Of the scores of innovations and updates to consumer lending seen and written about over the last decade or so, speed is always offered as a central value proposition. Instead of spending days and weeks gathering paperwork, submitting materials and waiting around for a decision, consumers and businesses working with a new breed of online lender could shortcut much of that and get a decision within minutes.
However, simply making an existing process faster, LoanSnap CEO and Co-founder Karl Jacob told Karen Webster, does not make a complete lending product. LoanSnap saw an opportunity to use technology to turn what he called “dumb loans” into smart ones.
The focus of LoanSnap then became as much about giving consumers a great mortgage loan as using artificial intelligence (AI)-tech to give would-be homebuyers a path to understand their current financial situations. Something, Jacob said, most consumers lack.
As part of the loan application process, LoanSnap underwriters use AI and data pulled from a variety of application program interfaces (APIs) to build a financial model for the borrower. LoanSnap then forecasts that model into the future and tests different loan options against it so the consumer can choose the best mortgage terms and rates. Part of that includes examining credit card debt to make suggestions about how to use the equity in their home to pay off that debt, thus freeing up monthly credit card debt to improve their overall financial health.
Jacob said that, in 2017, consumers ended up paying $58 billion in interest on credit card loans because they didn’t know there were more efficient ways to consolidate that debt at a lower rate.
The cornerstone of the LoanSnap value proposition, Jacob told Webster, is to offer consumers a more accurate and consistent snapshot of their financial lives over the span of their loans. He said the problem with debt is consumers often don’t understand the problem until they are drowning in it. However, trying to “throw them a life jacket” before they think they are drowning doesn’t work either, because a person standing in a puddle laughs at the person who throws them a life jacket.
“You have to find a way to show people: ‘Actually, you are standing up to your waist in water right now. Here are the life jackets,’” he said.
Last week, the firm announced it had raised an additional $4.7 million in a funding round led by Thomvest Ventures, bringing its total investment to $17 million to beef up its consumer lending and financial wellness platform, and scale the offering to more borrowers.
How It Works
Most lenders, Jacob said, assume that consumers would make better decisions about what lending products would best suit their needs if they spent more time digging into the details of the products on offer.
However, the reality is that this is a big ask, even for financially sophisticated consumers. One must have a good grasp on how things like compounding interest works, and have the time and precision to create spreadsheets and plot out a course. All the education about the importance of being financially healthy won’t fix the fact that gathering, plotting and interpreting all the data is often too time-consuming and complex for the average person.
The AI, he noted, takes a lot of that heavy lifting off the customers’ hands, which makes the lenders more likely to be good participators in consumers’ financial lives — and the technology keeps doing that over the life of a loan. Mortgage loans have long lives, Jacob said, and LoanSnap’s AI continues to perform analysis over time to see how a customer’s behavior changes, and will continue to generate options for that consumer.
Lending For A Lifetime
LoanSnap started as a technology platform that bought a mortgage servicing company second, according to Jacob. The search for the right lender to buy was a long and in-depth process.
“We kissed a lot of frogs,” Jacob said.
LoanSnap knew it had found the right partner when it discovered a firm with the tagline “your lender for life.”
“And I’m like, exactly,” he added. “They get it.”
Building that kind of lifetime relationship, he noted, is both the right thing to do and smart business. It means people not only want to borrow from a company, but they want to refer others.
What about the “crash financial dieters” of the world — customers who start out doing the smart thing, like consolidating their credit card debt with a single low-interest line of credit, Webster wondered, only to fall off the wagon down the line and begin to run up their cards again?
This, Jacob told Webster, is where the duration of LoanSnap’s relationships with its mortgage customers becomes important. That financial profile isn’t something the AI does once at the outset of the loan during the underwriting process, but something it does over the life of the loan. It’s trained to see that kind of backsliding into old bad habits, so that it can prompt customers back onto the right track. That might include simple and gentle warnings when it notices things like their spend increasing over time, or it might notice debt building for some reason, in which case the system might offer the customer better options for restructuring or managing debt.
Delivering that nudge, he noted, is careful work. Consumers like automated messages because they feel private. Moreover, the pushes and reminders must be relevant to the customer, not annoying.
“With the systems we saw two and three years ago, it was just constant reminders about interest rates going up, and it begins to feel like pestering. That’s not helpful. What is helpful is ‘here is this card that has this rate that you can move a loan to, or here is a different area of your financial life we can help with.’ It finds [a] smart lever — that is why we call our product smart loans,” Jacob said.
When LoanSnap started, Jacob told Webster, he came into it thinking he wanted to build a better mortgage company, something that got around the “faster, cheaper hype” that was everywhere. The company realized that, to build a better mortgage firm, it needed to build a better financial services company that worked fairly and transparently for customers, and worked hard to keep them on track, as well as earn a profit.
As it turns out, he said, successful customers are more profitable than those who fail, particularly over time.
“What we’ve seen is you can have the dual goal of helping people improve their financial situation and making money,” Jacob explained. “If you think about what is best for your customers, they are both going to pay you and they are going to keep coming back.”