NerdWallet: Still Pressure in SMB Loan Originations

NerdWallet’s CEO Tim Chen explained during the company’s Q4 earnings call that headwinds across both consumer and SMB lending have not let up.

“We continue to see pressure in SMB loan originations with rates remaining elevated and underwriting remaining tight, while also seeing increased pressure in our renewals portfolio as the 10-year rates reversed course and began to climb,” he said.

NerdWallet originates borrowers through the internet, a significant portion of which comes from organic search traffic. That organic traffic dipped about a year ago after changes to Google’s algorithm but has been recovering over the last two quarters for SMB loans. During the earning’s call, one analyst, Ralph Schackart of William Blair & Company LLC, had a question about the continued reliance on that channel given the rise of competing AI chat assistants.

“I guess as you are sitting here today and sort of operating this business, obviously for a while here, how different do you think these changes are to the business with AI overviews?” Schackart asked. “And some digital buyers are saying that the ads that are generated from Gen-AI are actually performing better than some of the organic results. Just kind of curious, what’s your confidence that this is something you’ll be able to navigate longer term versus your previous history? ”

This was Chen’s response:

“I’ll split it up between kind of the shorter-term stuff we’re seeing and longer-term thoughts. I mean in the near term, there’s two drivers here. Which is, one is more ads and modules on top of the search results. And the other factor is rank. Where in the very recent past, financial institutions and some government websites are winning in some areas where they traditionally haven’t, which as I’ve alluded to in past calls, is a bit of a head scratcher when considering consumer intent.

We do think this period of frenetic testing will eventually stabilize, and when that happens, it should play to our favor. Longer term, I do think that it’s important to look at broader industry trends. First, AI search engines or chatbots, are they taking share from traditional search engines?

I mean from what we can tell, not really. If you look top-down, more people are using search engines than they did last year, but you also see triple-digit growth in AI usage. Which says to me that people are basically just asking more questions that they weren’t asking before. And second, the things like AI overviews, how is that affecting the ecosystem?

So I know we’re not focusing on MUUs operationally, but it’s helpful to understand that if simple questions have simple answers, and if a search engine can serve that up in a faster way that consumers prefer, then that’s good for the ecosystem.

And for us, we’re seeing these features do a really good job of answering simple educational questions, and that’s affecting traffic to some of our noncommercial pages. That has not been the case yet for our monetizing pages, which are fundamentally just a little more complicated.

Like if you need to shop for a mortgage for instance, you really need to go through a marketplace experience. So yes, on balance, we think that this period of frenetic testing will stabilize. We’ve seen a few things like this in the past, and we can grow from there.”