Start-Up Spotlight: Insikt
We recently spoke with James Gutierrez, founder & CEO of Insikt, a white label loan origination and investing platform based in San Francisco. Insikt enables its partners – retailers, manufacturers, or even financial institutions – to offer loans under their own brand using Insikt’s end-to-end platform. Insikt also operates its own private debt marketplace to enable accredited investors to fund these loans. We spoke with James about his vision behind creating Insikt as well as some tips for entrepreneurs and investors in the alternative lending space.
1. What market trends did you see that created a need for Insikt?
I previously founded and led the soon-to-be-public Oportun, formerly known as Progreso Financiero, a lender focused on folks in the Hispanic market who didn’t have any credit history. When new regulations came out after the financial crisis, I thought, “this problem of access to capital is going to get worse, not only for Latino families but for everyone.” Banks will not be able to take on as much risk in lending irrespective of profitability or need. As a result, we think that major brands and large companies are going to want to take lending into their own hands, especially for non-prime customers, but without the headache of building costly infrastructure, which is what we provide on a “lending-as-a-service” basis. We also think a new class of investors, who are dying for short term yield, will want to invest in these assets but in a way where we both take risk of loss so that our interests are aligned. So, we securitize all of the loans on our own marketplace to fund them with a broad diverse group of accredited investors – high net worth individuals, family offices, and institutions.
2. What unique capabilities does Insikt bring to lending partnerships?
Number one, we are able to serve the full market, including a consumer segment that is very hard for others to approve: people who don’t have a lot of credit history and those with a low FICO score. These are everyday Americans who are working hard, but unfortunately don’t have great access to credit. We are able to offer these hard working folks an affordable product that our partners can feel good about – and which is also in line with the new, proposed rules on lending.
Number two, we are entirely white label and flexible. We want to empower our partners to be the winning brand with their customers, so we have built everything in a way that makes the consumer feel like they are getting an offer of credit from our partner. We also built our entire platform in the last two years, so we don’t have any legacy issues or systems problems. We can build any customer experience our partners want, launch programs quickly, then test and rework products in very fast cycles.
Number three, our Lendify platform is multi-channel. We can enable lending via the web/mobile or in brick-and-mortar locations, which is our initial focus. If you operate a brick-and-mortar location and you want to offer loans or finance purchases in a way that brings the best of digital to retail, we can do that. Having built and operated over 100 loan stores at Oportun, we have a lot of experience in designing the right in-store customer experience for personal lending or retail credit.
3. You have found success lending to non-prime consumers, which many financial institutions have found challenging to serve. What best practices have you observed serving this segment?
At Oportun, where we consistently had low loss rates including during the crisis, we found that some parts of the non-prime segment could actually handle a shock a little better than the prime segment. This might seem counter-intuitive, but what we found was that non-prime borrowers are used to adversity, so when times got really tough, it was not that much of a change for them and they could cope. Prime borrowers may have had lower absolute loss rates going into the crisis, but the increase in loss rates in that segment after the crisis was tremendous.
It is also important to innovate around how you are using data to make decisions. In our new model, here at Insikt, we allow our partners to provide any data on their customers that might help us make better decisions. Across the thousands of applications that we have processed on our system so far, we have found that there is a material difference in credit performance depending on what data we are able to get from our partners.
4. As a repeat financial services entrepreneur, what advice do you have for other founders or for private equity funds looking at fintech investments?
For founders, fight the pressure to measure yourself based on volume. Credit quality is what matters, and it takes time to get the seasoning you need to measure quality. The regulatory shock to the banking system is not going away, so play the long game, and focus on building a business that can get through the next credit cycle.
For investors, this is a great time to be investing in lending businesses, but many new lenders out there lack deep credit experience and, more importantly, respect for what could go wrong. I spent many years recruiting Nigel Morris to my board at Oportun and I always remember his early advice: “James, credit is like poison. It will bite you and you need to respect it”. The other key to lending today is to focus on big markets where you don’t have tremendous price competition and where you can price for risk (particularly in a stressed environment); you don’t want to attract borrowers who only care about price. The next correction could knock out a lot of players who are either priced too low or have not made great credit decisions. Founders and investors should focus on building and backing teams that have proven track records with underwriting loans in good times and bad times.
Finally, there will be a capital flight if there is a crisis. We are controlling for that by having diverse sources of funding directly from thousands of investors through our online securitization model so we can originate loans in both good times and bad times. This also aligns our interests with our investors and keeps loans on balance sheet, which we think is part of the solution to stable funding.
For more information, please contact Ben Brown, Senior Consultant, email@example.com, specializing in Credit Card Issuing and Payments Innovation.
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