Originally Published in Wealth and Finance, April 2016 Issue, p. 38-39.
Lendified is the brainchild of Troy Wright and Kevin Clark, two seasoned professionals in the Canadian banking industry who set their sights on the often-overlooked area of supporting small businesses. We spoke to Kevin Clark to find out more about their company, and get their insight into the myriad of developments, including crowdfunding, in the fintech industry.
“If I were to describe Lendified in my own words, I would describe us as a lending technology company, and our primary focus being originally on the provision of working capital loans to small businesses in Canada and secondly to now more broadly supporting financial services companies seeking credit risk review process enhancements and efficiencies globally. Our platform provides us with a tremendous amount of opportunities through a variety of applications to generate service/subscriber-based revenues, while maintaining a stable base of revenue through short-term lending to the small business market all across Canada, actually using the same portal/credit adjudication process tools we now are licencing”.
Although early in the development of their licencing model, Lendified’s perhaps more interesting area of revenue generation is this services aspect of supporting, enhancing and streamlining credit risk analysis and SME lending activities for other financial services institutions. “This model can be used for other institutions to use and analyse the credit performance of small businesses for strategic benefit - like for insurance companies, leasing companies, trust companies, banks and just about every firm that’s analysing SME credit these days”.
Another unique aspect of Lendified, is the wealth of experience they can provide their customers. Both Clark and Wright, spent 30 years with the Bank of Nova Scotia, which is one of the Canadian ‘Big 5’ banks. During this time, they held executive positions in operations, client-facing sales businesses, and broader general management responsibilities, both domestically and abroad, with Lendified being born out of the awareness of the SME segment not being served well in the Canadian market and to some extent ignored by the “Big 5”. Canada is by no means exceptional in this area, and this is a prevailing issue across many markets.
From their experience of working in a major bank, they’re very aware that small business lending can be a difficult area to achieve acceptable returns because of its cost structures. The fintech industry in general, and certainly Lendified, however, without legacy systems and overhead, has developed a business platform that holds the per-customer cost to 10 and maybe 5% of the cost that traditional institutions incur to review and adjudicate credit with the same output. And additionally, models like the Lendified model are built with significant scalability. And as Clark indicated, “banks are very keen to maintain deposits to help strengthen their capital base, but are shy in terms of providing that same customer access to credit because of the cost of doing so”.
As a company operating in the ever-evolving fintech industry, the business is also built on having a combination of highly innovative technology and data science skills. It is fundamental for them that they can design and build the tools necessary to adjudicate the credit with the same (or better) outcomes of portfolio performance. This process, simply-speaking, involves the gathering of data, and deciphering that data to draw conclusions based on historical performance on what will happen in the future. Building out the model to ever-increasing capability and increasing amounts of data-input is critical to its developing technology. “Behind our products and services is a team build on a variety of core skills to ensure delivery of the most advanced use of technology, the best possible coding to drive our decisions and a methodology to reduce the friction in the customer experience. More specifically in the fintech industry, having a very capable skillset is crucial”.
Being successful in this industry is an ongoing process, so companies in this space must constantly have their eye on any emerging developments in the industry. Recently, Wright attended the “Lendit conference” in San Francisco, which brings together all the major players in the financial technology sector. During this year’s conference, 4500 people attended, whereas last year’s had 2500 and the year before had only 800 - a clear testament to the direction the industry is moving, with more and more desire for involvement. During that conference, one of the main points addressed was the urgency in which companies need to move to gain traction in their particular product application. There is no doubt that the technology is constantly advancing, with windows of opportunity becoming tighter.
Funding costs for these new lending businesses can be challenging – the cost of capital being potentially high and dependent on many factors. “For us, crowdfunding may or may not play a role in our development. Certainly it is important to be aware that crowdfunding is both a source of debt capital and equity, and the term seems to be very liberally used as of late. Generally speaking, I think conceptually, the process has been great for companies who are in start-up mode. Interestingly in Canada, the incubator process and investment interest has been been quite strong with crowdfunding becoming a successful source of equity capital in the fintech marketplace. Such is the popularity of this particular type of funding, that I would argue that it’s even harder to find secondary capital than it is to find start-up capital”.
“On the whole, crowdfunding has the benefit of attracting smaller investors. However, there is still an uncertainty in terms of capital coming back given its infancy. It will be interesting to see when these investments start to show returns. When they do, and a general understanding of what the average length of time is for these investors, we will get a better feel for its permanency as an investment class.”
Looking further down the road, the fintech industry is only going to grow and the future looks very bright for companies like Lendified. As Clark notes “although we are clearly aware that the future is unpredictable, particularly in the financial services world, there’s no doubt that there is huge innovation being developed and opportunity to leverage that. It is certainly an exciting place to be.
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