modern infrastructure, modern technology, etc. and we do house the processing and underwriting models of our lending partners on our platform.

On student loans, there are some compliance and regulatory nuances that mean the very final signing of the promissory note and any documents, if required, a lot of lenders don’t require documents, that occurs on the lender’s side as well. So, it’s not specific to a lender, it’s specific to a category so we have consistency across lenders within the categories and that has not been an easy thing to build up over time. It’s not like we turned up and said, hey everyone, this is what we’re doing, it’s taken a long time to build, but we’re in a spot now where we’ve managed to build that over eight years.

What it means is for the consumer, you get that pure experience where your information is not sprayed out to multiple lenders. You can get accurate, pre-qualified rates based on your personal situation without that occurring and then you can complete the process, the check out process on Credible, on Credible’s modern infrastructure. So, that’s the core to our technology and how we’ve been successful.

Peter: Right, right. So, once I’ve checked out on Credible and you send that over to the lender….what you’re saying is it’s pretty much 100% guaranteed that you’re going to get the loan because you’re housing the underwriting model.

Stephen: Correct. The firm offer of credit is actually displayed on….take student loans, for example. You haven’t spoken to the lender, you haven’t been on the lender’s site, the firm offer of credit, the firm offer valid for 30 days is displayed on Credible. So, all you’re doing when you click off is you’re signing the…..let’s say they don’t require any additional documents, you’re signing a promissory note and it’s done so you get the binding offer inside the Credible experience.

Peter: Right. And you’re dictating….like, obviously, different borrowers want to optimize for different things, some will optimize on a monthly payment, some on lower interest rates so, you’re taking them into account and you say, here’s all the lenders, this one is best for you, based on what they want. Is that how it works?

Stephen: We don’t dictate which one is best for the consumer.

Peter: Ahhhh

Stephen: We let the consumer decide. It’s no different to go into Kayak or Expedia where some people care about not stopping, some people care about flying with a particular airline, you know, most people care about price so, similarly, once you land on the dashboard you can have confidence that these offers are not rate ranges, these are not marketed rates, these are not one-size-fits all.

These are rates and offers and terms that are specific to your situation so you can feel confident that it’s not a bait and switch situation, what you see is what you’re going to get and you can then filter. Our default filter is lowest total cost, but you can filter by lowest total payment. For mortgage, for example, you can filter by the term of the loan, you can filter by the type of the loan, whether it’s an ARM or not.

Peter: Right.

Stephen: And so, you’ve got all that filtering capability within the dashboard, but, ultimately, the borrower decides which one product they want.

Peter: Right. So, you’ve got a pretty good connection with your customers, much better than probably the lead-gen type company have because they are really sending them off in many ways, most of them. So, I’d be curious about……it seems to me you’ve got this engaged customer and you’ve got all the different lending pieces, it seems to me the other side of the balance sheet is ripe for the picking for you guys. I mean, do you think about savings, wealth management, you know, stock trading, any of those kind of things, is this on your roadmap?

Stephen: I think, eventually. I agree with you, it makes sense to move into other products particularly if we’ve built trust with our audience and I think those are very good signs that our customers trust what we’re doing because of the inherent promise of the product. We’re providing an independent platform and a very sleek, modern user experience.

Right now, we’re very focused on our current categories, mortgage, for example, has been live now for a little over 12 months, it’s where we’re very, very focused, it’s a huge market so we’re very focused there. I think, eventually, it makes sense for us to consider other product categories; insurance, wealth management, savings, payments, but for right now, we’re very focused on the loan categories that we’re operating in today.

Peter: Right, right. So then, last question, what are your plans for the rest of the year to get through this difficult time, what’s sort of in the near term future for Credible?

Stephen: Near term, again, mortgage is a big focus for us. So, we’re making a significant investment in our mortgage platform, we’re continuing to make a significant investment and what does that mean? It means that we are trying to make the experience even smoother for the borrower and make it even more efficient by eliminating redundancy in the experience so, big focus there.

Now, mortgage, unlike non-mortgage, so student loans, personal loans, etc. is…right now, the industry is more people intensive because there’s loan officers, there’s processors, there’s closers at lenders, etc. and so, what we’re really building is software to help out….we have loan officers on our staff, employees at Credible who are the loan officers, who run the process for our borrowers. We’re very focused on giving them tools to operate more efficiently so there’s a lot of under-the-hood, what we call back-up funnel and mid-funnel work and software that we’re building to make this process more and more efficient and, again, making this process efficient helps both sides of the marketplace.

It helps consumers because it makes it easier, less burdensome and saves them time. For lenders, it allows us to produce a mortgage more efficiently than perhaps some of their existing infrastructure or their existing branch network. And so, there’s really value on both sides by making the process more efficient. That’s really where we’re focused right now and we’re obviously, on our non-mortgage business. It continues to grow strongly and we continue to optimize and build distribution through that part of the business so, mortgage, non-mortgage.

And then, across the board, we’re always looking for distribution partners to continue to scale our platform and make Credible available to more and more people. We’ve got, I think, 350 partners across the range of Fox I mentioned as well as their employers and online affiliates and blogs. We, obviously, do a whole bunch of direct-to-consumer, Facebook, Google, TVC, etc. so, focused on continuing to scale platform as well.

Peter: Right. Okay, we’ll have to leave it there, Stephen, it’s always great to chat with you. Thanks so much for coming on the show.

Stephen: Thanks, Peter.

Peter: Okay, see you later.

So, it’s pretty obvious to me the value proposition for Credible, why they’ve been successful. Obviously, they needed to execute well and Stephen has certainly done that, but if you’re a borrower and you really want to make sure you’re getting the best rate, the best deal, you don’t want to go and input your data for four or five lenders. You want someone to, basically, take all your data and tell you which one’s best for you and, obviously, you can decide what’s most important to you, but it’s a real value add and I see…

You see it in the small business space… in the consumer space, there hasn’t been really a company like Credible that gets into this much depth into really where they house all of the underwriting models for all of their lenders in-house and really able to give people a fantastic user experience because they know when they go through the Credible process that they can be approved. So, this sort of intermediation with value add is certainly something that….you see it in the small business space, as I said, see it in the consumer space and Credible is really the poster child for that, I think.

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

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