A Conversation with Sasha Orloff, Co-Founder and CEO, and Vijesh Iyer, General Manager and Head of Cards, LendUp
We recently sat down with two key executives at LendUp: Sasha Orloff, Co-Founder and CEO, and Vijesh Iyer, General Manager and Head of Cards. Our conversation touched on how expensive it is to have poor credit in America, how the alternative lending industry can become more resilient, and why LendUp sees credit cards as a key product for its future.
LendUp is a five-year-old alternative lender focused on expanding access to safe, transparent credit for millions of underserved Americans. LendUp is backed by over $250 million of equity and debt capital from notable venture capital and social impact investors.
LendUp offers a variety of credit products including single-payment loans, installment loans, and credit cards. Their products are designed to promote responsible financial behavior through embedded education, incentives for good behavior, and friendly customer service. Its core concept is the LendUp Ladder, which enables consumers access to credit-reporting – and potentially credit building – products when available by developing a history of successful repayment with the company.
Sasha Orloff co-founded LendUp in 2011 after working in finance for several years at Citigroup, The Grameen Foundation, and The World Bank. Vijesh Iyer joined the company in 2015 with fifteen years of experience at Capital One and PayPal.
1. What was your motivation for starting LendUp?
Sasha: We started LendUp to provide anyone with a path to better financial health. We knew that millions of Americans were locked out of mainstream financial products because of poor credit. When we looked closer, we learned just how big and costly of a problem this was. According to the Corporation for Economic Development and the Credit Builders Alliance, a full 56% of Americans have “subprime” credit scores which cause financial services to cost them an average of $250,000 more over the course of their life. It turns out that your credit score is one of the most important assets in your life.
A low score results in higher fees on credit and insurance, can cut off access to credit entirely, or even prevent you from getting a better job or a better apartment. Unfortunately, having—or keeping—a good credit score got a lot more challenging in 2008 and the biggest losers in this situation were working class Americans, many of whom struggle with low income and income volatility. We wanted to help solve this problem by creating products designed specifically for them with a few key features:
- Simple and easy to understand with no hidden fees or “gotchas”
- Fast, so they could get back to their families, or work a few more hours at their job
- Education embedded directly into the product to teach good financial habits
- Rewarding – by setting people with responsible behavior on a path to lower fees
- Designed to help establish or improve credit scores wherever possible and responsible and improve long-term financial health
We combined a diverse group of professionals from major banks, venerable Silicon Valley technology companies, consumer advocates, regulators, academics, compliance professionals, and lawyers to advance this mission. And we have raised hundreds of millions of dollars from prominent venture investors like Google Ventures, Kleiner Perkins, and Y Combinator, and some of the most influential impact investors like Kapor Capital, Bronze Investments, and Radicle Impact.
2. 2016 was a tough year for alternative lending, even though the economy remains strong. What did new lenders get wrong? How can they build stability to survive through the next credit cycle?
Sasha: Private lenders originated more personal loans than banks in 2015 and, even with some stumbles earlier this year, they will still surpass banks in 2016 too. However, the model of marketplace lending traded one risk for another. While the model minimized the credit loss risk for platforms pretty nicely, it created more capital market risk in terms of reliable access to capital. One issue is the challenge of adjusting a credit policy relied upon by thousands of individual investors when the economy adjusts. But the economy changes and so should credit modeling. That’s the responsible thing to do.
We’re seeing the larger platforms and balance sheet lenders really start to boost their investor relations to better explain the need for flexibility while also building up their credit departments with more experienced talent to prepare for when the economy changes. I expect more prepared firms will survive and the others will collapse. That’s probably a good thing for the industry and consumers in the long run.
3. U.S. consumer lending is a large but rather mature industry. Where does LendUp see opportunities?
Vijesh: We think there are a number of opportunities within the financial services market to leverage technology to provide better products and services to consumers, and we see a number of players doing so successfully.
LendUp’s mission is to provide anyone with a path to better financial health. Since the Great Recession, the supply of credit to customers with low credit scores has shrunk tremendously while demand for credit has only increased. This creates a huge market opportunity – and an opportunity for social good.
Our current focus is on addressing the needs of the large majority of U.S. consumers who are underserved by the financial system. We embarked on this journey a few years ago with the LendUp Ladder to cater to the small-dollar needs of the least well-served customers. And now, we intend to apply the same principles to the credit card market, including a mobile-first credit card that can address the needs of a much greater proportion of underserved customers on a national basis.
4. What makes The L Card unique relative to alternative lenders and other new cards targeting the underserved?
Vijesh: Our mission serves as a guide to all our product offerings. We think there’s an opportunity to reimagine the credit card for underserved customers in a mobile-first world.
Banks can offer credit cards, but in our model, the access to credit is only the beginning – and that’s our differentiator. Ours are designed to give each customer an opportunity to gain access to more credit at lower rates based on their actions. Over time, our products put customers in control of their own card terms – APR, annual fee, and credit line. We can do this by leveraging the latest technical tools and capabilities available today such as the rich capabilities of mobile apps, advanced data science techniques, design thinking and more.
5. Both of you have worked inside large financial institutions and fintech startups. We are sure each type of company has had its strengths and weaknesses. Across these experiences, what are the key factors to create and maintain a culture of innovation?
Vijesh: Regardless of the size of the company, you need a mindset of excellence where folks are striving to continuously improve every aspect of the business. Businesses need to create a culture that rewards experimentation and risk-taking. Trying new things should be encouraged, and failures need to be viewed as a learning opportunity.
We do many things at LendUp to foster a culture of innovation. One example is that we run an internal version of Y Combinator, the startup accelerator which LendUp went through. Employee teams can create internal startup projects which they work on over a focused period and then compete for funding. The best ideas can become new products for us.
6. What are the opportunities for banks these days to partner with fintech companies?
Sasha: We think there’s a great opportunity for banks and financial technology companies to partner. Banks have a lot of advantages: low cost deposits, a customer base, – and a long standing trust with their regulators. From our conversations with dozens of community banks and larger institutions, we learned one of the things almost every bank struggles with is new technology, especially when it comes to mobile and digital product experiences, and credit underwriting that addresses an increasingly complex world and its customers. These are places where “fintech” companies excel and both parties can benefit from partnerships.
Vijesh: In the case of LendUp Card Services, we can help banks offer transparent, consumer-friendly products that solve the unique challenges of low income and working class communities. We can do this in partnership with our card processor, FIS, who is trusted by thousands of card programs across the country. So we think we have the magic formula: banks get the compliance confidence of FIS powering the core platform, consumers get the transparency of an experience right on their computer or mobile phone, and we both get a tremendous revenue opportunity by having a product that’s relevant nationwide and designed for our rapidly changing communities.
Sasha: Our goal is to help make banking more resilient and relevant to their communities, and to our communities. We think we can play an important role by combining LendUp’s technology and product expertise with the trust of a core processor like FIS and the compliance and local expertise of our partner banks.
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