August 16, 2016
The LTP Team recently had the pleasure of interviewing Max Klein, CEO & Co-Founder of Float, an alternative lending company providing hassle-free access to a line of credit utilizing a proprietary underwriting solution. Max shared information on Float’s solution and insights on the proprietary underwriting engine that uses transactional and alternative data to systematically assess risk in young consumers. More interesting details to follow in the transcript:
LTP: Float has built a solution that provides a hassle-free line of credit that works with customers’ bank account, not credit score, which is of a great advantage for customers. Could you please tell us more about the solution and its features?
Max Klein: Float is a mobile-first financial service that offers thin-file consumers easy and instant access to a line of credit without a traditional credit report required. Creating an account takes less than 180 seconds and is absolutely risk-free. We have created a real-time underwriting engine that can effectively score consumers without the negative effects of a credit inquiry. Within seconds of connecting a bank account, a line of credit if offered between $50 and $1000, and is available for immediate use with any existing debit card. Float services the 75% of Americans living paycheck to paycheck with a solution that is simple, accessible and consumer-friendly. With no hidden fees, no long-term contracts and manageable lines, Float will never let you slip into debt.
LTP: Since Float does not use the credit score for risk assessment, what is the underwriting process and how does the company manage risks? Do you have a proprietary scoring solution? If yes, what is it based on?
MK: YES. Float goes far beyond the scope of the traditional lenders by looking at more than just the FICO in determining a borrower’s credit score. We have developed a proprietary underwriting engine that uses transactional and alternative data to systematically assess risk in young consumers; in doing so, we can safely onboard and approve millions of consumers that are overlooked and underserved by traditional credit providers.
Underwriting Float’s Instant Credit product requires a sensitive analysis of the individual's banking history in order to qualify borrowers with limited credit history. Within the signup flow, the consumer will connect their primary bank account with Float. Float pulls up to two years’ worth of consumer transactions to identify and verify income, expenses, spending behavior and volatility changes based on consumption. Once we have this information, our algorithms compute an individual’s borrowing capacity by looking at the baseline balance they keep, their average income and consumption.
LTP: Float targets millennials as primary customers. Why did the company choose this group of the population and what attributes of millennials are attractive for financial technology startups focusing on lending?
MK: We choose to target the millennial demographic because we are millennials ourselves!
Float is targeting early credit consumers who are ignored by traditional lenders because of their thin credit files. Over 50% of the 85M millennial generation is thin file and over 63% don’t have a credit card. About 40% of millennials will overdraft from their checking account this year or fall victim to a predatory payday lender.
Given that 63% of millennials don't have a credit card, consumer credit is not a fully penetrated market by current offerings. By removing the friction and hassle associated with traditional credit, all of the sudden, getting a new credit card is as easy as ordering an Uber. Therefore, as Float targets consumer credit offerings to millennials, the consumer credit market will grow altogether.
LTP: Who are your strongest competitors? Would you say Float’s solution has advantages over the competition?
MK: The competitors we face are from traditional banks such as Capital One with their sub-prime credit card offerings, all the way to new startups such a LendUp, which offers a similar small-dollar product. However, our pricing structure, speed of funding and overall mobile-first design, we believe, will win over our audience.
Our mobile-first financial platform can onboard, underwrite, and fund in near real-time. Our proprietary risk engine calculates credit lines based on transactional and alternative data, making each member’s terms highly personalized and therefore, manageable. Lastly, Float leverages the debit network to process transfers in seconds, not days.
LTP: Given the high market competition, what strategy does Float take to engage and keep millennials loyalty to the solution the company provides? What value does Float provide to this group?
MK: Float is one of the fastest and most accessible credit products on the market, positioned to be far cheaper than alternative products for the thin-file millennial market. We leverage alternative data to effectively underwrite this segment and fulfill the credit through our customers’ existing debit cards in seconds.
LTP: How large is the current value of lent funds?
MK: Currently, raising a debt vehicle around $5,000,000 to fund credit lines.
LTP: Float raised over $1.5 million from such notable investors as 500 Startups, FundersClub, Plug and Play and Camp One Ventures. How did the company decide to allocate funds? What are the plans for further development of the product?
LTP: Float has recently launched in Utah. What are the challenges the company faces in terms of growth of technological development? What further plans do you have for the company?
MK: Some of the challenges we face are purely the size of the market being so small. There are roughly 250,000 Utah Facebook users who are 18–35 and have an iOS device we support. When it comes to digital advertising, that market is tiny. However, we are seeing positive behavior with a user base that happens to have a low-risk profile than the rest of the US. In addition, we have already seen some early paybacks and positive engagement which tells us that we’re on to something.