[Editor’s note: This is a blog post from Patrick Freeman, head of partnerships at Credibly. Credibly is a Bronze Sponsor at LendIt USA 2017 which will take place on March 6-7, 2017 in New York City.]
Generation 1.0 of FinTech started in the early 2000s, when some of the early pioneers of the space were creating an underwriting methodology and supporting Technology for small business lending that didn’t rely upon traditional metrics like FICO scores, collateral, tax returns, and financial statements, and were able to provide loan sizes below half a million dollars cost-effectively.
Generation 2.0 came about in the late 2000s to mid 2010s, where the Technology was focused on creating marketplaces for the democratization of capital, where lenders — be they retail lenders or institutional lenders — could find borrowers in an efficient way, and borrowers could enjoy a better user experience in accessing capital.
In many ways, we think about Credibly as a Generation 3.0 FinTech platform. Generation 3.0 Technology platforms are not so much about the Technology itself. And perhaps the term “FinTech” needs to be refreshed, because these days, the Technology is table stakes. The Technology should really be focused on bringing Data Science to life.
How Data Science Empowers FinTech Partnerships
Data Science should transcend the critical role of risk management and underwriting and should be applied to every stage of a lender’s workflow starting with customer prospecting, through customer acquisition, through workflow automation and efficiency, through risk and underwriting, and finally early warning and asset management. Further, that Data Science solutions should be able to deliver capital to all small businesses, regardless of credit profile or life cycle stage.
This leveraging of Data Science not only creates a better user experience for borrowers, but also creates a highly efficient means by which that Technology can be delivered to Partners who operate within their own small business ecosystems. Those Partners could be traditional lenders, as well as platforms that provide services to small businesses on a large scale.
In terms of its Technology and Data Science, Credibly was designed to deliver on that promise: to have a product and a price for every small business, and to be able to go to market not only as Credibly, but also as a Partner powered by Credibly, or even offering our Partners a white-label solution.
What we’re seeing across the lending industry at large is a much more developed understanding and appreciation for what FinTech platforms are really good at, and what traditional lenders are really good at, and seeing where those two compliment each other. So let’s talk about what each of those parties are particularly good at.
The Complimentary Strengths of FinTech and Traditional Lenders
FinTech platforms are particularly good at delivering a solid user experience for the borrower, and measuring risk for borrowers across the entire credit spectrum. They’re particularly good at identifying, testing, and deploying new data streams to make that user experience and risk-management capability more effective and more efficient, and underwriting loans far more quickly, cost-effectively, and efficiently.
What traditional lenders and others in the small business ecosystem bring are existing relationships with small businesses, and therefore a much more attractive, lower cost of customer acquisition, and in many cases a lower cost of funds. In addition, they bring a strong desire to engage with their small business customers, nurture those relationships, and build their customer base. When you match these three things up, it creates a very potent combination.
And now, with the exploration of such Partnerships well underway, and in light of some recent successes, we have moved from the question of if these Partnerships make sense and if we should pursue them, to when.
User Experience Is Not Enough
In Credibly’s earliest Partnership discussions with traditional lenders, the first areas of focus were around creating a better user experience for small business borrowers, who often times found themselves speaking to a loan officer in a branch or going to a very cluttered website only to find that the process for accessing capital was long, tedious, document-heavy, time-consuming, and typically resulted in a decline.
Now that we’ve evolved beyond that capability, our goals and our Partners’ goals have evolved. We’ve gone beyond simply providing a better user experience for the borrower to delivering solutions that also empower our Partners to create better user experiences for their data-entry and underwriting teams, integrate with their CRM, and facilitate the ability to track and report on progress along the way – which, in turn, allows our Partners to underwrite small business loans below half a million dollars far more quickly and efficiently at a significantly lower cost basis, and gives them access to a broader set of products and payment features.
Credibly being developed as a Generation 3.0 platform also means that our Technology and Data Science can act as an extension of our Partners’ own capabilities. We can effectively make our Technology and Data Science available as an outsourced R&D function for our Partners, when the cost and the flexibility of developing that R&D function in-house is often prohibitive. In addition, we’re sharing back what we learn with each Partner in a way that empowers them to refine their own capabilities and better understand who their borrowers are.
Lastly, Credibly’s approach to customer and user experience allows us to solve another pain point that our bank Partners have presented us with, which is how they can engage with their own small business Partners in a way that is contextualized and nurturing. One example of that is the Credibly Small Business Health Report that we make available for our Partners to deliver to their small business customers, which assesses their viability as borrowers and presents strategies for lowering their cost of borrowing.
The unique value of being a Generation 3.0 FinTech provider means that lenders like Credibly have moved past simply focusing on improving the borrower/user experience, to improving the user experience within our Partner infrastructure, lowering their costs to originate and service a small business loan, and expanding their product offering.
For small business borrowers, this means that accessing affordable and right-sized capital will become easier than ever in the coming years. Without the foundation that the FinTech industry has built in terms of honing our Data Science capabilities and pursuing Partnerships with traditional lenders, that wouldn’t be possible.