As AI-driven SaaS credit tech lending platform LendingPoint surpassed $900m in new loans in Q1 2022, CEO and Co-Founder Tom Burnside engaged with the GetLatka team to discuss their 8-year journey, how they managed growth and expansion since 2014, and the value he places on Net Promoter Score.
CEO and Co-Founder Tom Burnside brings a wealth of industry knowledge to LendingPoint. He leveraged his 25 years of experience as an accomplished credit and financial services leader and data scientist to lead a team in servicing borrowers, originating financial institutions, merchants, and other service providers while delivering predictable returns to their capital market providers.
- $900m in loans originated in Q1 2022
- 450,000 customers served
- $11,000 average transaction size
$15m in loans originated in 2014 on $5,0000 average transaction size
SaaS credit lending platform LendingPoint launched in 2014 to create an AI-driven company that would “do well and do good simultaneously by protecting, nourishing and growing each consumer’s financial future,” according to Burnside. From the beginning, LendingPoint narrowly focused its AI efforts on those with more challenged credit to gain key insights and optimize product offerings before broadening their funnel. Burnside and his team originated $15m in consumer loans in 2014 with an average transaction size of $5,000. They had a 13-point spread, “but losses are the second largest component,” Burnside explained. “It was a great year of learning how to augment models to get them in order,” he added. LendingPoint hit its first million-dollar revenue year in 2015.
From 620 to Serving all Credit Bands from 550 to 850
Burnside explained that LendingPoint first focused on the 660 and under credit space. His goal was to give a reasonable price for a reasonable product. He believed that LendingPoint could understand and tell the story of these customers in a new way that no one else was telling. Burnside reiterated that they started with $5,000 loans before scaling to where they are now: up to $50,000 loans for all credit bands. He believes that LendingPoint delivered better marketing, leaned in to understand customers, and then created even better products.
Two Reasons for a 620
By getting to know the market, Burnside and his team identified two primary reasons for consumers to carry a low 620 credit score. One, the customer had a light credit footprint, or two, the customer was on their way back up from a financial challenge. LendingPoint looked at other factors such as phone bills and rent history to tell a more complete story of a customer’s ability to pay. By getting to know their customer base, Burnside indicated that they were able to mitigate fraud and charge-offs.
400 Price Points
LendingPoint’s CEO raved about the success of their AI models for predicting risk. Although he admits to a few challenges initially, the AI models have now been able to put customers into categories and optimize pricing. LendingPoint now has 5 buckets of credit grades and risks with 400 price points inside those grades. Burnside disclosed that LendingPoint offers the right product at the right time and place with the right terms and conditions so that customers can see how affordable it is to finish a project, consolidate bills, or do whatever else they need to do.
Breaking Down a $5,000 Loan
LendingPoint’s early loans offered a 22-23% weighted average interest rate, typically paid over 3-4 years. Burnside and his team recognized early on that the challenge for customers was paying back that amount in 8-12 months. So LendingPoint focused on affordability, offering a 24-28 months payback period. Because AI was helping tell a better story, Burnside was able to help customers get back on their feet with more affordable payments over a more extended period. Once they paid back their loans, these customers would return for more. LendingPoint calculated the interest rate based on the balance per year instead of a typical discount or percentage and offered no prepayment penalty.
Initial 10% Cost of Funds
Because of his industry track record, CEO Burnside was able to get better pricing on money from the beginning. “We started at a 10% cost of funds with some warrants involved. We gave up 1%. We saved money so we could push forward savings to the customer,” noted Burnside.
Raised $220m in Friends and Family Capital to Test Market
“From day 1, we used our own equity to test the market,” explained Burnside. Using their own equity allowed LendingPoint to widen the credit box to test the AI models better. LendingPoint raised 4-5 rounds of Friends and Family capital totaling $220m in their first few years. Burnside quipped that it was easy to raise funds as he had previously done successful deals with everyone involved.
The Magic of Capital Costs
Burnside revealed that the company used capital to test models, hoping that they would be as predictive as he imagined. By and large, his assumption was accurate. “Capital costs continue to go down as your models get better. It’s magic like that,” quipped the CEO.
Getting Capital Costs under 10%.
Latka indicated that his fintech audience would be interested in knowing how much loan tape and vintage history LendingPoint had to drive their costs from 12% with 1% warrants to 8%. Specifically, how did LendingPoint get below 10%? Burnside explained that they looked at the weighted average life of an asset. Most customers pay off their loans in 16-18 months, even though they have 24-36 months to pay. “Within 1-1.5 years, you have a pretty good idea how the curves will work,” he noted. The Co-Founder added that most losses (60%) are front-ended; they occur in the first 6 months. So, on a vintage analysis, you can predict your curve after 6 months. It wasn’t until after $100m in transactions that LendingPoint felt comfortable giving better pricing and advance rates.
$360m in Loans in 2018 at a Cost of 8%
LendingPoint originated $360m in loans in 2018, with a capacity of $350-400m. According to Burnside, models were performing well, costs were coming down, and spreads were widening. The cost of funds dropped to 8%. Latka marveled at how Burnside was able to optimize his capacity, noting that other people have raised too much capital and then must pay unused fees if they can’t attract and deploy customers fast enough.
Aligning TAM to Capital, $10-20m per month per opportunity
Burnside explained that the nice thing about their growth is that the AI models indicate who to go after next and the size of that TAM (total available market). Armed with that information, LendingPoint lines up the capital needed to backstop the advance rate to grow the next $10-20m per month.
Crossing Over $500m in New Originations in 2019 Scales Pricing
CEO Burnside shared that pricing doesn’t really begin scaling until you hit $500m in new loan originations, which LendingPoint hit in 2019, although he declined to share his current cost of capital.
144% YOY Growth from 2020 to 2021 to $2.1B
LendingPoint experienced massive growth from 2020, when the company did under one billion, to 2021, when the company closed at $2.1B. Burnside shared that 2022 started strong, with the company closing $900m in new loans originated in just the first 90 days.
Revenue Grows from $330m in 2021 to $600m forecasted in 2022
Burnside confirmed that LendingPoint hit $33m in revenue in 2021 and is on track to cross $600m in revenue in 2022. Latka queried Burnside on how he’s managed to continue to scale so fast, given the inevitable yield compression and CAC arbitrage. “It’s the fintech space,” began Burnside, “Is it scalable? Is it predictive? Is it sustainable? Can you grow at the appropriate rate? We’ve answered all those questions.”
Optimizing CAC for 450,000 Customers
“Your ability to optimize the cost to acquire a customer comes through the ability to renew the customer,” Burnside expounded. “We have an 86 net promoter score. We work hard to give a great experience, so customers come back. We are seen as a trusted advisor,” he added. His strategy is paying off, as LendingPoint enjoys a 25-30% renewal rate.
Average Transaction Size Doubles from $5,000 to $11,000
Today, the average LendingPoint loan is $11,000, up from $5,000 when the company launched. The loan period is approximately 5 years in their DTC business, but they are now also doing longer loans. “We bought a point-of-sale company, so now we can do 7-10 year paper for home improvement and medical,” Burnside shared.
Beating Billion-Dollar Competitors
With the marketplace filled with billion-dollar competitors like Billd, Paylocity, and Clearco, Latka asked Burnside how LendingPoint is winning? “We have an amazing team and great connections in the financial markets. Our platform serves banks, credit unions, ABSs forward flows and their own balance sheets,” answered the Co-Founder.
$1.5B Debt Capacity
Burnside shared that LendingPoint can get to $1.5B in debt capacity. He noted that they are seeing competitors pull back in this market, so “we are taking advantage of the marketplace where it is at.”
$175m from Warburg Pincus
LendingPoint’s first institutional round came from Warburg Pincus, who Burnside described as a “great partner.” According to Burnside, they followed the company for 6 months, then came in during COVID with $175m. The models still held, and the beta risk remained low.
Zero Secondary Funding
Latka displayed surprise that LendingPoint had taken no secondary funding. “We continue to pour money into the business. You have to feed the beast to pay for growth,” explained Burnside. To keep employees happy, the CEO shared that the team believes in the overall dream, adding that many of them have worked with him at 2-3 other places previously.
Famous Five with CEO and Co-Founder Tom Burnside
Tom’s favorite book is Good to Great, adding that he’s a fan of “anything from Jim Collins.” Jamie Dimon of JP Morgan Chase is the CEO Tom watches. “He’s very on top of his game,” quipped Burnside. Tom declined to choose a single online tool, afraid that he might offend someone he didn’t mention. Tom sleeps 6 hours per night. He is 58, married with two daughters. To his 20-year-old self, he would suggest that it was all going to work out and keep going.