Alternative Lending is Dead Long Live Data

Transcription

1 Alternative Lending is Dead Long Live Data Rob Frohwein Co-Founder and CEO,

2 Act I What do I mean?

3 Alternative

4 is available

5 When You Don t Feel Like Taking a Taxi

6 Alternative Transportation at its Best

7 It s Just Transportation

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22 Alternative Lending is Now Mainstream

23 So let s stop calling it Alternative

24 Alternative Lending

25 Act II Did you ask the right question?

26 Question answered by most online lenders: Can you fill the void left by banks?

27 The question they should have answered: Why aren t banks filling the void?

28 Most online lenders relentlessly pursued growth

29 And new methods for attracting capital

30 So they tried to disrupt banks by proving they can grow fast and acquire capital but there s only one problem

31 You don t disrupt banks by focusing on the advantages that banks have over you

32 Banks have customers and money. That s mostly what they have.

33 Ask and answer the right question: Why aren t banks filling the void?

34 Because they can t profitably serve small business customers

35 Old Operating Models Efficiency (Six Sigma) Hierarchy IT as Cost Center People-centric Process Designed to Avoid Risk Digital Operating Models Responsive / Agile Flat / Decentralized IT as Growth Driver AI / Data-driven Designed for Upside

36 A real emphasis on data and technology not only creates a special experience for the customer and...

37 Grows the topline but

38 Improves the bottom line at an increasing rate while you grow

39 And improves the bottom line in a way banks cannot.

40 There are only four expenses for banks and online lenders : Acquisition & Utilization Bad Debt Capital Other Operating Expenses

41 WHAT BANKS CANNOT DO: Use technology and data to dramatically lower the cost of these other key expenses

42 You can fundamentally change financial services if your technology can materially reduce just one of these other expense categories: Acquisition & Utilization Bad Debt Capital Other Operating Expenses

43 Most online lenders thought by calling themselves a technology company, they are one.

44 However, the biggest piece of technology that most of them promote is an online application.

45 There s nothing special about an online application NextCard c. 1999

46 But what if your data and technology could reduce all three expenses Acquisition & Utilization Bad Debt Other Operating Expenses

47 Our technology and data capabilities are driven by the way we connect with the data of our customers

48 We pull updated information daily from these data sources for our 100,000+ customers

49 Resulting in our cost of acquisition coming down 5% Marketing Spend as % of Total Originations 4% 3% 1% 0% Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20

50 Kabbage customers take loans over 4 years 5% Marketing Spend as % of Total Originations 4% 3% 1% 0% Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Our competitors average 2.2 loans

51 Our underwriting has improved every year to an industry low Customer-Level (dollar c/o rate) Loan-Level (dollar c/o rate)

52 Our operating cost comes down because we are a tech company 18% 14% 9% 5% 0%

53 You don t need to lay off employees at the slightest hint of trouble

54 Because you don t have too many employees. Your business scales.

55 All three expenses are dropping for Kabbage Acquisition & Utilization Bad Debt Other Operating Expenses

56 Application Data Collection Decisioning Continued business review Additional Loans Financing Model Banks & Alt Lenders Branch & digital Manual or Fax/ Manual review Paper statement request Brand new underwriting Balance Sheet or MPL Kabbage All digital API based Automated Review Ongoing electronic monitoring Automatic Who cares?

57 The question Kabbage answered: Why aren t banks filling the void?

58 Act III The next question we will answer: How can we do it better?

59 We will drive our data infrastructure further into the business

60 We will build more vertically directed products leveraging our existing data infrastructure aligning each of marketing, business development, risk, payments & collections.

61 Mass adoption of our data infrastructure by banks globally

62 Remember, partnership success requires you to solve issues that banks have

63 Banks need to identify a more cost effective way to serve consumers and small businesses

64 If you have only focused on leveraging technology for growth & funding, you will not create a sustainable partnership with banks

65 Companies who understand how to reduce the costs of acquisition, bad debt and operations, will build long lasting partnerships with banks.

66 5 Questions to ask 1 Am I using digital as a distribution channel for existing products, or am I fundamentally rethinking them? 2 Is my operating model compensating for a lack of data and signal that my technology should provide? 3 Is my tech strategy enabling traditional approaches to acquisition, risk or operations or is it setting me up for future growth? 4 Have I created a faster horse, or have I invented the automobile? 5 Is my organization designed to compete just with my peers or does it result in making peers rethink their entire strategy?

67 Digital is not about writing an app and distributing a product.

68 It s everything.

69 Thank Special Shout Out to Aaron Levie of Box: Thank You!