Claude Lawrence
Claude Lawrence is the Director of Insights, Payments & Lending at Mintel. His areas of focus include credit cards, unsecured lending and banking.

LendIt Fintech 2018 wrapped up earlier this month in San Francisco. Keynotes and general sessions touched on multiple topics in lending, credit cards, banking, and fintech. The main themes of the conference were that there is a better way to extend credit than the traditional credit card and lenders and financial institutions (FIs) need to better serve customers. Here Mintel’s Claude Lawrence, Director of Insights, Payments & Lending, shares conference highlights.

Addressing the US financial crisis

Scott Sanborn, LendingClub CEO, led the keynotes with a discussion on financial health. Sanborn shared that while prices, rents, and costs of education and healthcare have steadily increased over the past few decades, average household income is only up 1%.  This has had debilitating effect on savings, therefore limiting American’s ability to handle financial shocks. Many consumers are turning to debt, particularly credit cards, to attempt to smooth their cash flow which has led to unsustainable credit card debt levels in the US, totaling $1trillion in 2017.  LendingClub found that 45% of Americans spend up to half of their take home income servicing debt. Debt is also affecting consumer health—with 43% of Americans saying financial issues have caused them significant stress. Sanborn quoted a recent University of Colorado Denver study that showed a direct link between financial strain and increased mortality.  A few examples included that a sudden financial shock can increase a person’s mortality risk by 50%, and alternatively, a 100 point increase in FICO score leading to a 5% decrease in mortality rates.

Sanborn challenged the participants at the conference to do three things to address this financial crisis. He challenged lenders to say “yes” to more borrowers, and do better than judging consumers on FICO—a metric created to protect creditors, not consumers. He also asked regulators to allow more innovation, and for greater data sharing among financial institutions (FIs). He also challenged FIs to better align their success metrics with the success of their customers. That many lenders actually make more money when their borrowers are doing worse is not a good model. Lenders should work to help move borrowers into products in which they are doing better which will help keep customers engaged and happy. In that vein, Sanborn announced LendingClub’s “Direct Payment” feature which offers a lower loan APR if the borrower lets LendingClub pay off the borrower’s credit cards directly, thus encouraging the best intended use of the installment loan and rewarding the customer for allowing them to make a better decision.

Embracing product innovation

During his keynote Quicken Loans CEO Jay Farner talked about product innovation and how Quicken quickly grew to become one of America’s top loan originators. Farner provided a practical take on fintech innovation, saying that true innovation isn’t when a process is sped up or made better, true innovation is when a process can be eliminated or consolidated. Rocket Mortgage, Quicken’s digital focused mortgage product that mostly attracts the coveted first time homebuyer, took this approach in development. The Rocket team realized that potential homebuyers who could afford a home were delaying purchase because of the friction in the mortgage process. Farner said that going forward, he wants the process to get even more streamlined—“Theres no reason why a mortage shouldn’t close in 10 days. A personal loan should close in one.”

In a session on blockchain, Ripple Executive Chairman and co-founder Chris Larsen used the shipping container as an analogy for the new and still mysterious technology. The shipping container is simple, relatively cheap, and internationally accepted and used. It played a critical role in the rise of globalized trade in the 20th century. Blockchain seeks to do the same for currency, make its movement between individuals, business and countries seamless and cheap.

Max Levchin, CEO of Affirm, stayed true to his reputation of biting critique of incumbents. “Credit cards are like power tools and the manual is in six point font on the back of your card statement.” Levchin said we shouldn’t be surprised that with fees, variable pricing, minimum payments, all hidden behind rewards and perks, that credit card debt has reached $1 trillion in the U.S. “Swiping, tapping and stabbing your card is cool (referring to the mobile pay advancements in card). We need to get to where after you make a purchase, your card says ‘hey, lets put that large purchase on a fixed rate installment to save you money.’”

Anthony Noto, SoFi’s new CEO, shared that the firm reached 500k members. On its road plan for the next 500k includes focusing on the community aspect and expanding its product offering.  SoFi is working on a financial services productivity loop.  “We are going to market to a college senior a SoFi credit card with a cash advance that’s forgivable if they set up direct deposit into our new checking account at their first job.”

In a session on small business lending, representatives from Kabbage said the firm is starting to use shipping and fuel data to help underwrite businesses for loans. The online lender for small businesses also acknowledged something often overlooked in online lending – the opportunity for a discussion. Relating that small businesses, as opposed to consumers, often welcome a discussion on their business needs when looking for debt, and that lenders should make sure the application and disbursement is frictionless, but build in time for conversation.

Noteworthy announcements

  • Marcus is now offering 1.6% APY on its savings account. It reached $3B in loans and $20B in savings deposits in 2017. The brand is looking to expand into credit cards and mass consumer wealth management. Marcus also revealed the brands new marketing tagline, “Don’t Get Fee’d,” stressing the no fee components of its lending and savings products.
  • SoFi is launching a high yield checking account. A credit card is also on the way.
  • Best Egg crossed $5B in originations and Cross River crossed $10B. Feats achieved in four and 10 years, respectively.
  • Upgrade announced a new product that will allow a borrower to split a borrowed amount into one lump sum, and then an easily accessed fixed rate credit line. The credit line portion will only be charged on the amount used.
  • TransUnion launched the Startup Credit Kit, offering non-personalized credit data to entrepreneurs to help build new products.
  • Best Egg announced a partnership with Invoice2go allowing small business owners to make point of sale financing available to customers, particularly in the home improvement and construction space.
  • Loan servicer Nelnet announced loan servicing products for fintech and marketplace lenders, a nod to the maturity of the online only lending model.