Loans

LendingPoint: CAN Capital’s Close Neighbor in Kennesaw

LendingPoint, a consumer lender staffed largely by former CAN Capital employees, may have something to teach the alternative small-business finance industry about creditworthiness. Three-year-old LendingPoint claims to go beyond FICO scores to bring each applicant’s sense of fiscal responsibility into sharper focus.

But first, let’s examine the CAN Capital connection. Four or five members of LendingPoint’s top management team came to the company after lengthy tenures at CAN Capital, a LendingPoint official says. That includes Tom Burnside, LendingPoint’s CEO and founder, and Franck Fatras, the company’s president and chief operating officer. Both worked 13 years for CAN Capital, with Burnside leaving as chief operating officer and Fatras departing as chief technology officer, according to biographies posted online.

All told, about 30 of LendingPoint’s 100 or so employees – a total that includes outsourced positions – formerly labored at CAN Capital, according to Fatras. Many put in considerable time at CAN Capital, holding jobs there in management, corporate governance, legal affairs, risk, sales, operations, IT, marketing, analytics, design, customer service, partner success and success delivery, online reports say.

Geography no doubt encourages CAN Capital employees to consider LendingPoint when it’s time to move on to another job. Both companies maintain headquarters in office parks in the Atlanta suburb of Kennesaw. In fact, the two companies operate half a mile apart, both of them just off of Cobb Place Boulevard Northwest, according to Google Maps and Directions.

The way Fatras tells it, LendingPoint hasn’t raided CAN Capital’s workforce. “We post the job, and they end up responding,” he says. “When they’re known quantities and people we have a lot of respect for, we just end up making it work.”

Moreover, LendingPoint’s connections with other companies don’t begin or end with CAN Capital. Some of the people in top management met when they worked at First Data Corp. and Western Union, Fatras recalls. Juan E. Tavares, co-founder and chief strategy officer, and Victor J. Pacheco, chief product officer, came from those relationships, he says.

Regardless of where they became acquainted, Lendingpoint’s leadership team has come together to form a direct balance-sheet consumer lender specializing in what they call a “near prime” clientele. The company defines the phrase “near prime” to include personal-loan applicants with FICO scores from 600 to 700, Fatras says, adding that the segment’s not sub-prime and not prime. The company has even trademarked “NEARPRIME” as a single word in capital letters, and it appears that way on the company website. It regards those consumers as “deserving yet underserved,” Fatras notes.

To qualify those applicants for credit, LendingPoint considers “behavior,” such as work history, education, and timeliness with paying rent, utility bills and cell phone bills, Fatras says. “A lot of what we do is identify patterns,” he says. “It’s all about asking the right questions.” The process requires tapping into multiple sources to collect the data, he observes.

In a blog published online soon after LendingPoint was launched, executives Burnside and Tavares claim that most credit models search for ways to say no to applicants, while their company uses big data to find ways of saying yes. LendingPoint algorithms predict risk with great precision, they say.

In a newspaper opinion piece that ran about the same time, Burnside and Tavares maintain that their model examines cycles in an applicant’s life to pinpoint upward and downward trends. A consumer on the way up deserves a loan, according to the theory.

The company’s willingness to study information that resides outside credit scores did not originate with the CAN Capital connection, Fatras says. “The model is unique and the data structure we are using is unique,” he says. “It’s all about understanding the credit story of the person.”

Latin American lending practices had some influence on LendingPoint, Burnside and Tavares write in one of their editorial pieces. Lenders there review factors other than credit scores because the scores aren’t readily available in some countries, they write.

To analyze that type of non-FICO information, LendingPoint has developed its own internal scoring model and then automated the process, spending a lot of time to develop the technology, Fatras continues. Once again, asking the right questions determines the meaning that the company can extract from the data, he emphasizes. Otherwise, the information’s just not that beneficial, he says.

When consumers come to the LendingPoint website and answer five or six questions, they can receive a firm offer of credit in an average of seven seconds and sometimes as quickly as four seconds, Fatras maintains. The offers are contingent upon the company underwriting department’s validation of income and other figures, ne notes, adding that “we’re pretty happy with the infrastructure we’ve built.”

LendingPoint collects on the loans with automatic payments from customers’ savings or checking accounts twice a month, according to the company website. Deducting the payments twice a month helps customers with budgeting, the site says. Consumers can borrow up to $20,000 and pay it back in 24 to 48 months.

The system was devised by top management with combined experience of more than a century in credit and risk, Fatras says. When those executives with so much commercial lending experience gather around the conference table to talk about the business, the possibility of lending to small businesses occasionally comes up in the conversation.

But Fatras doubts the company will make that move to the commercial side anytime soon because companies in the alternative small-business finance industry are competing for 5 million to 6 million potential customers while the country has 50 million near-prime consumers. “The space is so big where we are,” he says. “The demand could be over a billion dollars a month. We have a lot of room in front of us for growth.”

With that seemingly infinite market, LendingPoint has been growing at a healthy pace, Fatras says. The company, which was self-funded for the first year, made its initial loan in January 2015. In 2016, it did $150 million in business, he notes. By the middle of this year, the company had made a total of $250 million in loans to 25,000 consumers, he says.

It’s a business model that members of the alternative small-business finance community might do well to emulate, Fatras suggests. “There could be a lot of cross-pollination,” between consumer and commercial loans when it comes to going beyond FICO, he says.

LendingPoint executives that were formerly at CAN Capital

Tom Burnside, CEO
formerly a COO and president at CAN

Franck Fatras, President and COO
formerly a CTO at CAN

Mark Lorimer, Chief Marketing Officer
formerly a CMO at CAN

Dave Switzer, Chief Analytics Officer
formerly a VP at CAN

Joe Valeo, EVP of Strategic Development
formerly an EVP at CAN

Blazing Trails in Unexplored Financial Markets

Once upon a time people with health insurance who were treated for medical emergencies, illnesses or chronic health conditions –an illness or accident requiring hospitalization, an appendectomy, or a hip replacement, say – could rest easy. Insurance underwriters like United Health, Wellpoint or Humana would surely handle most, if not all, of a patient’s medical expenses.

Today? Not so much. As healthcare becomes ever more pricey, employers are increasingly offering health insurance plans that are less generous and require consumers to pay higher deductibles. Individuals as well are finding that the same goes for them: The only way to afford health insurance is to purchase a plan with a high deductible.

“We’re at a tipping point where the cost of healthcare is outpacing GDP,” says Adam Tibbs, chief executive and co-founder of Parasail Health, a start-up alternative lender in the San Francisco Bay area. “As a result,” he adds, “the only way health insurance can work is either to raise (the cost of) premiums or opt for higher deductibles.”

Statistics confirm Tibbs’s assertion. As of last autumn, according to a September, 2016, survey by Kaiser Family Foundation, the average deductible for workers’ health insurance policies jumped to $1,478, up by more than 12% from $1,318 in 2015. The survey found, moreover, that – for the first time — slightly more than half of all covered workers have deductibles of at least $1,000. At smaller companies, the average deductible is now more than $2,000.

Parasail, a Sausalito-based alternative lender which opened its doors last September, is angling to fill that void. Funded with seed capital raised from four venture capital firms — Healthy Ventures, Montage Ventures, Peter Thiel, and Tiller Partners, reports online data-publisher Crunchbase – Parasail acts as a go-between, connecting the medical practitioners to third-party lenders.

In partnering with doctors, hospitals, and medical clinics, Parasail employs a business model that resembles an auto dealership. After the customers picks out a four-door sedan or a sport utility vehicle, he or she drives it home thanks to a five-year, monthly-payment plan from, say, Capital One.

Similarly, after agreeing to a costly medical procedure, the patient can strike an arrangement with a medical provider’s billing department for on-the-spot financing. Once the deductible is covered, the patient is cleared to glide into the operating room.

Despite being open for less than a year, Tibbs says, Parasail has enlisted as partners some 2,500 medical practitioners with unpaid patient debt of roughly $4 billion. The typical loan averages $6,000. “Our goal,” remarks Parasails marketing vice-president, Dave Matli, “is to create a normal retail experience” so that financing medical debts is as seamless as swiping a credit card.

Meanwhile, industry experts say that Parasail represents a new breed in the financial technology sector. As online alternative lending and the broader fintech industry grow more established, institutional investors and financiers are increasingly wagering bets on companies that promise more than disruptive technologies or cheaper loans.

Increasingly, they are hunting for companies like Parasail that are introducing new products or blazing trails in unexplored markets. “The area that I find most interesting,” says Phin Upham, a venture capitalist and board member at Parasail, is investing in companies that “are developing products that didn’t exist before, serving people who haven’t been served, and playing a unique role incentivizing long-term behaviors.” (Upham, who is a principal at Peter Thiel’s VC firm, emphasizes that he is speaking only for himself.)

Parasail’s fundraising and launch has taken place against a dramatic drop in both global and U.S. fintech financing, according to KPMG’s annual report on the industry, “The Pulse of Fintech.” The accounting firm reports that total funding for fintech companies and deal activity plummeted by more than 50% in the U.S. in 2016 to $12.8 billion from $27 billion the prior year. KPMG attributed much of the drop to “political and regulatory uncertainty, a decline in megadeals, and investor caution.”

The year “2016 brought reality back to the market” after the banner, record-shattering year of 2015, the report noted.

Venture capital financing in the U.S., however, did not slip as dramatically as overall funding, sliding some 30% to $4.6 billion from $6 billion in 2015. (Almost overlooked in the report was that corporate investment capital was “the most active in the past seven years,” KPMG’s report notes, representing 18 percent of venture fintech financing.)

Steve Krawciw, a New York-based fintech startup executive asserts that “the business has matured and, yes, there have been defaults, but the business model for fintech has stabilized.” The author of “Real-Time Risk: What Investors Should Know About FinTech, High-Frequency Trading, and Flash Crashes,” Krawciw expects more funding to stream into the industry as new players such as banks, insurance companies, hedge funds and private equity get involved. They’ll “go in a number of different directions,” he reckons, “especially direct lending by hedge funds and private equity firms.”

No figures have yet been released by KPMG for the first quarter of 2017, just ended in March, but fintech industry participants are mightily impressed at news of the $500 million financing for Social Finance Inc. (SoFi). Best known for its refinancing of student loans, the San Francisco firm reported on February 24 that it raised a half-billion dollars in a financing round led by private equity firm Silver Lake Partners. Other investors include SoftBank Group and GPI Capital, bringing SoFi’s total investment to $1.9 billion, the company said in a press release.

SoFi, which plans to use the funds to expand online lending into international markets and devise new financial products, is ambitiously transforming itself into an online financial emporium. Along with a suite of online wares that mimic traditional banking and financial products – savings accounts, life insurance policies and mutual funds – SoFi has also invented new online offerings.

For example, SoFi formed a partnership with secondary mortgage lender Fannie Mae and, together, the companies are enabling borrowers to refinance both mortgage and student debt. The SoFi financing, says Krawciw, “is not a seminal deal, it’s a sign of what’s coming.”

SoFi may also be providing a road map for fintech companies like Parasail. After building a customer base with health-care loans at 5.88% annual percent rate — compared with credit cards charging interest rates about four times as much – Parasail could be poised to sell additional products to its built-in audience.

Just as SoFi got big on refinancing student loans, Parasail could use healthcare lending as a springboard for future financial endeavors. Its revenues have been growing by 50% month-over-month.

By the first quarter of next year, Tibbs says, the firm will be breaking even.” And at that point, he adds, it expects to roll out a menu of new products too.