Climbing over the Sub-Prime Hurdle with Co-Founder & CEO of LendUp, Sasha Orloff

I think we all grow up wanting to change the world in some way that leaves it better than we found it. Because in many ways that’s what being a superhero is all about and frankly that is what most kids want to be. But if you are looking for one of those people who is actually pursuing their goal of truly changing the world from childhood, look no further than Sasha Orloff, Co-Founder & CEO of LendUp.

Financial startups that take on the predatory lending industry may not be your everyday household brand name, but if you care about the financial well-being of 56% of our fellow Americans who are currently failing in this regard, then LendUp just may be one of the most important companies currently being built in the US.

Yes, Sasha Orloff is an American hero helping to improve the financial well-being of millions of people just looking for a little bit of financial support and guidance. Through an innovative set of financial products, you will see that LendUp is on a path to bettering the financial well-being of 56% of our population. Check out our awesome conversation below…

CL: Sasha, you spent several years working at Citi on both the consumer side and then the Citi Ventures side. Did this impact your trajectory to found LendUp 5 years ago in any way and if not how did you end up at this point of your career?

SO: My time at Citi absolutely influenced the building of LendUp, but to really understand the influencer that led to LendUp, you have to go back about three jobs to my first job out of college. It was only a few blocks from LendUp HQ now, and it really opened my eyes to the power of software, and helped me develop a worldview that I didn’t have before.

At that time I also read a book called Banker to the Poor, by Muhammad Yunus, who later won the Nobel Peace Prize. He had a micro-credit investment platform that gave poor women in developing countries the capital they needed, to enable them to advance in life. I really appreciated this idea and got to see how it worked first hand during the time I spent working at The World Bank in Washington, DC, in micro-finance. I became a firm believer in what responsible credit could do.

When I went to Citi, I saw a whole different world of financial services. Citi focuses on the upper 1% of wealth, while micro-finance focuses on the bottom 1%. You are talking about two very different perspectives.

When I went to Citi Ventures, I was in a leadership development program, which is where I really saw how technology was helping to lower the cost of performing financial business, and I saw the rise of the smartphone as an opportunity to build a new financial institution starting on the mobile phone, for the underserved markets like the ones I’d become familiar with in my previous work.

CL: For those that don’t know, can you define LendUp as a business?

SO: I like starting with our mission, which is to provide anyone with a path to financial health. 56% of people have poor credit in the US, which is a lot of people with different types of needs. When we started we wanted to align our business to succeed when customers succeed, which leads to our promise of building ladders, not chutes. When we save borrowers money, improve their financial literacy, and put them on a path to a better credit score, we win too.

We do that through a set of innovative credit-building products. The first product is an improved payday loan called the Lendup Ladder. The second product is an installment loan with a lower interest payment, and our third product, which is now our flagship product, is a credit card -- and that has been growing incredibly fast since we launched it publicly earlier this year.

We essentially want to provide consumers with steps to access affordable credit by guiding them there.

CL: The core focus of LendUp is to serve consumers with low credit, who don’t have access to traditional financial services. But can you talk more about the nuances of the type of customer that you are trying to help?

SO: There are three main customer segments that really resonate with LendUp. There is the “Young Consumer” that just graduated with a Bachelor, Associate or High School degree, and is starting off in the working world. These individuals are called a “thin file” or “no file,” and have little or no credit score. The reality is they are just young and don’t have a long financial history, and thus are considered risky. They also want to access their financial services in real time on their mobile device.

The next segment is the “Working Parent.” Typically, this is someone that had credit trouble in the past but overall has a thick credit profile and just needs to prove more success to get across the hurdle of having a challenged past. Often, they have a couple kids and run into an unexpected expense, be it car-, medical-, or family-related, and they can’t manage it well without access to a good, safe credit product.

The last one is someone who has a good credit history but experiences an anomaly, be it a major unforeseen medical emergency expense or a home foreclosure that raises a major red flag on their credit profile. In these situations, they are now locked out of the mainstream banking sector for at least seven years.

As you can see, the longer we are in business the more we learn about how nuanced the customer segments are in the category of consumers with subprime credit. We are seeing very clearly that a one-size-fits-all approach to banking customers isn’t appropriate for over half of the country.

CL: LendUp has now been around for almost 6 years. Can you speak to some of the success stories or themes you are seeing amongst consumers who’ve utilized your financial products?

SO: I think the most validating stories comes from consumers that used to take out payday, title, or pawn loans, at 400,000% APR, week after week, month after month, year after year. And then they come to us and use our financial ladder to graduate to loan products with better and better rates, until they can get our credit card -- and for the first time ever they have a (healthy) credit file.

To be able to take someone paying triple digits of APR -- and move them to paying nothing to manage their expenses utilizing our credit card -- is pretty rewarding.

Since we were founded, we have saved our borrowers over $135 million in unnecessary fees. We have loaned over $1 billion, and we have shown the ability to improve credit scores up to 50% better than borrowing from anyone else or not at all. And we have had our free education courses viewed more than 1.6 million times. It just shows the scale of the impact we can have if we continue to work hard.

A proud moment for me was when I was flying up to Oregon with my family, and someone recognized my LendUp t-shirt and said, “I know LendUp. I use them all the time but the thing I really like is the education courses, I’ve learned more from them than ever before.”

CL: Recently, LendUp obtained a strategic investment from PayPal. How does LendUp plan to utilize this investment and connection to PayPal to help grow the business?

SO: PayPal has been extraordinary in being the most innovative tech company of all time. And what they realized during all of their growth was that a lot of their customers are not prime. As you get bigger and bigger, you’ll eventually hit those non-prime consumers, so you need to help this customer segment to get to a better place in life.

PayPal has the resources internally and has an active venture arm that looks at opportunities to do just this. But as PayPal learned more about this customer segment, they decided that rather than trying to build a business to serve customers much in the way that we do, partnering with us was a better approach.

It was very much a sign of validation and it was exciting for our team. Believe me when I say there will be many more announcements coming out in the coming months.

CL: What have been some of the largest challenges you have faced in building LendUp that you did not expect to run into along the way?

SO: One reason I am so encouraged about having this conversation with you is because so many Americans are unaware of the struggles of everyday Americans. And we realize that we need to help facilitate this larger movement to make people aware of the everyday financial challenges faced by most working Americans.

Despite amazing organizations such as the Aspen Institute Financial Security Program, who are doing incredibly important work, there is still just not enough awareness of some of the struggles and challenges of real Americans. So having an opportunity to do interviews like this is exciting for me, because we need to create greater awareness and more safe solutions in the market. This needs to be a bigger movement involving regulators, press, banks, employers, communities, and so on. Ultimately, I think that the knowledge gap on the working American plight has been one of the biggest learnings and challenges to-date.

The Minute Rundown with Sasha Orloff

CL: If you could provide one tip to someone considering starting up, what would it be and why?

SO: If we are talking Fintech specifically, I would say focus on the subprime segment because they are so appreciative of having a financial company that pays attention to them and provides them dignity when it comes to their financial services. Most organizations currently just assume they aren’t financially savvy or financially profitable and that’s just not true. We’ve proved otherwise.

So many organizations focus on customers with prime credit scores, but I think there is a huge opportunity across the needs of consumers with subprime scores, which aren’t currently being met. And it’s not just credit where there is opportunity. This group needs access to better tools for savings, money management, and investing. With mobile phones, we have a tool that democratizes banking access for everyone in the country, and it creates an enormous business opportunity.

In closing:

If LendUp isn’t Simple.Innovative.Change, I don’t know what is. If you aren’t quite as passionate about Fintech as I am, you may not realize that a great deal of the developing world is actually adopting mobile banking, and just completely passing by the age of brick and mortar banking.

Accessibility is one of the biggest keys to making consumers with subprime credit scores more attractive from an economic perspective. With cost of acquisition around this customer base coming down every day, companies like LendUp are finally able to prove what the developing world already knows: focusing on the whole population rather than just the 44% with great credit is a way to build some of the most powerful financial institutions ever created.

I am sincerely confident in the mission, the approach, and the future of LendUp. Through a balance of mobile-based tools, financial education, dignity, and customer-centricity, I believe LendUp will be able to move the needle on improving the financial health of many working Americans. They’ve already put $135M back in the pockets of Americans. Here’s to many more.

Thanks for being an inspiration Sasha, and investing in truly Simple.Innovative.Change.

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