Alternative Finances

How To See The Customer ‘Beyond The Credit Score’

“What’s in a name? That which we call a rose by any other name would smell as sweet.” -William Shakespeare, Romeo & Juliet

A quick glance at the most famous lines written by Shakespeare for Romeo, in his most famous play, might lead one to conclude that the author and character both thought names were unimportant. However, that would be too quick of a glance and the wrong read — Romeo wasn’t arguing against the importance of names so much as he was bemoaning them. By the end of the play, it was clear that names are pretty much everything. Had Juliet been a Jones instead of a Capulet, the story might have ended somewhat better.

Names, of course, are a big deal, even outside the context of famous 16th century tragedies, which is why a name change is not something to be taken lightly. That’s especially true for digital lenders like Insikt, better known by its brand name Lendify, which has been operating and introducing itself to the world under one of those two names for the last four years.

However, as CEO and Founder James Gutierrez told Karen Webster on the eve of the firm’s renaming and rebranding, the firm is growing up, expanding what it does and evolving the role it wants to play in its customers’ lives. The company wanted a new name to better capture its expanding view of its mission.

The name it settled on was Aura.

“We needed a new name to speak to who we are, and at Aura, our goal is to really see the customer beyond what’s obvious in a credit score. We want to look beyond that to see a borrower’s potential, and we think an aura is a similar idea to potential — something that is kind of invisible, but really matters if you can find a way to [see] it,” said Gutierrez.

The firm’s goal, he explained, remains what it always has been: using credit to offer often-excluded classes of borrowers — thin-file or low-score consumers — an “economic passport” to a better financial life. The Aura name, he believes, better conveys that sentiment than Lendify, and better expresses the spirit of what the firm’s next phase will be as it steps out from behind its white-labeled roots, and into more direct consumer-facing relationships.

Emerging From Invisibility

Since its launch in 2014, Insikt has provided more than $390 million in affordable, credit-building loans to 320,000 borrowers. However, Gutierrez noted, in some sense, the company was invisible to consumers because its products were entirely white-label. It was “the brand behind the brand” at over 1,200 partner locations, where local businesses administered the credit applications.

In its new life as Aura, that will not change, in some sense. The company doesn’t intend to open storefronts, but will continue to work through its partner network to help them offer lending services to their customers as a loyalty boost. Helping its partners boost their own volumes, and achieve their goals by tapping into Aura’s underwriting capacity, remains of primary importance.

Yet, he noted, as the entity that collects the payments, evaluates and administers the loans, and works with clients when they fall behind, Aura realizes there is much more it can do for the customers who use its services. The switch to the new name is the beginning of what Gutierrez called a more co-branded relationship with its partner merchants, with them able to offer more to the customers to tap into the services.

What Aura will offer customers, other than loans, is the ability to view their total financial situations in the same way Aura does. That means a free credit score, a free summary of what is in a customer’s credit file and a personal budget summary. It also makes recommendations on areas like debt-to-income ratio, or how much a consumer should target for savings out of each paycheck.

Aura is also adding a loyalty program, called Aura Hearts, to help motivate customers to utilize the financial education tools it offers by rewarding them directly with better underwriting options for having used them.

“If you pay on time, we reward with hearts,” Gutierrez said. “If you log in to your account center and fill out the financial workshop educational tools, you get more hearts, because those hearts are data that tells us you care — and it gives us greater certainty around the next loan, which will now be able to be larger, at a lower APR and a faster process to be approved.”

The brand’s next chapter, he noted, is to build on the tools it is offering — and find other ways to connect products to its central lending offerings to help make these types of services accessible for people who need them.

The problem for a lot of consumers right now is that there are too few banks that will serve them at all, and thousands of payday lenders that will happily serve them for punishing prices. For customers trapped between a non-option and a bad option, there needs to be a middle product, and a roadmap into the mainstream that is lacking today.

Stuck In The Middle With Nothing

At this point, Gutierrez said, everyone has seen the Federal Reserve figures that almost half of all Americans have insufficient savings to cover a $400 expense, and 75 percent have insufficient savings to cover a $1,000 expense. That makes access to funds an issue for almost everyone — and while consumers have the option of tapping mainstream banking products like credit cards, millions of consumers don’t. These consumers, he told Webster, are working families who have a definite need, and can reasonably be extended credit if it is offered under the right terms, and in a way that is manageable for their budgets.

Aura charges customers biweekly, rather than monthly, because that’s when they are generally paid, and most people budget by paycheck. The terms of the loans are six months at minimum to over a year, as loans exceed $1,000. The guiding data, according to Gutierrez, is the consumer’s ability to repay, and involves designing a repayment plan around that. It is why, he told Webster, his firm is adamantly opposed to the proposed changes to the CFPB’s payday lending rule, which are seeking to remove the stipulation that short-term lenders must evaluate borrowers’ ability to repay before extending credit.

“If you do the right underwriting on the front end, you have better outcomes afterwards. It’s just a basic premise, testing if someone can afford this loan. If someone is right on the edge, we don’t want to be a lender that pushes someone over the edge,” Gutierrez said, noting that he has been heartened by the moves states have made on behalf of protecting consumers.

For Aura, the goal is to use credit as a springboard to help consumers get control of their financial lives. By its internal data, Aura has seen success, as two-thirds of its customers have seen an improvement to their credit scores over the course of working with Aura, and their default rates are just under 10 percent. That’s notably higher than, say, the average credit card, but when one looks at the sub-600 scores and thin-file cases the company works with, it is much lower than the 20 percent or 30 percent default rates people anticipate.

It’s a service that is needed, he noted. The credit bureaus and banks know that the credit scoring and underwriting system today isn’t inclusive enough. Yet, designing new systems, piloting them and using them isn’t a process that these leviathan institutions can undertake overnight. There is a whole value chain, Gutierrez said, where the credit bureaus must convince lenders that these new scores will work, and get them to buy and experiment with them — and the whole process “takes forever.” Plus, he noted, banks have regulators that can take a dim view of lending to high-risk populations, further slowing the process down.

The people who need this today, who are living paycheck to paycheck, don’t have forever. They barely have 24 hours.

“We want to be the financial institution that cares now. The system is kind of broken for mainstream lenders, and we have to solve for the person caught in between,” he said.

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