Home East africa economy LendingPoint’s credit-centric approach to lending

LendingPoint’s credit-centric approach to lending

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Those lucky enough to have access to credit often take it for granted. Imagine your car breaks down, your child needs school supplies, or your father dies and you can’t afford the funeral, but the banks don’t want to work with you because you have bad credit or not at all. What would you do?

Many would turn to family or friends for an informal loan, while others would be too proud to do so. But imagine if all of these people were in the same boat and had, at some point in the past, turned to each other (or to you) for an informal loan as well. At this point, it’s not about pride anymore – it’s just how you get things done, for better or for worse.

This hypothesis is not a game of the imagination. This is a very real situation in the United States, where the Dominicans LendingPoint CSO Juan Tavares now calls home. However, Tavares said the landscape is changing as LendingPoint and other alternative credit products lend their ears – and their money – to underserved populations.

In a recent interview with Karen Webster, Tavares and Tom Burnside, CEO of LendingPoint explained the ABC of their alternative approach and how their focus on the near-premium market creates value for customers – and the economy – on a larger scale.

Philosophy

Why should only the most creditworthy have access to finance when they need it? Accidents, illnesses and deaths do not make a difference in who can afford them. Those without credit, or with lower credit scores, still have emergency expenses that need to be covered on the spot, but traditional lenders are afraid to serve them – and if they don’t pay them back. never ?

Some of them might not be. And some of them might. Burnside and Tavares said that looking at just one credit score does not give a sufficient idea of ​​the level of risk. Their solution? Analysis of behavioral attributes.

“This person may have had a fragmented financial journey,” Tavares said.

For example, he said, maybe they had a secure payment card with an issuer and another line of credit worth $ 1,000. They borrowed here and there as best they could, but no one took the time (or maybe no one had the data) to examine their potential and help them unlock the capital they needed to make a meaningful purchase in their life.

It takes more than a credit score to reveal whether an applicant is likely to repay a loan, Tavares said. He also believes that it takes more than data, even good rich data. It takes behavioral attributes and an interpretation of this data over time to show the customer’s financial trajectory.

This is something that most alternative lenders have yet to venture into, giving LendingPoint the opportunity to compete in this very blue ocean. Most of those lenders, Tavares said, have between 18 and 23 percent write-offs; LendingPoint is about 25-30% better than that.

Here’s how.

Instead of recruiting underwriters, the company uses the output of its predictive system, which analyzes 56 basic variables distilled from 3,000 data points pulled from every transaction it sees. It also feeds this predictive system with raw data purchased from third parties to see how customers behaved before and after leaving LendingPoint, especially if they chose not to take a loan.

The second prong of the approach examines what Tavares called “synthetics” or “cluster behaviors”, to get the next level of knowledge about how the performance of the asset will play out. Taking that extra step, he said, is how LendingPoint can tell if a customer is going up or down.

“We’re looking for the rising star,” Tavares said, “not the falling knife.”

Back to the roots

Burnside got his start in small business credit. Shortly before meeting Tavares in 2009, he had successfully managed a $ 500 million portfolio and his business was looking to expand outside of the United States. Five years later, Burnside and his LendingPoint co-founders had their sights set on the next rung: growing beyond small business loans. The timing could not have been better.

“A revolution was taking place in personal loans and consumer lending,” Tavares said. Already, the market was generating $ 1 billion in personal loans each month. “They were forces of a magnitude greater than the small business space,” Tavares said. “There was a big snowball to chase. “

But you know what they say about the luck of a snowball in hell – it’s not very good. If you ask Burnside, the odds of continued success if the personal loan model doesn’t change either.

Burnside said the model was “light on capital, as a last resort” and lacked a balance sheet – something he and Tavares agreed is critical to aligning interests. They thought the traditional approach would end up proving unsustainable, so they started building their own.

Tavares said the ABC’s of LendingPoint’s approach is: Access, Balance Sheet and Credit First. If that sounds logical, he said, it’s because it does. The key is to go back to the fundamentals and apply them to create value for consumers and the economy.

In contrast, he said, traditional lenders still charge a premium, despite fewer and fewer consumers wanting to pay it. The predictability promised by these lenders has not been met, he said, so why would consumers pay extra? Instead, they buy loans at par, creating price compression and profit margin issues for traditional lenders.

Tavares said the stubbornness of these lenders has changed the market in its own way, prompting the formation of alternatives like LendingPoint in response to consumer demand. It is only now that lenders are starting to introduce new pricing on premiums and forward rates.

As the market continues to reward performance, “people will eventually be forced to focus more on credit,” Burnside said.

Use case

It’s been several months now that LendingPoint has partnered with ezVerify, a technology company providing real-time health insurance and benefits verification information, to create a solution to the last mile of care conundrum. health, that is, consumers refusing the medical care they need because they can. They can’t afford to pay their plan’s high deductible. Their common solution, ezCarePoint, allows patients to access financing options (flexible payment plans and short-term loans) at the point of sale before receiving a procedure.

Tavares said this marks the start of the company’s next frontier at the intersection of payments and credit. The goal? Offer flexible financing when they need it, especially for consumers who cannot normally access credit – and therefore cannot receive the care they need.

Another use case is weddings. David’s Bridal, for example, offers flexible financing options at LendingPoint for brides-to-be whose wedding plans exceed their immediate cash flow.

Adoption agencies also use this tool to help foster parents with all costs, legal and otherwise, associated with making a foster child a forever member of their family.

But these are all great use cases, Tavares said. A client’s need can be as mundane as replacing the windows in their house, fixing that broken car, buying those school supplies, or funding that funeral.

“It’s not just about getting to the point of need and technology,” Tavares said. “It’s also the amount and affordability.”

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