Fintech

Meet the CAFE That Can Accelerate Your Fintech Startup

Newer fintechs on a mission to advance financial health and wellness for low-to-moderate income individuals and underserved populations may not have to weather the startup journey alone. Inside the Fintech Innovation Hub, situated on University of Delaware’s STAR campus, is the non-profit Center for Advancing Financial Equity (CAFE). Supported by numerous partnerships including the Small Business Administration, Discover, the Small Business Development Center (SBDC), the American Bankers Association, and more, one of its signature initiatives is its bi-annual fintech accelerator, which aims to identify, support and grow extraordinary financial accelerated technologies and innovations. Hundreds of companies apply but only six get selected for each cohort of the accelerator. One of those selected this past Spring, Parlay, offers a powerful tool to improve small business loan applications. Another, Stratyfy, offers interpretable AI solutions that enable financial institutions to make more accurate, efficient, and fair financial decisions in credit risk, fraud, and compliance.

Being accepted into CAFE requires a startup to already be up and operating.

“[These companies are] in market, the products are built already,” said Kristen Castell, Managing Director of CAFE. “They do have some customers, some of them are enterprise customers like banks, a full time team, and many of them have raised money already.”

Castell tells deBanked that the companies applying to the accelerator still need a lot of help in terms of making industry connections, scaling distribution, and developing the right partnerships. It’s an eight-week program, some of which takes place on location at the Fintech Innovation Hub in Delaware. The rest is virtual. Applicants and those selected can be from anywhere in the US. The founders, all connected by some level of common interest, are bound to form a bond throughout the unique experience. Last week for example, the members of the Fall cohort went on a field trip to the Wilmington, Delaware headquarters of Best Egg (F/K/A Marlette), an online lender, and got to learn about their path from being a startup in 2014 to the fintech stalwart they are today.

“This time, we have some opportunities to meet the American Bankers Association in Washington, DC,” Castell said. “We also meet the regulators at CFPB in Washington, DC. There’s some other conference opportunities like another accelerator called RevTech Labs that has an investor conference in Charlotte. So there’s an opportunity to pitch there to investors.”

The learning curve for any company coming through the accelerator is dramatically shortened by the access and guidance they get, whether that be from other fintechs, from bankers, from regulators, or the largest fintech trade association, the American Fintech Council.

At the end of it all there’s a demo day in person at the Fintech Innovation Hub in Delaware, where they present to investors, bankers, academics, industry and community leaders, non-profit organizations and entrepreneurs alike to show what they’re made of.

Castell, a former banker herself that previously worked for JPMorgan and BlackRock, also experienced a taste of being a fintech entrepreneur when she became interested in impact investing. It’s a scene she loves. When the plan for CAFE was in development, the opportunity to be involved with financial inclusion, technology, and startups all in one was something she really wanted to take on.

“It’s really been an incredible opportunity to build the organization, to build the program, to work with all these partners, to bring all these stakeholders that I had mentioned earlier in and we’re not done,” she said. “We’re just getting started.”

The six members of the Fall cohort are Carvertise, GivingCredit, Kredit Academy, Odynn, Salus, and Prismm. Sponsors include the American Bankers Association (ABA), Siegfried Advisory, Delaware Prosperity Partnership (DPP), Wolf & Co, Delaware Tech Park, deBanked, and Discover Financial Services.

deBanked is expected to attend the demo day in November.

Conversion Rates on Upstart’s Consumer Loans

Upstart is having a tough time in the current interest rate environment.

“In the third quarter, rates were at an all-time high in our marketplace, higher than we expected them to be, reflecting both decades high interest rates and significantly elevated risk in the consumer economy,” said Upstart CEO David Girouard during the company’s Q3 earnings call. “This is not a path we would have chosen and is obviously not constructive to our growth, but it reflects the reality of operating responsibly in this environment.”

The company won’t offer loans above 36% APR which means if the risk models indicate a rate higher than that would be necessary to move forward, they just decline the loan altogether. Notably, this and other economic factors has had a negative impact on their conversion rates.

“I think our [conversion rate] for this quarter was around 8.5%,” said Upstart CFO Sanjay Datta. “So meaning, of all applicants to fill in an application and submit, about 8.5% of them become funded loans. I think at our peak, that number was closer to 24%.”

And of all loans that get approved, only 1/3rd of them fund.

It’s been a rough couple of years for Upstart. The stock is down 92% from its all time high in October 2021. At the time the company was planning to expand into the small business loan market, which it finally did in June 2022. In the subsequent quarter it originated $9M in small business loans. But earlier this year the company suspended it entirely. At the time Girouard said, “This was a necessary step to ensure we can adequately resource the rest of the roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.”

It has not resumed business lending though it continues to cite in its quarterly earnings presentations that the addressable small business loan market numbers $895B.