Alternative Lending Is Dead

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This story appeared in deBanked’s Mar/Apr 2017 magazine issue. To receive copies in print, SUBSCRIBE FREE

At LendIt, Kabbage co-founder & CEO Rob Frohwein, blew the roof off the house with his presentation. Titled, “Alternative lending is dead, long live data,” he explained what he believes the industry should really be about.

On why the term alternative lending doesn’t make sense:

Think about Uber, when they talk about their business. Their tagline is ‘when you don’t feel like taking a taxi.’ They don’t call it alternative transportation at its best

On how most companies have been answering the wrong question:

The question answered by most online lenders is, ‘can you fill the void left by banks?’ I will tell you right now that the question that should’ve been answered by folks going into online lending would be ‘why aren’t banks filling this void?’ When you ask a different question, you get a different answer.

I’m not trying to prove that small businesses need capital. That is blatantly obvious. I’m trying to prove that there is a better way to do it.

Most online lenders tried to disrupt banks by proving they could grow fast and they could acquire capital, but there is only one problem with that approach. You don’t disrupt banks by focusing on the advantage that banks have over you. Banks have customers and money. That is mostly what they have. They have customers and money. So why disrupt the space with the two items that they actually have? The question that should’ve been asked and answered is, ‘why aren’t banks filling this void?’

The answer to that is, because they can’t profitably, for our industry, they can’t profitably serve small business customers. When you ask that question and you figure out the reason, you start building your business a little bit different

On why an online application doesn’t make you a technology company:

Most online lenders thought that by calling themselves a technology company, that they were one, but that wasn’t the case. The biggest piece of technology that most of them promote, is an online application. That’s it. If you think about it, it’s an online application. Everything else is manual. There is nothing, nothing special about an online application.

And outside the US, we’ve already launched in Australia, Spain, the UK, Canada and Mexico. And we’re going to be announcing two other territories in the next several weeks. And by the way, we have no employees in those markets, because we’re able to operate everything remotely because we’re a technology company.

If your business is scaling really fast, and your opex (operating expense) is doing anything but going down, you’re not operating a technology company. Everyone else is flat or up on opex, but we can continue to go down. If you’re running a technology company, you don’t have to lay people off at the slightest hint of trouble and do you know why? Because you don’t have too many employees. Your business scales. Right?

Last modified: August 13, 2018

Category: Business Lending


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