Elevate Credit, Inc., a top provider for credit solutions marketed for non-prime individuals, announced Wednesday a $50 million financing facility, which may increase to $100 million, according to a company press release. The funding is to grow the Today Card, a credit card designed to expand access to credit while promoting intelligent credit decisions for people with less than perfect credit scores.
Financing for the Today Card will come from Park Cities, an asset management and alternative investment company that provides flexible debt solutions to its customers. The partnership will help reduce the amount of capital required by Elevate for the project.
“The Today Card has seen outsized demand and has been the fastest growing brand over the last 12 months,” said Elevate CEO, Jason Harvison. “To continue that growth, we have announced a new lower cost credit facility. Park Cities has demonstrated a deep understanding of our space. I am pleased to both diversify our financing and promote our platform’s ability to serve non-prime consumers at even lower APRs.”
Backed by Mastercard, Today Card offers all the benefits of a regular credit card to individuals who may not qualify for the same perks through other creditors. Family share, fraud control, and flexible payment options are all packaged into the Today Card product. These options will familiarize cardholders with these types of benefits should their credit improve in the future and they qualify for other cards with different banks.
“Elevate is changing the game for non-prime Americans. We are proud to partner with a mission driven organization and help enable their growth,” said Park Cities Managing Partner, Alex Dunev.
Elevate has originated $9.2 billion in non-prime credit to more than 2.6 million non-prime consumers to date, and has saved its customers more than $8.5 billion versus the cost of payday loans, according to the report. They already offer borrower incentives like reduced interest rates over time, free credit monitoring, and free financial training.
Personal finance company NerdWallet disclosed who its direct competitors were last week in an S-1 filing.
Those companies include: Bankrate, Credit Karma, LendingTree, and Zillow.
“We currently compete with a number of companies that market financial services online, as well as with more traditional sources of financial information, and with financial institutions offering their products directly, and we expect that competition will intensify,” NerdWallet said.
“… We also face direct or indirect competition from providers of consumer personal finance guidance and online search engines,” the company added.
NerdWallet generated 16 million unique users per month last year, defining that metric as a unique user with at least one session in a given month as determined by unique device identifiers. That was up from the 13 million per month in 2019.
The company had more than 8 million registered users as of December 2020, 2 million of which registered in 2020.
Loans Canada published their annual online lending survey results on Monday morning. The company polled online personal loan applicants throughout Canada.
Among the results, several statistics stand out.
40.8% of respondents said that they felt “pressured” to fill their loan application quickly, a compelling counter to the mainstream narrative that borrowers are demanding speed.
44.8% of respondents said they felt “pressured” to accept credit building services even though 85.3% of applicants that had been rejected for an online personal loan said they had been rejected on the basis that their credit score was too low.
Loans Canada noted large swaths of satisfaction and dissatisfaction alike, finding that applicants that have never been able to get approved for an online personal loan were highly likely to rank the online borrowing experience as “very bad” while those that have been approved were highly likely to rank the online borrowing experience as “good” or “very good.”
Recent research by PERC has highlighted the issue of credit invisibility in Canada, defined as “persons with either no account payment history in their credit report (referred to as “no files”) or fewer than three accounts in their credit report (referred to as “thin files);”
In Canada, credit scores are calculated using payment history, outstanding debt, credit account history, recent inquiries and types of credit. However, according to research from Cornerstone Advisors, the ‘on-ramps’ to being credit visible are limited and come with challenges. The most common paths are:
- Credit cards:
- Collections: Collections as a point of entry into a credit system immediately sets the consumer at a disadvantage, since the first thing to identify them is a negative characteristic.
In general, Canadians under 25 tend to use credit cards at far lower rates. Those in that age group who do have a credit history have the highest percentage of credit scores below 520, according to Equifax Canada.
The rate and impact of credit invisibility in Canada is significant:
- 35.3% of Canadians are credit invisible vs. 19.3% in the US.
- the issue disproportionately affects immigrants, minority communities or younger individuals.
How are fintechs addressing this?
1. Access to alternative data
Canadian data aggregators provide lenders with access to non-traditional credit information that advanced firms can apply ML to in order to better adjudicate credit.
- Open banking data providers like Flinks and Inverite provide consumer transaction history information that allows fintech lenders to underwrite credit invisibles based on their cash flow instead of their credit score.
- Commercial data providers like Forward AI, Boss and Railz pull financial data from accounting systems, payroll, and point of sale terminals in order to give lenders a more fulsome picture of a businesses health.
2. Make alternative data mainstream
PERC Canada recommended that the CFPB explicitly include non-financial institutions in their definition of a ‘creditor’ in order to report positive payment data to credit bureaus. Credit reports that could ‘reward’ customers for paying telecommunications bills on time, for example, could make the credit system more forgiving in the future.
- Billi, for example, a Canadian fintech allows users to integrate on-time payments for their Amazon Prime and Netflix accounts into their credit reports in order to improve them.
Canadian credit bureaus have also taken active steps to being more inclusive of alternative data. A prime (no pun intended) example is Landlord Credit Bureau’s (LCB) and Equifax’s partnership to allow rent payments to count towards credit scores.
- Both as a way to reduce risk for landlords and give tenants a leg up in the market, this shared use of alternative data is “ninety-plus per cent….positive in nature, so overwhelmingly landlords use this to reward tenants,” LCB’s CEO, Zachary Killam said.
3. Create a better on ramp to credit building
Credit building loans can unlock credit for those with minimal histories or challenging track records. These are installment loans that only pay out once the customer has paid them off, and are offered by fintechs like as Spring, Marble and Refresh.
Essentially reverse loans, the reverse structure protects the lender, in the event that the customer doesn’t make all their payments. Over the course of the loan term, the customer’s payments are reported to the credit bureaus. Borrowell, which recently acquired Refresh’s credit building loan portfolio, is now one of the largest providers of this service in Canada.
So what’s the solution?
In order to drive meaningful change on the issue of credit invisibility, fintechs must continue to enable lenders to challenge the limitations of the credit system – by improving access to alternative data, normalizing its use and building better on-ramps to the credit system than collections and credit cards.
Credit invisibility is caused largely by structural issues within Canada’s data markets, but fintechs are starting to fill these gaps.
LendUp, a fintech lender that hoped to disrupt the payday loan industry, is no longer making new loans. A note posted on its website said “We are currently not offering loans to new customers.”
When deBanked sat down with the now former CEO Sasha Orloff in 2017, he said that their product was simply cheaper and more flexible.
“The easiest person to convince that we’re a better product is an existing payday user because it’s slightly cheaper at the beginning, it gets much cheaper over time,” he said then. “It has a lot more flexibility.”
But for all the bells and whistles, their still relatively high rates generated a target on their back with regulators.
In 2016, for example, the CFPB said “[LendUp] did not give consumers the opportunity to build credit and provide access to cheaper loans, as it claimed to consumers it would.”
Balancing the messaging with the reality seemd a difficult task.
In January of this year, LendUp settled the charges, agreeing to pay $300,000 in redress to consumers and to pay a $950,000 civil money penalty.
As recently as April, LendUp’s website was still offering loans with a promoted APR of 400%.
According to a sneak peek posted by Lendio CEO Brock Blake, fraudsters are stopping at nothing to game the government’s emergency loan system.
“Wanna glimpse into what lenders are experiencing with attempted fraudulent applications?” Blake wrote in a tweet. “Here are four ‘applicants’ seeking a loan.”
Four pictures showing computer-generated “business owners” all have the same sweater, but different heads. People are using AI tech to create randomized, just barely discernible pics of borrowers holding IDs beside them to beat new compliance measures.
It’s like a techno arms race between an automated scanning system that looks for fakes versus an automated fake ID and person generator that tries to make passable fakes.
After a year of PPP and EIDL success stories and fraud concerns, funders are still beating back scam artists. During a recent U.S. Senate hearing, SBA Inspector General Mike Ware said his office had secured $2.1 billion in fraudulently claimed PPP and EIDL loans.
In related news, the SBA announced the $28.6 billion Restaurant Revitalization Fund applications would open on Monday, May 3. Fraudsters start your fake restaurant owner generators.
Wanna glimpse into what lenders are experiencing with attempted fraudulent applications?
— Brock Blake (@BrockBlake) April 26, 2021
Another twist on purchasing receivables is making its way into the mainstream in the form of an Inheritance Cash Advance.
For some, the aftermath of losing a loved one can turn into a long drawn out legal process and delay the transfer of rightfully owed inheritance in the process. Probate funders fix the problem, paying cash upfront, purchasing the future receivable of a will. The small industry is remarkably similar to the merchant cash advance world and uses the same terminology. “Inheritance Cash Advances are not loans,” one website says, “with an Inheritance Cash Advance, we send immediate cash to heirs in exchange for an assignment of a fixed dollar amount of their eventual inheritance.”
David Horton, a University of California-Davis law professor who delved into 1,119 probate agreements in the San Francisco area as part of a UPenn Study, said of the product “in almost all cases, with rare exceptions, the lender not only gets their advance back but also gets a huge markup.”
Interestingly, this type of funding is most popular in California, where some of the most complicated estate laws in the country make inheriting a hassle. But a less than flattering industry profile in Consumer Reports says that such companies “earn millions offering cash advances to heirs, with effective interest rates as high as 490 percent.”
And yet, industry advocates say that they are providing a needed service. “We are proud of the service we provide and the highest ethical way we conduct our business at IFC,” said Doug Lloyd, CEO of Inheritance Funding Company to Consumer Reports. “It is easy to understand why banks and other financial institutions are not in this business.”
His company has already advanced more than $200 million to customers. The following video is featured on their website:
Upstart Says Covid Had No Material Impact on Loan Performance, Believes All Loan Underwriting Will be Powered by AI in the FutureMarch 17, 2021
Yet another online consumer lender has reported that the Covid-era was good for business. Upstart, which went public in December, recorded $1M in profit in Q4 and $6M in profit for the year. Prosper Marketplace, an Upstart competitor, reported an $18.5M profit for 2020 just days earlier.
“Despite the COVID-19 pandemic, we delivered strong growth and profits in Q4 and for the full year 2020,” Upstart CEO Dave Girouard said in the company earnings announcement. “This combination is rare among FinTechs and demonstrates the growing advantages of AI-based lending.”
Upstart actually grew its revenue in 2020 by 42% over the previous year while keeping loan performance steady.
“We’re happy to report that the COVID-19 pandemic had no material impact on the returns that our bank partners and loan investors experienced this past year.”
The company is going full speed ahead on AI-based lending. “We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation.”
Keenly aware that AI is an overly used buzzword, the company reminded investors about what its AI can actually do.
Our AI models, like all AI systems, are fueled by incredible amounts of data and sophisticated software to interpret that data, while most lenders consider only a handful of variables as part of a lending decision, Upstart’s model considers more than 1,000 variables about each applicant. You can think of these as the columns in a spreadsheet. And as of December 31, 2020, our model was trained on more than 10.5 million unique repayment events.
These are like the rows in the spreadsheet. And we continually upgrade the machine learning software that interprets this data, enabling us to price the next loan on our platform just a bit more accurately. Upstart goes far beyond a singular AI model predicting default risk. We have discrete AI model that improve the entire lending process, including identity fraud, income misrepresentation, loan stacking, prepayment risk, fee optimization, and more.
But of course, our model that targets default risk is the centerpiece of our system. It predicts not just the likelihood that a loan will default, but when that default can be expected to happen.
Upstart also intends to bring that technology to auto lending. The company simultaneously announced that it had acquired Prodigy Software, Inc, a tech that’s been used to assist with selling more than $6B worth of cars.
“…2021, from our perspective with auto, is really a building year,” said Girouard, “And the acquisition of Prodigy, we certainly view as an accelerator toward the point of sale, the majority of the market that happens at the dealership.”