Autonomous finance isn’t a well known term within fintech, but it may be the biggest innovation in the consumer finance space in recent years. Ken Lin, the CEO and Co-Founder of Credit Karma talked with us recently on the Lend Academy podcast about this concept of autonomous finance, a concept that is slowly turning into reality. This is Lin’s vision for autonomous finance (taken from our recent podcast):
So for us, autonomous finance is a notion that in five years we believe 10% of the population will completely trust the platform to determine what credit cards they should have in their wallet, where their savings account should be and how much to put away for their retirement, based on a very clear set of objectives.
Credit Karma is in the unique position to capitalize on this idea, particularly when it comes to the lending business, which still relies heavily on credit scores. The company has built a platform in which users can track their credit score over time and get suggestions on products based on their financial life. From my perspective Credit Karma has a monopoly of sorts on this business with no other serious competitors at scale. Due to their sheer size and the engagement with their members, Credit Karma is a significant lead generator for the major online lenders that exist today.
We learned that Lin’s vision may not be far off. In the Wall Street Journal yesterday, we learned about Credit Karma’s new technology platform which they are calling LightBox. This new initiative’s purpose is to host credit models of other lending institutions directly on Credit Karma. Credit Karma previously relied on reverse engineering the credit criteria of third parties in order to suggest products to specific consumers. Now users will be able to apply for credit using the last four digits of their Social Security Number, while never leaving the site.
Because of the certainty around gaining access to credit, consumers will be able to view actual credit limits and APRs ahead of time. They will also be able to avoid dings to their credit score as they shop for credit. According to the company, two of the five largest credit card issuers as well as LendingClub and Upgrade have already signed on to the new program.
The idea of autonomous finance will ultimately lead to a more efficient system. It may cut down significantly on the mass mailers which are commonly used in the industry today. The idea that a user can get the best rate from all of the loan providers will be a win for the consumer.
For the companies providing credit the ultimate result is unclear. An installment loan is largely undifferentiated across lenders and a consumer isn’t necessarily going to care who they have the loan through as long as it is a reputable financial institution. With offerings such as Lightbox from Credit Karma, loan providers may be fighting on one thing only: total cost of financing. It will be interesting to see what other companies jump on board as they all consider what their next act is going to be.