00:00Scott, I want to start with you and just give us some size and scope of the business.
00:04The consumers that you're working with, who's interacting with the platform?
00:08Yeah, so we serve a customer base we call the middle majority.
00:12They are, if you think about credit, which we are a credit-centric bank.
00:16If you've got a lot of money, you don't need a lot of access to credit.
00:19You pay cash for car, you save up to send your kids to college.
00:23If you're on the other end of the spectrum, you can't really access credit.
00:26So there's this middle group that are high-income, heavy users of credit.
00:32So they can afford a car, they can afford to send their kids to school, but they need to use credit to do it.
00:37That's who we serve.
00:38It's a really big customer base.
00:40It represents about a third of the U.S. population, but it's close to half of the credit wallet.
00:45So they are more likely than average to have every form of credit, and that credit is, with the exception of mortgages, also larger than average.
00:52That's who we serve.
00:53How much do these people usually make?
00:54Our average, and obviously misleading, average is going to be misleading, but average is about $125,000.
01:01But you can think of it of ranging between, call it $80,000 in individual income to about $200,000 is where we really over-index.
01:10Great.
01:11One of the real highlights of your recent Investor Day last month was the panel discussion with marketplace investors.
01:20And we talked about this earlier before your appearance here on radio.
01:23One of the panelists talked about being aligning performance expectations, partnering with better operators.
01:30Are you seeing that with the private credit space?
01:33Yeah, we do.
01:34So we were born as a marketplace.
01:37Initially, everything we originated, we sold.
01:39When we acquired the bank in 21, we started to hold a portion of our loans on our balance sheet that both gives us a stronger and more resilient earnings profile, also allows us to do other things, innovate using our balance sheet.
01:55And what we found is just by aligning our interest with our loan buyers, we're the largest eater of our own cooking.
02:02We're the largest holder of lending club loans.
02:04We care very deeply about the performance of the credit.
02:07And credit is always evolving.
02:10It's very dynamic.
02:11Because we have a balance sheet, what we can do is when we want to test something new, we test it on our balance sheet.
02:18Let's try longer duration.
02:19Let's try a larger loan size.
02:21Let's try a new marketing channel.
02:23We hold that first.
02:24You own it.
02:25We own it.
02:25We make sure it performs the way we expect.
02:27And then we release that to the marketplace.
02:30If you don't have a balance sheet, you can't really do that.
02:32And so that's visible in our results across every aspect of underwriting.
02:38So lower delinquencies than the rest of the industry, 30% or 40% below, lower roll rates, higher recovery rates, lower prepayments, lower fraud.
02:48Literally every aspect that you can measure of credit we're outperforming on.
02:53Has that remained consistent this year in recent months, in recent weeks?
02:57Like, you have a great real-time view of the consumer in the form of how well they are doing in terms of paying back their loans.
03:04That's right, yes.
03:05Still looking good?
03:05Yeah, so that's been consistent for, you know, we released four years of data we put out there.
03:10And so it's remained consistent.
03:12But, you know, it's kind of like a duck on a pond.
03:15It's remained consistent because we're doing a lot of work underneath the cover.
03:19So, you know, something that we shared at Investor Day is at any given time, we have more than 200 tests in the market where we're evaluating price points, changes to the credit.
03:30So we're constantly adjusting to reflect what's happening with the consumer.
03:36And that's what's giving us the consistent results.
03:38Well, so that to me says you're very picky about who you lend to.
03:42That's true.
03:43We are.
03:43So in terms of your test.
03:44So tell me what it is.
03:46I mean, and how many of people who apply or want to access your platform, you're like, I'm out.
03:52Yeah, so we're pretty good at selecting who we want to have in our portfolio and reaching out to those people.
03:59And then both delivering the price and product experience, but also let's call it the user experience that gets them all the way through.
04:07So we look for areas where, for example, we can control the use of the fund proceeds.
04:14If you come to me and say, I want $20,000 because I'm going to do whatever.
04:22My kid needs braces or I'm moving cross country.
04:26Great.
04:26But unless I'm paying the orthodontist, I don't actually know that that's what you're using it for.
04:30So we try to set ourselves up so that we are in some ways controlling the use of proceeds and then making the experience such that it makes it really easy.
04:41So our largest use cases for people who already have debt, credit card debt, most notably, which at this point more than half of all Americans are carrying.
04:49They're carrying it at really high rates, 23% interest rate.
04:52It's the highest they've ever been in history.
04:55And we say, great, you should do this instead.
04:58It takes less than five minutes.
05:00We're going to save you 700 basis points.
05:02Oh, and by the way, check all the credit cards that you have that you want us to pay off.
05:06Like we see you have Chase or Cap One.
05:08Great.
05:09Check those.
05:09And we're going to pay them directly.
05:11So we know you are paying off your credit card debt.
05:13You're not just saying you're going to pay off your credit card debt and taking out more money.
05:17We are paying it off for you.
05:19Benefit for you is, you know, you've consolidated everything into one bill.
05:22Other benefit is your FICO score usually goes up by 30, 35 points because you've lowered, you know, your utilization.
05:30How much can you lower?
05:31Like I got to tell you, credit card rates just blow my mind about how high they are.
05:35And I'm just curious, why are they so high?
05:37Are people so bad?
05:38Is it to cover?
05:39No, I'm curious.
05:40Yeah, no, it's a great question.
05:41I mean, it just seems like it's out of control.
05:43And I think it prevents people from becoming financially solvent or creating, you know, kind of getting ahead of the game, if you will.
05:51Yeah, there's a lot to unpack in that.
05:53Sorry.
05:54No, no, it's a great question.
05:56And, you know, there's a number of questions underneath.
05:59But I'd say the biggest thing is if you think about how people choose credit cards, it is not based on the interest rate.
06:06Yeah.
06:06Right?
06:07It's my SkyMiles card or my whatever, my retail store card.
06:12I'm going to get rewards for this.
06:14They don't even know what the interest rate is or it's a promotional rate that resets.
06:17So that's one.
06:18They don't choose based on that.
06:19Half of the people don't revolve on the card.
06:22They're collecting these rewards.
06:23Yeah.
06:24But they're not carrying a balance.
06:25Well, guess who's paying for that?
06:27All the people that are carrying a balance.
06:30Those people don't know what their rates are.
06:33The research we've done is half of all customers don't say they don't know the interest rate on their credit cards.
06:39And the half that say they do, more than half of them are wrong.
06:42Wow.
06:43They think they know their rate, but they don't.
06:45Right.
06:45And so cards have been able, and one of the big resets with the cards was driven by the Card Act, which limited how much cards could increase rates.
06:55So they factored in higher rates.
06:57So they're not going to be able to increase rates.
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