Really terrific piece by @AntoineGara - I have been in so many conversations with VCs over the past 5 years that get excited about the growth of an online lender w/o really understanding how to balance growth v. performance v. profitability.
I remember being asked to join a dinner w/ the founders of a hot lending platform and the VC that led their most recent round - just to swap notes. I probed on unit economics w/ the founders and pretty quickly we got to the breakeven AuM required for the platform: $10b in loans.
The VC looked crushed- somehow hadn't realized how bad the economics were.
Company ended up being an acquihire.
Company ended up being an acquihire.
The classic statement I hear about most fintech lending platforms- even to this day- is "They pull in a lot of alternative data to analyze the loans. Helps them underwrite more effectively than offline lenders."
Then a bunch of standard examples. The most repeated ones are:
Then a bunch of standard examples. The most repeated ones are:
-if user maxes out how much they want to borrow, they are worse credit!
-if user hesitates too long on the slider to decide how much they want to borrow- they are worse credit!
-if the user comes in from Yahoo instead of Google, they are worse credit!
and on and on and on....
-if user hesitates too long on the slider to decide how much they want to borrow- they are worse credit!
-if the user comes in from Yahoo instead of Google, they are worse credit!
and on and on and on....
But in almost every single case- the "hundreds" or "thousands" of data pts the fintech lender pts to end up really coming down to just FICO score and other similar data pts that any offline lender uses.
Meaning the concept that most online lenders have data that actually helps underwrite more effectively - is a joke.
