There is currently enough snow on the ground in the greater Boston area to fill Foxboro stadium over 90 times, with another 2-4 feet being predicted by Monday (Feb. 16). Given the fact that global warming seems to have abandoned New England, payments innovators may be wondering:
While one might expect the editorial department at PYMNTS to affirm, “yes, absolutely,” and “if it comes to that we’ll rent the dogs for you,” as it turns out you don’t have to take our word for it.
“We were excited to be able to participate in the Innovator Expo. It did a lot of things for us. The financial service industry in the United States is incredibly complex and the payments industry is even more incredibly complex. One of the things we go to do as an early innovative company is speak to the leaders of major financial services companies to be able to talk about those various complexities.”
That was LendUp CEO Sasha Orloff talking about his experience at Innovation Project in 2013 with MPD CEO Karen Webster. LendUp burst onto the startup scene in 2011 with three goals in mind. First, fix the lack of transparency in consumer lending; second, rectify the lack of information and educaiton in the space; and, third, provide consumers with the means to build up their creditworthiness.
Two years later, LendUp had its first IP experience.
“It was also good to see what else is happening across the industry,” Orloff noted. “It’s fun just to see a bunch of innovative companies and the pioneering bleeding edge of customer experience and design. It’s exciting and challenging to me because I have to share something big,” Orloff said. “I can’t just sit back on my laurels of having an innovative idea. It really inspires me and the team to push the envelope for our business to make sure we constantly innovate, constantly challenge assumptions and constantly come up with new and exciting things.”
LendUp and company had so much fun at IP 2013, they came back again in 2014 – and, true to their CEO’s promise went on to spend exactly none of 2014 sitting on their laurels.
A month out of IP, the startup announced bringing in a $50 million credit debt facility from Victory Park Capital – adding to the $18 million in equity funding the firm had already raised out of Google Ventures, Data Collective, QED and others.
“Since the Innovation Project (2014), we’ve focused on growth, product and continuing to build out the technology. From a growth standpoint, we’re now in 16 states and have consistently grown more than 15 percent month on month,” Orloff told Webster while they discuss what’s next for LendUp during one of Boston’s many recent blizzards. “Product-wise, we launched our first Ladder in the summer of 2013. The Ladder is where customers earn access to more money, at lower rates, for longer periods of time. The top half of the Ladder reports to credit bureaus. And on the technology front, we’ve opened up our API to enable partners to benefit from all the functionality we’ve built.”
LendUp has come to disrupt payday lending and do away with the days of hidden fees, expensive rollovers and crippling triple-digit interest rates. The platform first offers customers access to a $250 loan but allows users to build up to amounts as much as $1,000 for a term of as long as a year.
Their secret sauce is big data – instead of relying on the traditional FICO method to evaluate creditworthiness they instead rely on hundreds of other data points that give them clues about their customer’s financial life.
“You can understand our customers in two ways: credit profile and credit needs,” Orloff noted.
The typical credit profile for a LendUp customer generally breaks down into one of two categories – no (or almost no) credit history and damaged credit history.
With a limited credit history, applicants can be new to the country, young and just starting their financial lives, or have been using debit or cash most of their life. These customers are challenging to evaluate because there is so little information available on them in traditional credit bureaus, so they don’t get approved,” he told Webster.
Damaged credit is a bit harder, because it demonstrates an imperfect history with paying on one’s obligations. But, Orloff noted, there are a variety of reasons that consumers fall into credit trouble, and the standard methods of evaluating them just fails to be nuanced enough to separate a person who ran into a temporary rough patch, and a genuine bad risk.
“These applicants are difficult to underwrite because data on the credit bureaus aren’t nuanced enough to distinguish between applicants who, after a period of trouble, are turning things around and those who stand to be become increasingly mired in debt and shouldn’t take on more obligations.”
When it comes to either type of potential customer, however, Orloff noted that the important thing to keep in mind is actually the big picture.
“With each, the fact that we look beyond traditional credit bureau data to hundreds of FCRA compliant data points allows us to make a more informed decision.”
LendUp is certainly not alone in this space but they’re a company with a difference. LendUp doesn’t just want to lend consumers money, they want to educate them about how to manage money better.
“Compared to other lenders offering similar loan amounts and durations, we are anywhere from 1/2 to 1/18th of the market. We think aligning our success with those of our customers, as opposed to profiting when they get into trouble through rollovers or expensive refinancing, will make our business more sustainable in the end.”
And they’re not quite content to stop with payday lenders either.
“We’ve started with these loans because we saw the industry as so ripe for change, but we will expand into other aspects of the subprime market making everything we’ve built and everything we’ve learned a real advantage.”
To that end, LendUp hinted that they will be launching two new products in 2015. No word on what they are yet – but stay tuned.
Orloff will join Former Treasury Official and Dodd Frank Architect Michael Barr and six other CEOs in a discussion describing the innovation at the intersection of data and technology in reinventing financial services and lending. To listen in on this off-the-record discussion, click here.
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