James Gutierrez is one of the more interesting people I have
come across in this industry. He has already started one
alternative lender, Progreso Financiero (now
Oportun) focused on the Latino market and now he is
looking to expand lending across a much broader cross section of
this country.
James, my guest on Episode 50 of the podcast, is the CEO and
co-founder of
Insikt, a leading edge Bay Area company that is
innovating on both sides of the lending marketplace. He coined the
term, Lending-as-a-service and his vision is to make lending
accessible to all companies in a seamless way. He is also
introducing brand new products and tools for investors.
In this podcast you will learn:
The fascinating story of Progreso Financiero, now Oportun, the
previous company James founded.
How Insikt was born after Progreso and what it does.
What Lending-as-a-service means and how Insikt is enabling
it.
The kinds of borrowers who Insikt is looking to serve
in the Lending-as-service model.
The number of clients who are currently signed up for their
Lending-as-a-service.
The a la carte options that brands can choose from.
Who is funding the loans originated by Insikt.
Why they believe that investors should buy pools of loans in a
securitization-type product.
Details of the Prosper and Lending Club loans that Insikt is
offering to investors.
How their pooled investments act like bonds.
Their vision to make securitization an every day product.
Details of the senior, mezzanine and equity tranches they
offer.
Explanation of their MyCRO (My Chief Rick Officer) and MyCIO
(My Chief Investment Officer) products.
Why James thinks that non-bank lenders are going to rule the
day in the long run.
How banks will participate in Lending-as-a-Service.
What Insikt means and why he chose this name for his
company.
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PODCAST TRANSCRIPTION SESSION 50: JAMES GUTIERREZ
Welcome to the Lend Academy Podcast, Episode No. 50. This is
your host, Peter Renton, Founder of Lend Academy.
(music)
Peter Renton: Today on the show, we have someone
who’s a little bit different. James Gutierrez is the CEO and
Co-Founder of Insikt, that is I N S I K T, but it’s a Swedish word
which he gets to at the end of the show and why his company is
named that way. Anyway, he has created a company that is pushing
the envelope in many different areas. He coined the term “Lending
as a Service,” and he’s really put a stake in the ground saying
this is really going to be the future of marketplace lending and he
is going out and helping to create that future. But he’s not just
lending as a service, he’s got a whole bunch of offerings for
investors, he does some unique things with Lending Club and Prosper
loans which we’re going to get into. He also has a whole bunch of
research and analytics tools for investors. So we talk about all of
that and more. I think it’s a fascinating company and I hope you
enjoy the show.
Welcome to the podcast, James.
James Gutierrez: Thank you, Peter, I’m very happy
to participate.
Peter: Okay, so let’s get started. I mean, you’ve
got a bit of a different background to many of the people that I
speak with. This is…you’ve been around this industry longer than
most, you’ve got a successful company under your belt that I think
is either about to IPO or has, I can’t remember where it’s at, but,
anyway, why don’t you share a bit of the background about yourself,
what you have done before Insikt.
James: Sure, thanks, Peter. You know I grew up in
Southern California, Latino family neighborhood and my parents
always stressed the importance of giving back to the community.
When I was younger, I witnessed a lot of family members and people
in the community who were very hardworking, but they didn’t really
get a fair shake by either the kind of system we have in the US,
the division of, do we still have the American dream and is it
available to all?
I think it has been a bit challenged and particularly when you
see people working three/four jobs, care about the American dream,
providing for their family and I felt like there’s some level of
social injustice there unless that gets fixed. So I went on and
went to…I was undergrad at Yale, went to Stanford for business
school. When I was at Stanford, I started thinking about this a lot
and I felt…hey, I want to start a company that solves this problem
and gives opportunity more broadly and access to opportunity to
people in America.
I then read a book by Muhammad Yunus and how he had built this
innovative micro lending model in Bangladesh and that spread to
other countries and I was inspired by that and thought, you know,
I’d love to figure out if we could bring that to the US and also
how to solve this unbanked problem because when I thought about
access to opportunity, it matched up directly to access to
capital.
You know, if people in our communities, in this case the
Hispanic community, has more access to capital, we have a better
opportunity to build wealth and move up the ladder and get the
American dream. So that meant a lot to me and it was very personal
and I thought about Jose, and Maria, who in this country as they
did more research, found that if you don’t have a credit score, you
really don’t have a face. I thought not only…can we figure out
access to capital, but we’re also really giving people a financial
identity in the US if we could figure out how to help them build
credit.
So I formed a research project when I was in business school and
that project ended up turning into a company I founded called
Progreso Financiero. So my background is…ten years ago, I had no
experience in consumer banking or lending, but I embarked on
starting Progreso and that was…really what got me into this whole
space so now I’m the CEO and Founder of Insikt, but that’s a bit
about my background and how I got into it.
Peter: Okay, so let’s just talk a little bit about
Progreso Financiero before we move on. Can you just talk about…like
you said, you didn’t really have any experience in consumer lending
and here you’re lending to people that most financial services
companies would think are a highly risky population. How did you
approach that and what did you do that others wouldn’t or couldn’t
do?
James: Sure, yeah, you’re right, that’s the number
one challenge we’re facing. As I did research in business school, I
figured out that there’s a data problem here, there’s a lot of
people in America that are part of this credit invisible where they
just don’t have a credit score or they don’t have sufficient data
in the credit bureau and so the challenge is it feels risky, can
you really underwrite them, are they really going to be good
credit? Going into it, I felt that our community, the Latino
community…while they may not have formal credit history, they have
what I used to call a lot of high moral collateral, they did not
have formal collateral, but they had moral collateral so how could
we figure out how to draw out information about them that would
prove that they would be good credit.
So when I graduated the first thing I did was I said, okay, I
need to go test that people actually need credit. There was a lot
of data about the unbanked, but there wasn’t really data about
providing a credit product being the solution to solving the
unbanked so I told the professor…hey, I just want to set up a booth
inside a Latino supermarket, flip open a laptop, put up a Progreso
banner and start taking applications and seeing if people need
credit so I did that.
The first store was a small supermarket in San Jose called Super
Mercado Mexico and we set up a booth and you can imagine Mexican
music playing and lots of families coming in, a lot of
people…ex-MBA sitting with a laptop there in front of the cash
registers. For a few days nobody applied, everybody kind of looked
at me like what’s this guy doing and then over time I had the
actual teller, the woman who worked at the cash register kind of
felt sorry for us and so she said…what are you doing and I’ll
apply.
Once she applied then we started having a lot more people come
to us. What we found out very soon as we did this really
long…imagine an eHarmony-like application, but for credit, for a
small loan, for like a thousand dollar loan and we came up with a
very simple structure. If I could explain the loan to someone who
didn’t have a lot of financial education, but it made dollars and
cents for them…it made sense from a dollar and cents perspective
for them then that was a win.
So we came up with…hey if I lend you a thousand dollars and you
can make a payment of $60 every two weeks and you could do that for
ten months, you could afford $60 and we’d ask people…can you afford
a $60 payment? They say, yes, I can do that. If you can do that, I
can lend you a thousand and after ten months you’ll pay me back
$1,200. That’s 20 payments x $60 = $1,200 and I would say, so if we
lend you $1,000, you’ll pay us back $1,200, what’s your cost? Then
they would look at me and say…that’s $200 and I’d say, you’re
right. So $200, that’s how it works, we lend you $1,000, pay us
back $1,200, it’s very simple and that was really the key to our
success is making the product extremely simple.
I would then explain the loan had a 36% APR and initially
customers kind of…their heads would jolt a little and say, well is
it still $200? and I say, yes, still $200 cost. What we learned
there was that in this market people really cared about the dollar
cost of their loan and APRs were important, but they knew that
getting a price of $200 to borrow $1,000 spread over ten months was
a really good deal.
Peter: Right.
James: And I was able to break down that,
look…they knew there were other forms of credit that cost them 400%
or much higher cost and they also cared that they could build a
credit history. So we had a lot of people apply who said…I just
want to build credit and that’s why I’m here. I don’t actually have
a need for $1,000 yet, but I want to build credit because I know
it’s important. So that’s kind of how we got started and to answer
your question about the scoring and underwriting, like I said we
asked this eHarmony questionnaire just because we didn’t know which
questions would ultimately stick and which answers that would be
predictive down the road and so we did that.
I kind of lead that process in the beginning and then I knew
that one day we would have enough funding and we’d be big enough
where we can hire some ex-CapOne type folks to come in from the
credit card industry and make sense of all this data and build much
more of an automated big data type algorithms to how we underwrote.
But in the beginning it was very basic, it was all about can you
afford the loan, do you have enough income relative to your
expenses and let me ask you 30 minutes of questions. That really
was our R&D for what ultimately became a more robust model on
how to score people.
Peter: Fascinating, that’s an interesting way to
get started. So just to close the loop on that…Progreso rebranded
to Oportun and have they gone public yet or they’re about to go
public?
James: I don’t know, I’ve heard a lot of rumors.
There was a Wall Street Journal article. I’ve heard that they are
in registration, but that’s all that I’ve heard. I don’t have any
other inside knowledge, but I’ve heard in the street..I know that
the company has been successful. When I left it was several tens of
millions of revenue and I know it’s now in the hundreds of
millions. I’m proud of what we built, I had no experience in
consumer lending, but seven years I was the CEO and built it up to
a very large business.
I think when I left we were close to 200,000 active borrowers.
We originate like 20,000 loans a month so we had a pretty big book
of business. I’m very proud, we changed a lot of lives, transformed
a lot of lives and Oportun as it’s now called has a great heritage
in history and we were able to hire some of the best and brightest
people to help us build that early success which now they’ve been
able to scale it even further.
Peter: Right, so let’s just move on now to Insikt.
You started this after Oportun. Just tell us exactly…well, firstly,
why you decided to start it and what is Insikt exactly, what does
it do?
James:Sure, so why I started…so when I left
Progreso, I thought, you know…when I started Progreso, as I
mentioned, I knew that there’s this big gap in terms of opportunity
in credit in America and I specifically applied that to my
community, the Latino community I grew up in. I wanted to make a
difference there, but as I was building Progreso I realized…and
really after I left that with the onset of all the regulation in
the banking community, the market just got a lot bigger.
Basically, the number of people who in this country would have a
hard time getting credit from a bank just quadrupled because Dodd
Frank, the Credit Card Act, all the ensuing regulation just made it
a lot harder, whether that was mortgage, consumer credit, unsecured
personal loans…just made it a lot harder for banks and all the
capital requirements to be able to lend specifically if you’re
talking about everyday Americans, hardworking folks who may not
have the best credit histories or may not have any credit history
coming out of the crisis they are going to have a really hard time.
So I thought, hey, I really care about helping every one, not just
the Latino community, but expanding this to everyone and this is
just a bigger opportunity and it’s a bigger need, but how do we go
about building something like that that scales a lot faster than
what I had done before and with a lot less cost, how can we use
more of a technology approach to the future.
That’s how Insikt was born so Insikt was born out of kind of a
realization I had. Because banks are going to have a hard time
providing this credit and this capital, I think big brands in
America are going to step forward and say, you know what, this is
my customer, I care about them, I want them to have a great
experience and they have a need and I’m going to step in and try
and fill that need. That need is credit and so I believe that, hey,
the transformation that we’re going to see is that brands are going
to start being the lenders of tomorrow and not banks. So I thought,
how do we build the technology that can help power that
transformation and really that is what Insikt is about.
So at it’s core, Insikt is a…we provide a white label loan
origination platform, we call it “Lending as a Service” that brands
can use so we can help them make loans to their customers. The
other side of Insikt is I also think that there’s millions of
people in America who want to be part of…who are principled
investors that want to be part of helping this problem in America
so they want to be part of getting capital out to communities who
need it the most so how can we create an investing product for
them, that’s an everyday product, and open that up for them to
invest in. So those are the two sides of what we’re doing at
Insikt. We’re enabling brands to be the lenders of tomorrow through
this “Lending as a Service” approach in technology and we’re also
allowing more people in America to be able to invest in those loans
made to those promising individuals that we give loans to using
kind of a securitization model.
Peter: Right, right, okay, so let’s just talk a
bit about that “Lending as a Service.” You’re the one that really
coined that term, it’s been used quite a bit this year and there
are many people, myself included, who think that this really is the
way of the future, particularly when it comes to brands or even
smaller banks, what have you. Can you just describe and I know you
talked a little bit about it, but just go into a little bit more
detail with…if I am a major brand and I want to… maybe you can
provide an example…if I’m a major brand…why should I go to you
instead of maybe partnering with like a Lending Club or a
Prosper…those companies obviously have all sorts of different
partnerships, why go through you and really have this white label
solution? What advantages does it give?
James: So number one, on the “Lending as a
Service” model, I think it’s powerful because companies…they
already have customers, they have data on those customers and they
want to try and use both of those to open up credit, but they want
to do it in a way that keeps their brand intact and it’s clear that
they’re offering it to the customer and it’s just powered by
someone else. So, I think that’s the first thing we do.
Our program is fully white label, meaning that when the
customer…it’s meant so there’s no brand conflict so when the
customer interacts with that partner, that partner doesn’t have any
risk of losing that customer and they know that they’re building
loyalty and brand identity with that customer for all of their
products, this being the new product, but they’re really thinking
about if it’s a consumer brand, lifetime value and loyalty and
retention. So we’re very focused on making sure we’re powering the
brands that already exist and we want them to be more successful
with their existing customers.
The second thing that I think makes us different is who we focus
on. I think that…since you mentioned them, Prosper and Lending
Club, I think they’re great models, very innovative companies and
they’ve stuck out a focus on the prime/super prime segments in
America, I think they’re good at what they do. We have a specialty
that’s really working with brands that know that their customers
are harder to approve and they know that banks have a harder time
approving them. They know that some of the leading lenders in the
country will have a harder time approving them because they are
customers who don’t have as much credit history or have poor credit
and so they need to find a partner that can still prove they’re a
customer, but also give them a noble product. So I think they’re
also quite keen on making sure that the end product that the
customers get is one that’s empowering, that’s noble, that reports
credit, that meets a lot of the new standards that are being set on
lending and can make them feel like proud of what they’re giving
their customer.
Peter: Right, okay, no that makes sense, I get
that. Firstly, when did you really launch this or have you launched
it yet, do you have any clients as of today using your white label
service?
James: We do, we haven’t been as public about it.
As you know, Peter, but we have five partners, brands that are in
market. Our first partner we launched almost a year ago, we spent a
lot of time building technology because I think, you know, just to
add a third point of what makes it different is…I built a company
before that was a consumer brand and you’re very focused on
supporting everything around reinforcing that. When you have to
build a company that’s more of supporting someone else’s brand and
customer experience…I think the way you build the technology is
very different. The way you build your scoring, the way you build
kind of the whole company and so I think it would have been very
hard to have done this, at least speaking from my prior life, in
that context, so in that regard I think we’ve got something that’s
quite unique.
To answer your question, we have five partners that we are
currently powering. We have made thousands of loans, thousands of
credit applications have come through in a short period. We’re very
excited with the growth, we’ve been kind of uniquely focused on
making sure our partners are successful so we spend a lot of time
doing that. We probably, as you might be indicating, you should
spend a little bit more time talking about what we’re doing and who
our partners are because we certainly want to bring in more, but,
right now, we kind of focused on…hey, let’s build an initial
platform and let’s really listen to our initial brand and partners
and make sure that we’re building software technology and the
approach that works for them.
The nice thing is we always give them an a la carte menu so we
say, look, one of those things is we can be the licensed lender,
we’re the balance sheet, we’ll fund all the loans, we’re doing all
the technology and processing, we will hand all the payments so
there’s like this long list of a a la carte menu that they can have
and we always tell them…you can hit select all or you can kind of
go in and check off the things that you want to do.
So I think one other aspect that makes us different is it’s very
flexible. We found some partners who actually want to have more
equity or skin in the game in the program. They kind of want to
make it more JV-ish in how they structure it. We have the
flexibility to do that as well, we have the flexibility to take
things off the list if they, for example, want to fund the loans.
You know, I think, one thing that makes it different though is we
are willing to do the balance sheet and take all the risk and so
far when we offer that up, I don’t we’ve found anyone who has
objected as I think most brands don’t want to be in the balance
sheet business.
Peter: Yeah, right, that is understandable. So who
are funding the loans ultimately? Do you have a credit line, do you
have a bunch of investors you work with, who is on the other side
of this transaction?
James: Yeah so I was on a panel yesterday with
Aaron Vermut of Prosper and I think he said it appropriately…you
know, marketplace lending is really about how you fund your loans
and having more than one kind of provider and trying to build a
marketplace of investors. So to answer your question, we believe in
that and I think really what Prosper and Lending Club started is
tremendous innovation on how you have the law of large numbers and
kind of have multiple parties funding loans and you reduce risk by
having diversification.
The one thing that makes us different is instead of having
investors buy whole loans or invest in fractional interest of loans
from us, we think in the long run they’re going to have lower
volatility, outcomes, losses, higher certainty of certain coupons
and yields by structuring everything as a securitization so all the
loans that we make, we pool them together by partner and we
securitize those and then offer…we’re effectively then selling
bonds and having investors buy into those bonds. We still want a
marketplace of investors, we just think that the product they buy
at the end of the day is a bond and not the underlying loan.
By pooling loans you get more diversification, you take out the
kind of outliers, etc. And then they also get skin in the game as
we are investing at the bottom in the equity of all the pools that
are being securitized. They know that we’re aligned with their
outcomes. I think coming back into your specific question, so when
we make loans we do use credit lines. We have over a hundred
million of credit lines that we’ve secured from various parties and
when we think those loans have seasoned long enough and we feel
very comfortable about the direction of those loss rates, we then
securitize them to a marketplace of investors.
Peter:Right, I want to talk about that for a bit
because this is a pretty unique thing that you’re offering to the
community. You go on to your website and you have your Insikt
market where right now there’s a bunch of Prosper loans…they’re
pools, I guess, they’re not loans…pools of loans that have a
certain age and a certain coupon. Right now, it looks like you’re
only offering Prosper and Lending Club, at least publicly on your
website, so I guess…so let’s back up let’s just talk a little bit
about what you’re offering, who you’re trying to target when it
comes to investors. Are these individual accredited investors? Are
you trying to target funds? Particularly just start off with your
Prosper and Lending Club loans that you have on your site right
now.
James: So the idea is to make securitization done
the right way so what you’re seeing on our website is…I think
criticism of securitization of the last crisis is…some people
didn’t know what they were buying, they didn’t know what was…when
you book through the bond that you’re buying, what are all the
loans that are collateralizing that bond and what the quality of
those loans and how do they break out, how are they performing.
So just one thing on our website, as you’ve mentioned, if you
click on our “Market” page, if you click on any of those debt
securities and you click on those, you’ll get to all of the
underlying loans that are collateralizing that bond or trust
certificate and that, effectively, we think puts a lot of the
practices that were done before on its head and says…look, we
believe in a hundred percent transparency, trying to make this
simple, but giving people loan level data so that’s really
important to us.
In terms of Prosper and Lending Club and who we’re targeting…so
we’re targeting individual accredited investors, Peter, we also
realize that there are a lot of funds who are also interested so
it’s institutional and getting a portion of those 9 million
individual accredited investors across the country. The thinking
there is currently in the securitization market you have the same
hundred to two hundred buyers, they’re very large asset managers,
insurance companies and they always show up to buy into all
securitizations.
There’s really no distribution that’s been built or
established…tens of thousands of other investors in the country and
globally who are sitting in a similar position saying…look, I have
X% of my assets in cash and in treasuries and I’m earning nothing,
or I’m earning close to nothing, but I feel good about it because
I’ve got the security of knowing I’m not going to lose my principal
really, but is there anything else I can invest in that…I care
about two things, I feel like the risk is mitigated, I feel like
there’s…it’s short duration so it’s very short.
If I have to hold this bond or security to maturity, it’s not
going be thirty years, it could be one year and I feel comfortable
doing that, taking one year risk. Also, I’m getting compensated in
a way that’s significantly different from anything else in the
market. We have what you’re seeing on our website, we have trust
certificates that pay a fixed coupon so they act like bonds and
you’re seeing coupons of 4% to 12% and those durations are going to
be between one year and two years. So you kind of look, well what
else can I buy that is that short of duration that’s giving me that
kind of coupon and yield and you’d have a real hard time finding
that.
So we believe that need coupled with the need to be principled
and say…look, who are these loans ultimately going to? Am I helping
America, am I helping people move up the ladder and if I can do
that plus achieve my financial and investing objectives, this is a
great new product. So we want to open that product up to all of the
accredited investors, family offices and also some institutions
across the country that currently, securitization is not an
everyday product, investing product. We want it to be, so that’s
our vision.
Peter: Okay, so what’s the minimum of an
investor…if an accredited investor is listening and they want to
give this a try, what is the minimum you will take?
James: Yeah, sure, historically for us, it has
been $50,000. I think we may move that up to a $100,000, but,
historically, we’ve had $50,000 being kind of minimum and there’s
two things investors can do. They can buy these trust certificates
directly or they can…we also set up a family of funds so we now
have a family of Insikt funds that investors can invest in those
funds. You can think of them as like index funds and those funds
will buy across all of our securitizations. We had a couple of
investors tell us…look, this is great and we understand in the
future you want to be doing a securitization a week so that’s a new
issuance of bonds or trust certificates that we can buy, but, you
know, I’ve got a busy life and it’s going to be hard for me to log
on and I want to participate every week. Do you have kind of like
an index fund that I can invest in, put more capital in and then
that fund can invest me across all of the securitizations according
to a specific strategy. So every securitization we do has kind of
three tranches.
There is a senior tranche, which is the lowest risk of the three
and then there’s a junior tranche which is the mezzanine and then
there is the final tranche which is the equity and we the company
are always the equity owner and if there’s any impairment in the
collateral and ultimately in the bond, the equity would lose the
money first followed by the mezzanine and the senior so the senior
and the mezzanine have more protection knowing that there’s equity
below them. The senior has protection knowing there’s mezzanine and
equity below them. So those are the two securities you can buy, the
senior which we call the Class A and the junior the Class B and we
have funds that will only buy the A or only buy the B.
So far, that’s been a good strategy. If you want to dial up or
down risk return you can look between the A and the B and get a
fixed coupon. Our website shows all the cash flows of all the prior
bonds and how they’re cash flowing every month, how they’re paying
interest in principal. You know, all the information is online, you
can go and check out our funds, you can see exactly what the yields
have been, how many securitizations, you can see all the master
servicer reports. The goal here, again, has been 100% transparency.
How do we bring that as the norm to do securitization the right
way. So that’s what we’ve been doing.
We started with Prosper and Lending Club and they’ve been great
partners with us. We have some great risk people on our team, we
said…hey, you know, until our white label starts to really build,
we want to build this securitization marketplace. In partnership
with Prosper and Lending Club we’ve been able to selectively find
loans there, buy those loans and securitize those loans through our
platform to give investors an early proof of concept as to the kind
of opportunity they would have. Our goal is to help investors do
well now, make money on those underlying loans, be happy with the
risk return and all the reporting that comes through our website.
Then what we will have coming starting probably by mid next year,
we’ll be doing our first securitizations of our loans that we’re
making through our “Lending as a Service” platform.
Peter: So you said…when did you say, middle of
next year did you say or when do you think?
James: Middle of next year, yeah. What we want to
do there is we want to give those loans more time to season and
just to be really sure about loss rates. We’ve got our own kind of
equity invested in all of our securitizations so we want to make
sure. Most important thing for us is to have, a reputation for high
quality assets.
Peter: Right.
James: We did that at Progreso, we built an
incredible risk result, an incredible story and reputation around
underwriting so we want to make sure that anytime anyone buys
anything from us they have a good experience.
Peter: Right, that makes sense. So before I let
you go, I want to just talk about your…also on your website is this
MyCRO product and you’ve really done a lot of work here in
providing, just basically statistics, charts, information for
investors. Can you just tell us a little bit about what the goal is
with the CRO and what actually MyCRO…what it is?
James:Absolutely, we’re very proud of this. So
when I was running Progreso/Oportun, we had a whole team of
analytics and risk people that every month would cut what you would
call, inside the lending side, a loan tape so all the loans that
you’ve made…at the end of every month you’re looking at all the
borrower payments, etc. and you’re taking that data and you’re
producing graphs on loss curves, so you’re looking at your
cumulative loss curves by vintage so you’re like, hey, how’s May
2014 performing and every month that’s outstanding is an additional
month on book.
So you’re starting this graph…is that heading for an 8% loss
rate, is that heading for a 5% or 10%? and is June, the month after
May, is that coming out lower than the 8% that May looks like it’s
heading to and if so it looks like I’m getting better, right? And
so you really want a lot of good analytics at the end of every
month as to how things are performing, but you need to kind of
graph things in a way to then make it digestible. As we’re seeing
there’s a lot of information out there about loans and kind of
general information about loss rates, but no one has really
digested it in a way where if you had your own internal risk team,
you would do for internal reports.
So MyCRO means My Chief Risk Officer and so what we want is we
want that to be a brand that stands for…hey, if you had to have
your own chief risk officer and team, you know, take these loan
tapes and turn them into graphs and digestible information so that
you can evaluate risk and loss performance and you can understand
the credit and how risk is performing much easier with the click of
a button and then you can go and click through…well actually I want
to see first payment default. So the loans that I just made last
month I want to see how many of those have missed their first
payment.
I want to look at 30-day delinquencies, I want to look a little
bit earlier in the life of my more recent loans or I want to go
back all the way to 2008 and see how did the loans perform during a
crisis and how bad did things get, I want to go…I want to compare
that across platforms. Those are the kind of tools that we wanted
to enable folks to have back to this theme of 100% transparency.
Right now, we’ve got in MyCRO…we’ve got some nice compliments from
our partners about this at Lending Club and Prosper, but we’ve
loaded a lot of their data, we know a lot of their data, it’s all
publicly available and there’s a lot of other sites that have kind
of taken a crack at trying to present that in a way that’s more
meaningful. We took a crack at it from…hey, how do guys who manage
risk think about this and what do we want to see and that’s what
MyCRO is.
So we’re very proud of that and I would encourage everybody go
take a look at that. In the future we want people to be able to
upload their own loans and use MyCRO as a tool that helps them at
the end of every month keep track of performance. We think this
could be a tool for the industry as well. There’s a lot of
investment banks who are making warehouse lines and are also doing
securitizations for issuers of loans and they have to do this
process every month with a team of analysts and we think we can be
the source and the go-to source for the industry for that.
So that’s what MyCRO is and then MyCIO, since you mentioned, is
kind of the opposite of that which is my Chief Investment Officer
and that’s meant to keep track of…if you bought the bonds, because
the loans are covered in MyCRO, how are the underlying loans
performing. Including in MyCRO you can see all of our
securitizations and you can track…okay, if we said the
securitization was going to have what we think was an 8% forecasted
loss rate after 36 months on a cumulative loss basis, are we on
track…you can also plot in MyCRO the actual versus forecast in a
graphical way, in a way that makes it really easy. If you bought
the bonds and you just look at that graph and you know the actuals
are right on track with the forecast then you don’t have any reason
to worry about any impairment in your bond and you can go on about
your day.
So MyCIO takes that and says…okay, now let’s look at these bonds
and let’s look at what they’re yielding and let’s also do a red
light/green light display to say, okay. If there is a problem in
the underlying loans, I’m going to see a red light, if it’s yellow
it’s somewhere in the middle and if it’s green, I don’t even need
to worry about it. So MyCIO kind of looks more at the cash flows of
the bonds and looks at the yields, the returns, has all the master
servicer reports so MyCIO is more of…if you buy, if you’re an
investor in our funds or any of these securitizations, you’re going
to start with MyCIO and there’s a great dashboard there, but then
if you ultimately want to look through and get down to the details
of how the underlying loans are performing then you go to
MyCRO.
Peter: Okay, that’s fascinating. I’d love to delve
into this a lot more, but we’re pretty much out of time. Just one
final question before I let you go. You’ve got a lot on your plate
here, it’s pretty clear that you’re really doing a lot of
innovative stuff. So I guess what I’m curious about is where do you
think your company is going when it comes to…is “Lending as a
Service”…is this something that we will see in five or ten years
time? Will this just be every like…all the major brands are doing
it, everyone is doing it. I know you’re obviously…you’re very
bullish about it, you’ve spent a lot of time doing it, but I’m just
curious to know what you think. Do you see this as a niche play
that is really going to have a decent market, but it’s not going to
like transform or do you really think that Insikt can be a
multi-billion dollar company that’s really a huge part of the
lending landscape and “Lending as a Service” is going to be
something that everybody does?
James: Well, Peter, I think this is going to be
massive. First of all, I think because of all the change in
regulation to start with, non-bank lenders are going to rule the
day because it’s going to be harder for banks to provide capital so
I think the whole surge and alternative lending…I think there will
be some winners and losers, but overall, this space is just going
to continue to grow. As part of that, “Lending as a Service,” I
think is the future because there’s…everyone is fighting for
channels of acquisition of customers, cost of acquisition is
probably going up across the industry because of all the new
entrants and “Lending as a Service” is a way of empowering someone
else to get in front of that customer who already has a
relationship, who already has the data and they want to be part of
the solution and we’re seeing that.
We’re being approached by a lot of companies who say…you know,
that’s what we want, we just don’t want to be in the balance sheet
business, we want to outsource these parts to you, but we want to
be able to be part of this solution. I think that is the next wave
so can that be billions of dollars plus? Absolutely, our goal is we
want to have access to thousands and thousands of locations across
the company and millions of customers through our partners…really
focused on the segments I mentioned earlier.
The question I always get too is well where do the banks play
out in all of this? Frankly, we think the banks can be part of
“Lending as a Service” as well. As you know, one thing we’ve just
announced that we’re very proud of is, we’ve partnered up with BBVA
Compass Bank. BBVA made an investment in our company and we
partnered up with the bank that they have in the United States
called Compass Bank which has been very successful, has almost 700
branches and we’ve announced that we’re doing a partnership with
them where we’re live in several of their branches. They’re using
our platform, their bankers and their stores are using our platform
to make loans to their customers and give them a very responsible
small dollar loan.
That, I think, gives you a signal as to what the future is going
to be about. Not only will there be brands partnering with “Lending
as a Service” models like Insikt and I think you’ve seen Kabbage, I
think you’ve seen a few others announce…kind of some white label
partnerships, but I think also banks are going to be doing the same
thing and banks are going to be partnering with innovators to make
sure they’re serving all customers.
We’re very proud to be powering that transformation and when we
get into thousands of locations and we’re powering lending across
the landscape where customers are touching us at different points
and they find out that we’re powering all that lending, I think
that’s absolutely multi-billion and something that…we named our
company Insikt…I am not Swedish, it’s a Swedish word, my wife is
the Swedish one, but it means “insight” and that is because as we
have all these locations and distribution and partnerships we’re
getting tremendous insights on the credit data that we can use that
to power more and more partnerships. That’s the network effect and
I think that’s multi-billion.
Peter: Okay, it’s a fascinating idea, you’ve got a
great company there, James. I very much appreciate you coming on
the show.
James: Thank you, Peter, we appreciate it as well
and I look forward to working with you in the future.
Peter: Okay, thanks, James, see you.
I know we’ve gone over time, but I certainly didn’t want to cut
James off there at all. That was a fascinating conversation and I
think they’re doing so many interesting things in so many fronts.
The “Lending as a Service” piece is very compelling and on the
investor side what they’re doing…they’re doing things that no one’s
ever done, no one’s created these sort of bond-like instruments
that is available just for accredited investors. You can choose
your coupon, you can choose your duration and away you go. That’s
different, they are certainly a company to watch. I am glad we were
able to get James on the show. We’ve been trying to get him on the
show now for almost a year, but certainly I think lived up to my
expectations. Hope you learned a great deal.
On that note, I will sign off. Thank you very much for listening
and we will catch you next time. Bye.
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Podcast 50: James Gutierrez of
Insiktappeared first on
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