Glenn Goldman said the implications arising from the confirmation of a new credit facility and internal growth made it the ideal time to rebrand Retail Capital into Credibly.
Mr. Goldman, Credibly’s CEO, said the series of announcements is the culmination of 10 months’ work which began when Flexpoint Ford, where Mr. Goldman was working at the time, made an investment in what was then named Retail Capital.
He said the name change to Credibly arose after he shared his vision with Retail Capital’s founders.
“I believed we could build the business by recognizing that as a fundamental matter all businesses have the right to access capital.”
Mr. Goldman explained that most current providers tend to be focused on either super prime or sub prime borrowers. Most only offer a simple, single product.
“My vision was this is an incredibly inefficient model,” Mr. Goldman said.
Mr. Goldman said that after taking over he prioritized three areas. The first was to build out a deep and sophisticated data science risk management scoring system. The second was to recruit a broadly talented marketing development. The final piece was to assemble an experienced and capable technology team.
Even though Retail Capital was one of the profitable players at the time, Mr. Goldman said management of the time was busy developing other aspects of the business and had yet to address these three areas.
Mr. Goldman said the company was also working to increase its ability to provide business funding and had secured a credit facility with AloStar Bank of Commerce, WebBank and CapitalSource.
While that one accomplishment was enough to significantly change Retail Capital, when taken in combination with the other accomplishments, Mr. Goldman said he knew the company was in the middle of a transforming period.
“That was the time to rebrand, with the idea of presenting a new company on the other side,” Mr. Goldman explained.
A knock against some fin-tech companies is their developers are very good at technology and know less about finance. Did Credibly have to increase the financial literacy of their development team?
Mr. Goldman acknowledged some firms indeed have to train staff on the more intricate aspects of fin-tech systems development but said the extent to which they have to do so heavily depends on where the company is located.
“New York is a hotbed for fin-tech talent, probably more so than Silicon Valley,” he said, invoking the industry nickname Silicon Alley.
Credibly’s staffing philosophy is to build teams with diverse backgrounds in all areas, not just technology, Mr. Goldman said, because multiple perspectives tend to produce better results.
“Not all great approaches to solving problems exist solely within financial services today.”
Mr. Goldman said Credibly’s partnership with the trio of banks helps dispel several myths currently accepted in much of the industry.
“Many new companies are doing plenty to disrupt and innovate and in the end create more interesting things than the banks. They suggest the banks don’t get it and they’re dinosaurs.”
“These partnerships show there is very much a role banks can play to make capital available to small businesses perennially underserved by them directly.”
Mr. Goldman says the bank partnership will allow many businesses to get funding that would have been rejected had they directly approached the banks themselves.
The banks were attracted to Credibly’s ability to deliver a range of products across the entire small business spectrum and in the company’s data science, Mr. Goldman said.
Those factors also align with three pillars Credibly considers as key to their success, Mr. Goldman explained. The first is to provide the borrower with the right amount of capital at the opportune time.
The second is the maxim “grow, don’t just owe.” Mr. Goldman said that philosophy helps a company adjust to a new debt payment without it stunting growth.
The third pillar is to take the time to understand who the customer truly is. Mr. Goldman said that is so important it is factored into the Credibly logo, which depicts people sitting across a desk from each other.
“Everyone likes to talk algorithms, this and that,” Mr. Goldman said. “That dehumanizes the experience. We want to create an impression as to what we are about.”
Mr. Goldman explained bank risk management models cause them to lean toward prime and super-prime borrowers. By developing risk-management models for other borrower categories, Credibly is able to make lending in these other categories a much more attractive option.
“Loans below half a million to one million dollars are not very profitable or efficient for banks. For us they very much are,” he said.
By solving those problems Credibly has removed the biggest pain points facing traditional lenders, Mr. Goldman added.
Mr. Goldman said 2015 is an exciting time for alt-fi because the industry is entering the second phase of the online lending revolution. The first was about the peer-to-peer or institute-to-peer platforms creating a marketplace and managing borrowers and lenders. Their time was taken up by creating a two-sided marketplace with a great user experience. That left little time for product development.
“Those first two were lofty goals,” Mr. Goldman said. “The initial players did all of those things really well.”
Credibly has learned from watching phase one play out, Mr. Goldman said. Having the opportunity to build systems essentially from scratch, it only made sense to start from a point of five or six products and verticals and construct a platform that supports them all, he explained.
Mr. Goldman believes the industry is only at the beginning of being able to use big data to inform decision making. Whenever it is employed it should be with an eye of how to improve the user experience.
“Has a disservice been done to borrowers when their Angry Birds score has been checked out?” he asked facetiously.
Tread carefully when using social media in credit decisions, Mr. Goldman suggested. Using Yelp reviews as an example, Mr. Goldman said how a business self reports can affect how it is scored.
A restaurant could describe itself, as such, or it can say it is an eating and drinking establishment, a dining establishment, or a seafood restaurant.
“All four are correct.”
But they all do not give a clear idea of what specific sector the establishment operates in, and that is why the industry cannot use Standard Industrial Classifications in underwriting models, Mr. Goldman said.
If the restaurant could most accurately be described as a seafood restaurant, then experienced underwriters know that at certain times of the year and over years seafood restaurants are impacted more than most other types of restaurants, Mr. Goldman said.
That is where Yelp reviews serve a purpose, Mr. Goldman said. If several posts rave about the mahi mahi while suggested you avoid the place for the halibut, chances are it is actually a seafood restaurant and then it can be assessed accordingly.
Yelp can also be used post-funding to track loan status by watching for closure notices or a change in menus or reviews.
Another way to improve underwriting quality is by watching industries with stringent regulations on assessing safety and risk, Mr. Goldman said.
“If you are developing new products and ideas, you wait years to create programs, or you you can ask what are other areas of analysis, tools and individuals who work with small small data sets and need to reach good conclusions.”
Two such areas are bio-medicals and pharmaceuticals, Mr. Goldman offered. An FDA study may only allow a new drug to be tested on 500 people. They techniques they use and the correlations they draw when forced to use small data sets are of great relevance to fin-tech, he said.
When he cited the Angry Birds reference, Mr. Goldman was illustrating the fact the fin-tech industry is still determining the different types of data sources that are even available, never mind relevant. As industries, non-profits and even municipal governments digitize information, it becomes easier to investigate and assess new data sources.
A key point to remember is much of this data became available after the recession, meaning it has not had the opportunity to be correlated with a market downturn, Mr. Goldman explained.
Put it all together and Mr. Goldman it has never been a better time to be involved in marketplace lending.
“I am excited about phase two, and building on the experiences from phase one.”
“The opportunity to blaze new trails is what makes it so exciting.”