Consumer finance is getting a face lift. Better yet the fundamentals of consumer finance are being reworked from the inside out. Take it from a guy who has been on the inside of some of the largest global financial institutions.
Diwakar Choubey, who served in numerous roles for organizations like Goldman Sachs and Citi took his view of the world from inside the largest organizations and went back to the ground floor with a reimagined approach for consumer finance. MoneyLion is more than a facelift to financial services. It’s the reimagining of our daily financial lives that many people have been waiting for.
Check out how Diwakar and his team are bringing about Simple.Innovative.Change in our discussion below…
CL: Diwakar, thanks for taking the time to speak with S.I.C today. You have worked across some of the largest financial institutions, from Goldman Sachs, to Citi and Barclays. Why leave the world of high finance to pursue the startup path?
DC: It’s interesting how I ended up here. By working for the largest financial institutions I had a front row seat to the evolution of consumer finance during the credit crisis and the aftermath. Inside Wall Street I witnessed the effects of Dodd Frank and Basel III, two pieces of legislation that were put in place to curb risky bank behavior, but that also led large banks to shy away from interacting with consumers all together.
Though I had never been an engineer or technologist I looked at this as a secular tailwind that presented a once in a lifetime chance to rewrite the consumer banking business model. Fortunately, my two cofounders come from technology and analytics backgrounds and the more we talked about it, the more we realized this was a unique opportunity to use advancements in parallel processing, machine learning and big data analytics to make better decisions in the online environment.
We were also excited that consumers at the time were showing a growing appetite for utilizing online banking services that reduced transaction times and made banking less intrusive to their lives. This led us to our decision to start MoneyLion in 2013 with the underlying feeling that this was an incredible opportunity to build and reimagine the consumer financing brand.
CL: For those who don’t know how do you define MoneyLion as a business?
DC: MoneyLion is a financial wellness platform first and foremost that is transforming how consumers think about money by providing actionable insights for them to consider through our software technology. For instance, MoneyLion utilizes artificial intelligence to identify when you are spending more money than usual and will alert you of ways to curb your expenditures or manage your debt with our loan offerings (though loan offerings are just one conversation we want to have with the consumer). We are trying to rebuild the same trust and relationship that many millennials’ parents had with their bank branch representatives in the 1970s and 80s.
CL: If we are thinking about macro-trends, there is an ever growing sense that banking is going to become more of a platform play with consumers picking and choosing the services they want. Is this the genesis for MoneyLion?
DC: That’s a good characterization. At our core we recognize that we are a data and technology company that provides an interface banking layer for consumers to best respond to balance sheet shocks. But, we are not a bank.
So our strategy has been to partner with banks in order to provide several of our offerings from lending capital to payment processing. And we are continuing to build out these partnerships in an effort to provide more financial assistance with products like personal, auto and refinancing loans.
CL: Since offerings like MoneyLion are brand new to the world of consumers how are you driving demand for your product?
DC: Since we have the ability to lend money we fit into an interesting part of the ecosystem. Demand is never really an issue. We have folks naturally coming to us from multiple channels. Many of our users are looking to optimize their balance sheets and are in the market to buy a new house or car.
Since we also offer access to your credit score for free and suggestions around how you can improve it, people who use MoneyLion can use this information to determine how much interest they will pay on a loan. We can also provide insights like options for better credit cards to switch to based on credit score.
By providing options across multiple lenders and credit card offerings we can build strong positive selection in a loan portfolio for our partners that underwrite our loans because we have a user base of people that are conscientious and want to proactively manage their financial health.
CL: What does a typical early adopter of MoneyLion look like, and how does this user base affect your approach to building out the business moving forward?
DC: Our target user base is typically middle class individuals between the ages of 32 and 42 years old making between $50,000 to $120,000 per year with a fairly even gender split. These are individuals with upward mobility that have college degrees and are interested in having access to financial tools that have typically been reserved for wealthier individuals.
From a growth perspective we think about it as how do we begin to engage and have more productive conversations with our consumer base? The way that we are looking to accomplish this is by beginning to establish more of the right banking partnerships to make sure we have the financial products that they indicate a need for in our product.
CL: What do the unit economics look like in terms of customer acquisition cost versus what the lifetime value will look like for customers?
DC: We usually think of LTV across the three dimensions in which we make money for our consumers. The first way we make money is by earning interest income on our loan portfolio. We also earn commissions on lead generation for partners and sell our massive data sets to leading financial institutions.
We also consider the LTV of our customers by thinking through how we can engage them for a longer period of time. We do this by being a trusted provider for their next financial product. By providing a good lending experience the first time, we can act as the cheapest source for another loan product if they need it. This ultimately allows us to drive an industry leading five-year lifetime value of our customer base.
CL: One of the cool features of MoneyLion is that you offer rewards for meeting savings goals. I was recently speaking with Safwan Shah of PayActiv and he discussed this issue that we are rewarding people for spending rather than saving. What is your view on this point and what is your hope with rewarding savings?
DC: The reason we started the rewards program was to incentivize members for being financially conscientious, like paying their bills on time and taking steps to improve their financial health. We are essentially encouraging and rewarding our users for building better credit. So not only do we offer best-in-class credit monitoring but we also encourage our users to lower their debt utilization, increase their on-time payments and develop good finance habits that are innately linked to a better credit score. So we are encouraging better debt management and savings.
This is where technology really comes into play. We have never had asynchronous access to credit data the way we have it today. We live in a world with parallel advancements in how people view data as well as in APIs that connect this data across platforms all at once.
Utilizing our machine learning and big data capabilities we can string multiple components of an individual together into a coherent sentences that allows us to tailor financial offerings to each user in a contextualized manner. This is way more sophisticated than the old way of doing things, which only allowed for cookie-cutter solutions based on limited data. So rewarding good financial behavior and being able to develop a more sophisticated view of our users makes MoneyLion a powerful tool for doing exactly what Safwan is talking about:, encouraging savings and good financial behavior.
CL: How does MoneyLion utilize endorsements from users’ networks to provide discounts?. What is the overarching goal of this initiative?
DC: Our endorsement and network building have no legal nature to them, but it helps us to identify a consumer that is conscientious about downstream actions, which correlates with paying bills on time. It works like Facebook or LinkedIn in that you add people to your network and give people endorsements. We essentially reward users for going to the effort of building a meaningful financial social network with reduced loan rates and other rewards because those consumers have been proven to be less risky and can still provide a strong net present value proposition even with reduced rates.
CL: MoneyLion just secured a significant debt facility from the Macquarie group. First off, what attracted them to working with you and how do you plan to grow the loan offering program through MoneyLion?
DC: We have a long history of working with the Macquarie Group and they understand our philosophical perspective around providing this type of product in this type of marketplace. They really bought into the vision.
Both sides also understand that banks have long internal processes to get a similar type of service up and running, so we provide an opportunity to tap into this business as a global partner that can help provide efficient and attractive credit products for consumers.
CL: MoneyLion has been around since 2013 but how has growth occurred. Are you seeing a significant shift as of recent as comfort and mobile usability grows and do you think there is a certain point at which this industry skyrockets?
DC: The first eighteen 18 months were focused on building out our risk selection technology and performing many experiments to determine what consumers like and are willing to share about their financial lives.
What we have learned is that consumers are much more open to having conversations around their finances than we first thought. Just look at Venmo for instance. You wouldn’t think anyone would want that to put financial transactions on a chat board but this is now becoming a common social interaction for certain age groups. We are starting to feel that the experimental phase of our business has taken off and we are now seeing the balance sheet grow meaningfully. 2016 was a big year for MoneyLion and we expect more of the same in 2017.
CL: How do you manage growth expectations for investors to ensure you build out MoneyLion responsibly?
DC: Our backers understand you have to take a measured approach to growth. We have a two-pronged approach at MoneyLion. First we want to grow our consumer base and engagement and second, we want to build a profitable specialty finance business.
We are effectively running a bank; in terms of looking at shocks in our loan portfolio as it relates to macroeconomic shocks and assessing the overall strength of our loan portfolio. On the technical side we are building out APIs to tie into the financial markets.
We have two teams. One in San Francisco focused on marketing and the user experience and then we have a New York team focused on the specialty finance portfolio. My job is to marry the two and bring to market a product that measures objectives on both sides.
The Minute rundown with Diwakar Choubey
CL: If you could provide one piece of advice to someone considering starting up what would it be and why?
DC: The one thing I have observed over the past several years is that there is no shortage of amazing ideas and amazing talent out there, but when you are looking at building a business around that excellent idea you need to have an extensive and honest conversation with yourself. You need to ask yourself, can I build a business around this amazing idea?
Many entrepreneurs miss that analytical exercise right at the start of building a business. Being charismatic and having a strong network that will join you in your endeavor can provide a catalyst that powers the initial push to create a company and get it going. However, taking that idea past the excitement phase and making it into a company that can thrive and raise capital requires a lot more discipline.
CL: What has been the largest challenge in moving from the large financial institution world to the startup world?
DC: When you are working at a large institutions you have a lot of support. It’s like having a very big, strong offensive line to protect you. At a startup you have no offensive line and you need to juggle all the pieces on your own.
From talking to investors and raising capital effectively, to relearning technical architecture and why certain backend developments are better for mobile, to making financial decision around how to allocate funds, to acquiring, motivating, and keeping talent around. There are so many pieces that have to come together and require very different skill sets.
Banks have large teams handling all of these matters. As an entrepreneur it’s challenging to be a jack-of-all-trades across every facet of the business, but you need to be able to manage people across the board who know more than you and be able to make educated decisions to build the business.
As we have become an organization of 150 people globally I have had to become more organized and have had to learn to rely more on my team. My job is to make sure we have right people in the right seats to handle those matters.
CL: Where does the name MoneyLion come from?
DC: The name actually started off as an experiment. The lion has been present in financial services from the earliest days of mankind. What our consumers showed in our weekly survey that we conducted starting on day one, was that the brand had a lot of presence and people responded really well to it.
It stood out more than many of the alternative brands so we stuck with it. There has been a lot of positive feedback from the user base. We are often asked for t-shirts with our logo on it and we give them out as rewards and milestones. So the brand is here to stay.
CL: If you could mirror yourself after one founder who would it be and why?
DC: I would have to say Elon Musk because he is a master of startup strategy. When he first started out with Tesla, investors would laugh at him for wanting to make effective, cheap electric cars. Now he has made not only a fleet of fast electric cars, but he has effectively built an electric company that is happening to manifest itself in the form of a car and solar panel company.
Also we are ultimately trying to change the way people interact with financial services. The end goal was to build a mobile finance platform, but if we came up with that goal no one would have given us funding. So we built an alternative lending company and then created a digital finance platform around it. We are effectively following a similar path to the one Elon Musk took to build Tesla.
Diwakar and the MoneyLion team have big aspirations to reshape how we maneuver our daily financial lives. Machine learning, big data analytics and fancy computer science techniques all come down to one thing: Providing a tailored and reimagined consumer financial experience.
I am hopeful that more consumer finance offerings arise in the years to come and that the large banks are no longer the centralized focus of our financial lives. Instead, tailored providers like MoneyLion can fill that void with a better offering that is focused on servicing the true customer needs. The long term vision of Diwakar and his team is one worth watching.