Tom Burnside: After record-breaking 2018, 2019 looks even stronger for LendingPoint and consumer lending overall
2018 was a record-breaking year for LendingPoint, with growth in both the direct to consumer personal loan and point-of-sale financing sides of the business. Much of the company’s success is attributed to its proprietary predictive risk algorithms, but equal credit also needs to go to the company’s leadership for spotting and seizing opportunities to develop the business in new directions that consumers are demanding.
Tom Burnside, LendingPoint’s CEO looked ahead in a wide-ranging conversation about the company and the wider fintech marketplace. Here are some key takeaways from that conversation.
- Our new Data Lab found that millennials are using personal loans more. How are we catering to that growing demographic?
Millennials have lower credit card balances than their predecessors, but that doesn’t mean they have lower borrowing needs. They are just using term loans to meet those needs in greater numbers. Every day, we strive to meet them where their interests are. An example of this is building awareness via text messaging communication to remind them that we’re here for them. The fact millennials are avoiding the compounding interest trap of credit cards is great for them and we want to continue to serve this key segment of our customers.
- At the end of 2018, the stock market was rocky. Did that reflect in our applications, or did you see a shift in the amount of money borrowed?
In the last quarter of 2018, we funded almost twice as many loans (by dollar and by count) than we did in the last quarter of 2017. The midterm elections, the waning of the tax cut impact, the volatility of the stock market, the Fed interest rate increases and the trade war all impacted the economic news reported in the fourth quarter. But for all of that, we still had a high demand for our products and continued growing. Nobody has the perfect economic crystal ball, but so long as our scoring models continue their amazing job of rank-ordering risk and our credit and risk managers (who managed large credit portfolios successfully through the Great Recession) continue to monitor and balance the risks in our portfolio, we will be able to successfully identify many customer segments we wish to grow in – even through the recession whenever it comes.
- How do you predict consumer borrowing will change in 2019 based on our numbers from 2018?
I think our origination growth will be very robust. By dollar, our originations in 2018 exceeded all of our originations in our prior three years of operations combined. We expect to see originations in 2019 grow at least 75% over 2018 levels. Growth in consumer loan borrowing will continue to be driven by:
- Shifting demographics. The millennials are now the largest demographic cohort and study after study shows they dislike credit card compounding interest debt and prefer installment loans where their debt has a fixed “end date.”
- Decreasing competitor activity. Many of our competitors in the 580-680 FICO bands have pulled back considerably on their originations because they’ve had trouble controlling the risk. Any recessionary trends will only, in our opinion, accelerate this trend.
So, on a year-over-year basis, 2019 should be another strong growth year for us.
- Does LendingPoint have any plans to offer new products for consumers in need in the years to come?
Yes, we’re really focusing on money on demand. We’re trying to bring buyers and sellers together and technology is a big part of this. Inside our platform, for example, we can empower the consumer with buying power and then partner them with a merchant willing to offer a discount. That’s what we’re looking at ahead.
An exciting upcoming product is an application for the travel industry where you can get pre-approved first for your vacation, and then during your trip, you can ask for more money right from your phone. At the end of the trip, your balance will turn into a term note that you can set up with payments that best fit your budget. We’re going to continue to develop new concepts and new products at the POS and help our merchants with converting more shoppers to buyers.
- What is the biggest challenge facing leaders in the fintech industry today? How are we overcoming them to better serve our consumers?
There are a couple challenges we face. The industry is maturing, and investors are wanting to make sure they can make money. As obvious as it sounds, money is crucial to building a business and our challenge is to make sure the assets we generate perform predictably.
It’s not hard to make loans, it’s hard to get paid back. That’s where we’re so far ahead of the rest of the market. We’ve figured out how to make loans to people able and willing to pay them back more consistently and reliably.
Unless your credit model is predictive and you’re in the position to continue making money, getting access to capital to continue to grow your business can be a challenge. You can generate capital either get through retained earnings or by borrowing it. Either way, you need to have access to capital to continue feeding the growth with equity. As equity dollars become harder to access in the market, you’ll begin to see how it affects companies in our industry in 2019. We overcome this by continually evolving our model. It’s given us lower cost of funds and higher advance rates while preserving equity and allowing us to pass on those benefits to our consumers.
Our end goal is to be able to offer better pricing to the consumer through products that are tuned to their specific needs at the time and place that they need them.