Although the news about LendingPoint’s decision to formally acquire LoanHero is made public today for the very first time, the conversation between the two firms about how they could best combine their efforts has been ongoing for the last two years, according to CEO Tom Burnside.
Talking with Karen Webster shortly before the news was announced, Burnside noted that the two firms stepped into the alt lending arena at about the same time. Although they both had similar ideas about the use of technology to improve credit decisioning at the consumer’s point of need, they pitched to different consumers and used very different channels to acquire customers.
LendingPoint’s focus: near-prime customers who apply for credit online. LoanHero’s focus: prime customers acquired through physical channels, such as doctor’s offices and dental practices, to name a few.
As Burnside explained, the acquisition made perfect sense, as it provided the two firms with an opportunity to blend LendingPoint’s credit underwriting and risk management knowledge with LoanHero’s established expertise in point-of-need, point-of-sale financing – and then applied that new, combined set of capabilities to a wider range of customers.
That category, according to Burnside, contains about 145 million consumers – who, he noted, have very particular points of need where underwriting and risk management capabilities are severely underdeveloped.
Breaking New Ground
Today, LendingPoint’s sweet spot is risk modeling, which enables them to underwrite loans for borrowers who are otherwise likely to be overlooked, or undervalued, by traditional scoring methods. Loans extended by LendingPoint are underwritten digitally; approval can come within seconds, and loan terms range from 24 to 48 months.
The goal for tomorrow, Burnside noted, is to extend that expertise into the very large world of point of need, point of sale financing – LoanHero’s sweet spot – to begin to expand from purely digital interactions to face-to-face consumer conversions. LoanHero has focused specifically in the retail, construction and medical fields, via co-branded partnerships with merchants and services providers.
The medical arena – including elective procedures like laser hair removal, dental, orthodontics and equipment, such as wheelchairs, Burnside noted – is a massive market that is largely underserved. Just one of LoanHero’s medical equipment-focused practices, Burnside noted, pushes through $500 million in financing a year alone. The personal medical equipment market is estimated to be worth $10 billion annually – and half of that is financed.
“If you are a dentist, you’ve already done all the work and spent all the money to bring the customer through the door," Burnside said, adding that the combined entity will give that dentist an opportunity to offer credit to any patient, not just the prime patients who walk through their doors. Before the acquisition, the only other option for dentists was to take on the risk of financing the bill in-house, charging an upfront down payment to cover their costs and keeping tier fingers crossed that they’d get the balance repaid.
An Enterprise Solution
In addition to expanding credit offerings at the consumer’s point of need, those medical and dental practices can now extend those options without the responsibilities of the tedious, time-consuming payments and collections tasks associated with managing credit.
Burnside told Webster that LendingPoint is a credit-first balance sheet lender who has honed all aspects of managing the credit lifecycle for consumers who have often been turned away by other providers. Part of the opportunity that the LendingPoint/LoanHero combination will bring is the ability to act as the “back office” for these practices, so they don’t have to create their own entire dedicated system for payments and collections. And, Burnside said, they can redirect those resources to focus on building their business.
“We want to be in the point of sale, point of need credit in a big way, and to scale the business the right way, which is what brought the LoanHero deal together," he noted. "Our goal is to be first to market with a total enterprise solution that services both at prime and near prime consumers – first in medical and dental, and then in verticals that today have those same underserved point of sale/point of need credit profiles."
That does not make them an antagonist to banks. Quite the opposite, Burnside pointed out: Mainstream financial players have a lot of the same problems that LoanHero did – they are well set up to serve prime customers directly, but bringing in near-prime customers is more complicated.
Connecting with LendingPoint, Burnside noted, allows banks to solve that problem by giving them a new channel to connect with those customers.
“We can help banks acquire customers who they are not lending to, but who they want to sell other products," he said. "This gives them a chance to offer all those other accounts and ATM services that define their lifetime relationship with customers. When you think about it that way, we are the ultimate partner, because we offer a channel for them to reach customers with other services.”