E-commerce technology is to brick and mortar retail as Thrive is to brick and mortar banking. What do I mean by that? E-commerce, though considered the killer to brick and mortar businesses is actually providing the tools to enable the best retailers to win, and to win big with a more efficient distribution channel and broader audience exposure.
Think Bonobos, think Best Buy (who is actually winning), think Walmart and Jet. The best retailers are adopting e-commerce tech to be everywhere that the consumer is. Thrive is doing the exact same thing in the loan markets for banks. Thrive is a powerful new platform that is enabling banks and financial institutions to compete with online lenders, and more importantly to be where the customers are no matter what.
There are many things that work about the banking infrastrucuture, just like there were many things that worked about the retail industry, but innovation is heavily needed. Welcome to Thrive. Check out my discussion below with the Co-Founders, Kunal and Ke!
CL: Kunal, you're a Venmo alumni and health conscious food company builder, and Ke, you're a Prosper alumni and Fintech native, so why Thrive and why now?
Kunal: My background is focused on two main areas. One is deep finance, and the other is in the tech space. I spent roughly four years in banking and left when the market began to fall apart. At the time, I was a young guy and was really excited by the intersection of technology and finance, and was looking for a way to do something innovative and challenging in the sector. At the time, two of my friends were starting Venmo, and they asked me to join to focus on the operational and business side.
In working to build out the operational side of the business development function at Venmo, I had the chance to see first hand what was happening at the intersection of tech and finance. In particular, Venmo took something that was very plain, boring and archaic, like paying someone back, and added a real magic to it. Being a part of a transformative company like Venmo in 2013, and getting the chance to see firsthand how well people responded to a product and experience because of its ability to reduce the friction associated with an otherwise manual process was powerful.
When Venmo was sold to Braintree, and then Braintree was sold to PayPal, I decided it was time to take the next step. Since I had helped a friend to get her small business off the ground I knew some of the manual and archaic challenges of banking as a small business, especially when it came to the loan process. Something as simple as applying for a loan was just a horrible experience. The idea for Thrive really came out of the culmination of my background in deep finance, starting up at Venmo, and helping my friend start her small business. Once I had the idea I looked to bring Ke on to help me launch this business.
CL: For those that don't know, can you define Thrive as a business?
Kunal: We power and enable modern, efficient lending. Nobody is currently acquiring these customers online at scale and certainly on the underwriting side things are still very manual and archaic. It still takes weeks and months to originate a $100K loan when in reality all the data exists in a digital format to enable that process to be completed in a fraction of the time. Thrive fills that void by providing the infrastructure needed to enable traditional lending institutions to process loans faster and more efficiently.
CL: As you were beginning to build Thrive, as first a direct lender, a series of unfortunate newsworthy events occurred in the online direct lending space. How has that shaped your approach to building this business?
Kunal: That is exactly right. At the outset, Thrive was going to be a new-age lender. The idea was to remove all the friction of applying for a small business loan. Ke was at Prosper at the time and also understood the value proposition of trying to become a direct lender to remove friction in the loan process for businesses.
As we were building out Thrive, we fell right into the implosion of the direct lender space with issues arising across all the big names, be it LendingClub, Prosper, or OnDeck. At that point we began to peel back the layers and started to see firsthand the structural inefficiencies that these companies had as they tried to achieve scale. The main inefficiencies we identified were that it’s really hard for these direct lenders to attract a stable, cheap source of capital. The direct lenders are having to obtain capital from the securitization market or the wholesale facility market where they're borrowing at elevated rates that aren’t necessarily attractive to consumers or small businesses.
Compounding the challenge of obtaining cheap capital is that acquiring customers has not necessarily become more affordable with scale. Given that the direct lender space has become crowded, everyone is chasing the same kinds of borrowers through the same marketing channels leading to sustained high customer acquisition costs. With those costs not tilting in the right direction on either the capital or customer side we decided another approach to the business was needed.
At that point, we decided the best thing to do was to focus on the infrastructure issues that we had identified across traditional banking institutions, banks, non-banks, and credit unions. We saw first hand that 90-95% of lending entities in the US did not have an efficient mechanism for efficiently originating and underwriting loans especially in the small business segment. Essentially we decided to build the plumbing system for small business loans. Think of us as the PayPal for lending. We think we're at the cusp now given the data that's available, and the experiences that the customers are demanding on the banking side, that in the future the lending process will be as relatively smooth and efficient as swiping your credit card for a coffee or sandwich.
CL: What is Thrive’s core differentiator to other newly arising SME banking platforms?
Kunal: Our real differentiator is that we don’t only focus on only origination . For example, we can deploy faster because we have full servicing capabilities integrated directly into our platform Having the ability to service the loan throughout is something our customers have told us they really want.
Beyond that, we have the ability right now to actually engage the borrower through the process, through our bank-branded dashboard that can be accessed via any device. This dashboard not only provides a terrific user experience, but on the backend it enables us to collect cash flow data in real time, analogs, and company financials in a matter of seconds. With this, we’ve enables loan reviews or monitoring to happen in real time.
CL: You recently launched with your first customer, Horizon Bank. What does that mean to you and where do you see the business going from here?
Ke: It's a huge milestone for us for a few reasons. One, it validates that we have something here and that a bank is willing to use our product. The bank's been supremely impressed with the full end capabilities that we've built. The speed and efficiency we thought we could achieve is playing out. To give you a sense of the speed, in the first handful of loans that we have taken through our process we have been able to take loan applications from submission to full origination or decline in roughly 20 minutes. That is a process that typically takes them days or weeks. What's even more exciting is Horizon Bank is not only a user of our service but they are also an investor in the company.
It's not every day that you see a bank invest in an early stage technology startup, but they saw through their diligence and experience working with us that we are onto something here. They understand and see the vision of what we are capable of doing. Between obtaining an equity investment from our first customer, and receiving excellent feedback on the quality of our product in its early days speaks to the fact that we have a real opportunity to reshape the future of lending.
CL: As we think about the road ahead for Thrive, what are some of the initiatives being undertaken to grow its reach?
Kunal: As we continue to build out our SME book of business, we are also focused on AI and machine learning initiatives to determine how we can apply the efficiencies we are building in the SME loan space into all of the core lending businesses of financial institutions (think consumer, commercial, auto, real estate and other areas of lending). Blockchain is another area that we will explore as we look to extend our capabilities.
CL: What type of organization is the core consumer of Thrive?
Kunal: There are 5K+ financial institutions in the US that are sub-$10 to $15B that typically don’t have the internal infrastructure in place to provide a digitally native loan experience. For these customers, it's either buy, build or license. Most don’t have the IT knowhow to build internally, so they need an external partner like us that can deploy our cloud-based infrastructure quickly.
The larger institutions are a segment we are open to working with but their sales cycles are slower and they tend to resist change more. As we prove out our thesis in our core market of <$10 bn bank lenders we may find more opportunities to move upstream. And we definitely want to find ways to work with credit unions and non-bank lenders as well. Those should fit right in our wheelhouse. We are also seeing a lot of international interest in our product which is cool.
CL: How long does it take to integrate a bank partner with Thrive?
Ke: In our first integration with Horizon Bank we were able to integrate Thrive with their business in 6 to 8 weeks from the signing of the deal because we built our solution in the cloud, which enables us to integrate with an existing server very easily and without actual boots on the ground. In the future, being able to integrate with different core systems will require new learning’s and adjustments that we will have to grow from, but in the early days we expect most integrations to take about 2 months from signing.
What enables our quick integration is that we have built our system with modular components so we can integrate through various points of an organization. At Horizon we integrated through the accounting side, but we can also integrate through a servicing platform or existing database as well. As long as the bank is working with us we can work with them very efficiently.
CL: In terms of customer acquisitioning and going out and driving more sales into other banks, what are some of the challenges you face in doing that and what is your strategy to overcome it?
Kunal: The challenge of a B2B business is the long sales cycles so that is something we are currently working through. Currently it takes about 6 months to close a deal, which is typical for the B2B space, but something we hope to improve on as we scale. At the outset the best way for us to acquire our first batch of customers will be through word of mouth. We have a great number of tremendous advisors with connections to a plethora of banks
Beyond that, as we scale, we'll be able to wrap in more of a fully integrated sales and marketing campaign to drive the value home and scale it even further. Distribution partnerships are also in the works.
CL: What types of early feedback are your receiving on the simplicity of utilizing Thrive?
Kunal: We have heard directly from the CEO of Horizon Bank that the manual process of underwriting these sub-$250K loans has been cut down from days or weeks to 20 minutes. The backlog of the loans that they were denying just because of a lack of capacity to service them is going away with the Thrive solution. And with these shorter cycle times to close a loan, the cost associated with each loan unit is going down helping the organization to achieve greater profitability.
CL: Why did you decide to provide the Thrive solution as a private label offering rather than brand the digital loan experience as Thrive
Kunal: We found the bank brand to play an important role from a marketing and optics standpoint. Our solution enables banks to appear focused on providing a better customer experience that is faster and more efficient. We do make it clear to bank employees that the loan is powered by Thrive, just like with PayPal it will say pay with PayPal, but on the consumer facing side we think it should be branded by the bank because it speaks to the bank signaling its commitment to innovating for its customers.
CL: How competitive do you think SME banks can be with a solution like Thrive in comparison to direct lenders like BlueVine or SmartBiz Loans?
Kunal: We think banks can actually outcompete many of these direct lenders because the cost of capital is infinitely cheaper for a bank, which means that they could lend at a much lower rate and have higher margins. Money is a utility. If I own a coffee shop in Manhattan and OnDeck is offering me a 19% a year loan online, and the Bank of Brooklyn powered by Thrive can provide a similar online experience with a 9% interest loan, businesses will go to Bank of Brooklyn 100 out of 100 times. We give banks the ability to lend as fast as OnDeck, but they can lend much cheaper than OnDeck.
On the customer side banks also have lower customer acquisition cost and a large depository base of customers that are already utilizing their services. Online lenders have to go acquire costly customers and will likely lose them after 6 to 9 months because they are only offering a certain set of products. The banks are already ingrained in the customers financial life, so their retention levels are much higher and thus outreach cost to new customers is much lower.
CL: With a competitive loan offering and digital experience for customers empowered by offerings like Thrive, do you think SME banks over the next five years will grow at an above average market rate?
Kunal: 100%, because right now banks hardly touch this space at all. The direct lenders essentially own the SME loan markets in the sub-$100K range. With 60% of all SME lending in this country coming from these small loans it presents a huge growth opportunity for banks if they can compete effectively and be profitable in this market segment. And over time if our bank customers have the same automation technology as competitors like OnDeck and Kabbage, but better rates small businesses will begin to navigate more towards traditional lenders. To put the opportunity in perspective, over $300 billion in SME loans today are completed offline. We want to tap into that $300B market with a better solution for lenders and customers alike.
Ke: To elaborate on that point, when I was at Prosper I watched consumers come to us not because we had the best rates, but rather because we made the process of obtaining a loan fit easily into their daily lives. They weren’t having to take time off from work to get to a bank so they could fill out a bunch of tedious paperwork. That kind of experience is what we are trying to bring into the SME lending space. If we do that effectively customers will start flocking to SME banks, which will enable them to grow significantly in this digital age.
CL: You've raised one round of funding from a seed investor. What are your near term plans for raising capital and what would you use it for?
Kunal: We are actively looking to raise currently. Our thesis is that we will look to utilize the capital that we get to focus on building out our engineering and sales team. Having an effective, and efficient sales team on the enterprise side will be an essential part of how we scale.
We’re also focused on distribution partnerships where we're talking to several bankers to help support the business development function. One caveat that I wanted to add in here, is we've also been seeing a lot of inbound interest from the international market since we've been in the press a bit more.
The Minute Rundown with Kunal and Ke
CL: If you could provide one tip to someone considering starting up, what would it be and why?
Kunal: First off, don't be afraid to change. We started off in one direction that proved to be incorrect once we started listening to the market. Had we become fixated on the initial vision we would be in debt right now. So listen to what the market is telling you, what your customers are saying, and be proactive. Second, you really do need grit and perseverance. It may sound cliché, but it something that I think goes a long way. This has certainly not been a walk in the park with everything that occurred in direct lending as we were building this business. I'm convinced that a lot of what makes someone successful in entrepreneurship or outside of it, is just the ability just to have grit and perseverance.
Ke: I like what Kunal said, basically, you've got to be agile. You've got to think on your feet. Listen to the market and see what changes need to be made. Again, you've got to persevere and just grind it out.
CL: If you could model yourself after one founder, who would it be and why?
Kunal: Phil Knight is a guy that really believed in his vision of Nike. He was very focused on the brand and the value that it provided. He was also someone over the course of his career that was very adaptive to market change. He was able to move with the market but never faield to stop experimenting and really, over time, created an amazing brand with amazing products.
One other person that I think speaks well to my comment around the qualities that you need to succeed is Nikola Tesla. He may not be an entrepreneur in the truest definition of the word, but he faced immense adversity, and continued to see the future well before lots of other people did. He believed intensely in his vision, and was not dissuaded by ‘noise’. He was keenly focused on the ‘signal’ and was able to validate his thesis through his scientific demonstrations. He’s not alive today, but if he were around a bit longer, people would have really appreciated the contributions that he made and the courage that he had to see the future before anyone else.
Ke: One founder that I really respect is the founder of Pinterest. I think name if Benny Silbermann. I really appreciate the major pivot he and his team were able to make, from starting out as really a shopping website and then they pivoted to, what we now know, as Pinterest. Despite that major pivot in strategic direction they have been extremely successful and they've been able to make this general idea of a pin board a bit of a cultural phenomenon for different people. I’ve been really impressed by that.
Kunal and Ke are a formidable team that have been a part of two of the most household Fintech names out there, being Prosper and Venmo. If you take the innovation of the loan markets that you get from Prosper, and the frictionless innovation of the payment markets from Venmo, you get the vision of what Thrive is all about.
If we think about what technology is, it is a set of tools that are supposed to enable people to be even more effective in their work. Thrive is providing the tech to enable the banking markets to more effectively serve SME customers with a loan solution that looks and feels like the 21st century.
The long term vision of disrupting the entire core loan market with a set of tech enabled solutions is rather exciting. My feeling is the innovators who can mix brick and mortar with tech likely have the best upside of any others. Thrive is well positioned. Big days are ahead.
Stay tuned and thanks for the Simple.Innovative.Change Kunal and Ke!