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The Montgomery Summit 2021
March 4, 2020, Online, USA
The Montgomery Summit 2021
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About speakers

Brendan Carroll
Co-Founder & Senior Partner at Victory Park Capital
James Paris
CEO at Avant

James Paris, CEO of Avant, one of the pioneers in online lending dedicated to providing banking solutions for the US middle class. Since 2012, Avant has served over 1.5 million customers with over $6.5 billion in loans and 400,000 credit cards. The company has also raised over $600 million of equity capital from General Atlantic, JP Morgan, Peter Thiel, Ribbit Capital, DFJ, Tiger Global, QED, August Capital, and many more!

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Good afternoon, and well, good afternoon, from from James. And I are in Chicago. I just good morning or late morning to those, even California. I'm bringing Carol. I am a co-founder and Senior partner at Victory Park Capital. We are alternative asset management firm based in Chicago with a large focus on fantech, very happy to be here with a longtime friend as well as the CEO of one of our portfolio companies Avant. We've been an investor in a box is 2013. So apologies in advance. My questions may be biased

because they're obviously big fans of the business. But before we jump in, I'll pass it to James to give a little background on himself. Hey Brandon, thank you and great to be here at the Montgomery Summit. I'm James Paris CEO of a bond and really excited for the discussion today is Brendan says we go way back. Good. Good friends with Victory Park and Avant has been going to working with them from from the very early days. I think almost seven years now. It really quickly Avant is a consumer-focused lending and credit platform today, where we have personal loan products

credit products. And we're also launching some exciting new products this year both in the point-of-sale space and the auto space. So we're focused on. As I said, the consumer Market, specifically, your everyday middle class near Prime consumers, which lot of people Oriental round FICO is sort of in the mid 500 to the upper six hundreds of FICO. So it's it's that classic middle-class I guess a segment of the consumer economy. That has not been well served historically from traditional players. restart want to

talk a little bit about where the company is today from a product and focus standpoint versus maybe where it was when we first invested back in 2013, Yeah, sure. Well, maybe a little bit of History to the kind of compare and contrast your point would be helpful. So when a company started in 2013 we really had one product that it was a personal loan product and we were very focused on the same consumer segment. In the rationale around that was coming out of the financial crisis. You got a lot of things pulling back. You got some players that focused that we're not being specially

ferdinand's providers into the segment that they really were not very effective for the consumer and nothing was happening. Effectively digitally. So we enter that space focused on the new Prime consumer because it's a huge it is a huge segment that was under really initially with a personal loan products which was largely oriented around. Debt, consolidation emergency, expand access to fun. And what we've seen over time has been that's been incredibly effective product for consumers. We've done about seven billion dollars of that product historically, but we started to see, Ways of

addressing many, many more needs for consumers. And so about three years ago, we launched the credit card product, which is grown very significantly for us. And that product is oriented a little bit differently from the loan product from the standpoint that IT addresses a larger number of customer so it, well, it can meet the needs of the of the loan product customers with an average, for us is about a 650. FICO we actually go much deeper as well with multiple credit card, offering further down the Spectrum. So I'd say that's obviously one of the big differences. In

addition to that, as I mentioned, I guess, at the outset, we're really excited right now, to be in growth mode with launching some additional new products again, into that same customer segments. So we're focused on launching a auto refi product or the subprime near Prime consumer which will be in the middle of this year and that's a product that Will essentially I'll look to put the money back in people's pockets in connection with refinancing existing auto loan. So we call that a cash out refi which we think will be a, you know, very well

received by this category consumers and then we're also launching point-of-sale financing products that customers can take advantage of an ending, resetting or potentially it another day, point-of-sale physically, it's certain merchants in so that's obviously been a very very high growth area, particularly with the the pandemic and prices in her all the focus on eCommerce transactions or Saturday, launching, both Auto and point-of-sale, which we think will complement. Beat the loan in, in the car products and ultimately what we think about can become is really, that's

rusted. A partner trust a destination for a lot of those basic everyday consumer financing needs whether it's a personal loan for a larger more substantial situation or that date of a credit card, your auto loan, and then, we're also looking very hard at the space that we're seeing a lot of, a lot of movement, a lot of change in around deposits as well. And, and I think if, if we're able to make some progress on that front, we would, we would obviously have a lot of those core everyday products in one place for that consumer. So we're very excited

about building toward that. What was talked about about some of those products for everyone watching here in a little bit. But before we get there cuz I know I get to question from our investors. Let's talk a little bit about the split. That happens little over a year ago now between Nevada and mount and maybe just sort of lay out the differences in the reasoning behind it. Absolutely. So we were those that don't have all the background, we built a business called amount within within the Avant business and this really kind of hearkens back five six years as we

were building out the amount business and focused on his near Prime consumers, we realize that Banks really were not at where were ineffective at addressing this customer category. So, we thought, what if we approach the banks to try to help them with that says, hey Devon can be a great partner to you. Well, it turned out that they were much more interested in figuring out how to power their own digital offerings, with really, world-class pack and software. And grape, uniprot fraud, prevention in all of the things that are dangerous. When can a person get into a purely Digital

Credit products. So We started talking with him or about that, that's really the idea where amount started to take shape, was it? Maybe we should actually be building these Tech platforms for the banks. And so that is amounts Pocus which is really on the backend, technical deployment assets that can help originate, you know, multiple different types of credit or deposit products through the modules that have them out. His bill Avant has remained focused on the consumer and being someone who's being a company that's there to meet the needs of the consumer and where is

really the the amount products could work across standing in a range of consumer categories in Oban, fully focused on this in your Prime consumer. And so what we've done on our side since finding out of Mound, where amount continues to provide back in service this to us, Avant has continued to invest materially in our own technical architecture, so A lot of investment in new data structures. A lot of investment in digital marketing capabilities. A lot of investment in our model hosting architecture. So how to think about the two businesses going forward

amount is essentially a vendor of some of the backend technical assets to Avant. Where is Avant actually sets all of the strategies drives, all the models do sell the models and ultimately is responsible for the customer experience to. So we, we control and manage the mobile app and all the front end ss250 that the customer interacts with an interfaces, with all the marketing and everything is us as well. So distinct differences in the reason behind the split was really tell out both companies to achieve their potential by being able to focus on what they

needed to do to kind of drives drive both businesses. You know, I'm in love in the appropriate way. So the good news is both businesses but doing really, really well. You know, mounted to successful Capital raises in in 2020 of on had a really strong year and maybe we'll touch on the performance a little bit in a bit, but but it ain't in any event. The transaction of spinning, the company that went really, really well. And I think his is allowed both business, really flourishing and move toward their goals. The US consumer. I

know in RC to Victory Park, we're very bullish on the consumer and and have been if it's in the right structure, really? For the past decade, but I don't want to talk a bit about. There's a common misperception out there, amongst many investors that the consumers not a good place to be and that we would be proven wrong at a certain point. Let's call covid that certain point. And I know that I've been very happy and surprised obviously with the performance of your company during this covid pandemic. But with the US consumer law, In Tech businesses exposure to that consumers while

but no maybe talk a bit about some of the things you were able to do when covid hit to protect the business and your credit and you'll maybe some of the advantages of why a platform like yours is able to react quickly to something like that. Yeah, sure. 2020 was obviously you know probably unusual year impossible to predict sort of how that played out. So I think it was it was really It was really exciting for us to see the end of the whole team within the company responding really effectively and then actually being being able to execute

against that. So it a number of things that we did, I guess out of the gates really focused on the customer and on how do we ensure that we have seamless customer service and, you know, as kind of the very first principles. So we were, we were really effective with moving everything into a remote environment. Didn't didn't really have any hiccups from that standpoint and then we were able to get into much more of the subs and it was kind of a really important important things in terms of how we were able to use our system, which is pretty flexible to essentially identify

First. On our side, we did some segmentation around the borrowers, both on the loan in the credit card site to think about are there particular indicators of stress across the portfolio that we can use to identify where those pockets might be. And then can we proactively reach out? Those consumers with some proactive options and offers, that's the sort of how they might be able to work through if they're dealing with a hardship. So what we did on that front I think was was, it was a big effort from our internal data analyst and in Risk teams, as well as his product, and

ultimately the teams that deploy deployed us, but we want up with it, was a highly customized individualize solution at the customer level, which would result in different outcomes for different people because it was really customized and designed to what their situation was so good. I think the fact that we have a really flexible platform when we were able to essentially put, put this New Concept for that type of of borrower modification in place very quickly, and it was just what was appropriate, given the situation of covid. And I think if it's an important point

because, you know, covid was somewhat unique and different and the next thing is going to be unique and different to going to be Something else, whatever it is. And I think what, what's nice about, I think, being on a modern platform and I think this is the case, not just about positive that I'll get a number of the more modern platform, you have indicators. I mean, everybody's kind of following what they're seeing in their uniform, a wristband point. When you see an indicator, what can you do about it? And you actually take some action, can you address a proactively? And I think

our system allows us to do to do that. So that was something that was very effective. And we've seen, you know, we saw a. Of time where a not-insignificant number of customer. Actually did need some help and customization and they were able to take advantage of that. And what we've seen has been really, really strong adherence rates with people if they're on a program and it's been pretty small for us in terms of that population, but they've done very well. So, that's translated the very strong performance for us. And for the industry, but I think we were

really well, positioned to be able to move move quickly on on that front. I say the other things that we did, maybe just to build on that little bit is, you know, we were able to make a number of adjustments, very quickly in terms of underwriting and marketing. And our first instinct was, hey, let's just take it easy a little, but let's make sure we have a handle on, you know, sort of how deep, how significant, how rough the road is going to be. As we get deeper into another covid crisis, so we were able to make them a number of modifications

where we could sort of Titan marketing. Titan Friday to keep a very careful eye on things. And then later on in the year, open those things back up again and so we had a lot of flexibility on the marketing, on the pricing on the underwriting side as well as on the servicing and sort of how we approach the bar our side. So it just, it felt really good to having a system that could, you know, React to what we wanted. And so, I think that that's hopefully that came through, I think that was and I know as we looked across our portfolio, when Kobe first hit,

we were expecting hardship request to be significantly higher than what. They actually ended up being in for the audience. What I mean by that is going to borrow or calls and ask for an extension on payment and interest vacation holiday so to say so that they have more time to pay. Are loan based on hardship that we expected, obviously told it would create a significant amount of hardship across our portfolio. We were very surprised pleasantly that bar. Work performed very well.

In those hardship, requests were a lot fewer than we thought they would be. No, I personally think a lot of that has to do with the government stimulus. Package people, stay at home. Having places to go and spend money, but, you know, you're a heck of a lot closer to it than even. We are so, you know, when they touch upon that for a little bit, Yeah, it's a great it's a great question. It's one that the whole industry has been focused on for quite a while and it didn't. So I agree with you. I think that there were certainly really significant impacts in a

positive sense from the government's actions on the stimulus front for Consumer. So I know we saw that as recently as the stimulus package that was passed in your November November December and it actually hit in late December. And, you know, we would see following the timeline of of those making it out to the to the population, a bit of a dip in the man in the ensuing weeks particularly for the lawn products that you could actually see those funds you know, kind of helping consumers. So I do think stimulus have been a big factor in that but I also think that just

really fundamental underwriting practices that the that the industry uses that we use that are really rude it in Very sound proven Financial techniques in in terms of underwriting, loans and credit cards where you are looking at the cash flow at the individual borrow or 11. And you're looking at other debt, obligations, Castle, obligations, rent, mortgage expense, those kinds of things in your your underwriting to that and obviously your factoring in economic sensitivities of things. But it's it's the same techniques that have been used for decades essentially, at,

in a large banks with the exception or the difference being that, there's just a lot more data that's become available in the last even, you know, two years. Five years ago, I kind of keeps it continues to evolve in terms of some of the data that we can use compliantly to decision and and select customers around underwriting marketing. So I think that continues to get better, which allows us to say the industry to say, yes, to more people be there's, there's better transparency, but But yeah, I think I think that the what you saw was the,

you know, well based underwriting and risk mitigation policies and techniques actually working at a time with a lot of stress. And so, you know we did have some something like 10% of the, you know, roughly of of the loan customers, for example, who said they were dealing with some form of hardship and it took many different forms depending on on here is that you're talking to you look during a natural disaster, hurricane, a flood excetera. And we have data that goes back, you know, decade-plus and things like this. We saw a hardship request up to twenty-five 30%

in ZIP codes to wreck lee affected by natural disaster. So I can call the hit. You didn't really like James, you don't have any comparison. So we were trying to figure out how to even model or make an estimate of what a hardship. Request would look like given this new world. And again, we looked at natural disaster type scenarios and across our portfolio, average around 12%, and James was 10:00. So it was significantly lower than, you know, kind of our fears of what it would be, which was obviously a very, very nice surprise.

Since we're talking about Kobe to be in our business, but we had two, obviously react, very quickly like you did in our day-to-day operations, but I think there were some positive that will learn in terms of how to manage our business day today. Hopefully get closer and closer to changes. I think and how we operate our business for the better. You know, you're a CEO of a large business. What about you guys? I think so, as well look, I think we're having a successful conference right now and nobody's in the same room together. So we've obviously everybody's kind of adapter in a lot of

different ways to figure out how to do business effectively. So, I think we'll be the same. I think we'll probably be more flexible around, you know, being in the office, not being in the office, things like that, we haven't made any, you, no definitive. Sir pronouncements around, been anything like that. I don't expect that we will anytime soon. So I think we'll be more flexible around those things but I think we also have a really strong appreciation back on the 10th of the last time we were making for the importance of being able to Pivot and make modifications to the systems to the

business when, you know, when something warrants that. And I think this was an incredibly good experience to kind of go through to understand what are some of those, you know, some of those pain points Under Pressure might be as a business to be able to kind of work. Through put better processes. You don't have, you don't have the right level of focus on those areas. So certainly being, you know, being tested through something. That's the significant. I think we'll make any business stronger but you know, clearly there's going to be going to be modifications, to

how we do things going for. But I mean, you know, throwing it back at you. I mean, what are you saying across the industry or your own business that you think it is? I mean we've we've closed on six transaction since March 12th and that's for us was the beginning of working remotely and I think I would tell you if you ask me I'm do I think we would have closed $60 within a year. I would have said no way and you know we went from playing defense for the first 60 to 90 days. Making sure you guys and everybody else were reacting, you know, very quickly

accordingly and again, we were very pleasantly surprised that I had that way and then we looked at play office because, you know, you just talked about with your new products, you know. You and I have been bullish on centech Jennifer decade-plus. So we're a bit biased, but there are certain segments you mentioned point of sale. Buy now pay later that has really been exacerbated. As a result of the way, people are now living their lives because of cold, right? Shopping more online doing more things to do before. So, Translated into executing on

transactions as well, and that we've done now. Four of those six deals have been with management seems that we had met in person, you know, prior to getting in front of the only way I've met him on a screen in same way with doing it, it was just new and different, but we've found is very efficient. You can do is zoom in the morning with someone in Europe or the Middle Eastern Asia. And then in the afternoon with the US California excetera. So from just getting in touch with our investors, talking to our portfolio companies, it's been a lot more

worried about culture in the office every day. You're not seeing people, we brought on new hires, I'm sure you have some spoken beginning. You just worry about getting those people and Grand and just having the ability to pop up and ask a question of someone that's around them, it's been there longer. So you know, I do worry about that quite a bit. But from a little work-life balance standpoint of our Workforce, I think it's better. You know, the weed a kind of blurs into the weekend at this point in your really know the

difference sometimes but I think there is beneficence he's and things. We've learned, we can do on a zoom around a call that you don't have to message you do in first. So that's been the biggest change for us. Back to the point on like you and I love finntack. Let's talk about two things. First, let's talk about Regulatory and you and I follow the regulatory world is fintech very close and we have for a long time. There's been significant amount of change in the last decade but I think it's pretty safe to say, you know, the industry's not going anywhere.

If anything is going to continue to grow which is going to just bring you using new opinions and regulation. Got a new Administration I think either today or tomorrow? Going to get a new cfpb, director confirmed by the Senate. You know, what are you seeing or thinking about from a regulatory standpoint with no change in administration? Yeah, it is a great question. I mean, I think we're very interested to see the the pace of innovation within the regulatory environment that, you know, if that continues to be embraced, I think that it feels like it will be and it should be.

We seen obviously a number of new bank charters for example, getting issued or applications being being taken in. And so, I think that is certainly a positive development in general. I think we wouldn't anticipate clearly enhanced regulation and certainly even greater focus on customer rights, on Fair, lending, any kind of discriminatory of predatory practices. I think you will see, you know, clearly a lot of focus on all of those kinds of things from Regulators, like the cfpb in. So, I think it'll be very

interesting to see How that plays out, right? You know for all of us in the space obviously regulatory matters and compliance has taken incredibly seriously into something that, you know, you have to be really good at 2 to be a successful company in to serve the customers while. So will continue to be focused on that and we got a great team to continue to monitor his things of all but I think that's what we would anticipate is you no more Focus from regulators and probably you know in particular on some of those areas that I mentioned

want to talk a bit about. You guys are an anomaly in that you're still very high growth business and I think you two sucks, we're also very profitable business with some people having a tremendous asset investor in your business. Let's talk about that but then combine it with, you know, there's been a lot more attention at least in my opinion on syntax from the The world of public and private. You know, we haven't been text back. That's announced the transaction. We have two more on file and we've seen,

you know, some of your peers, go public. Just curious with increased demand for access to companies like yours within the industry. What other avenues of next stage is autobahns life. Are you thinking about her seeing today as options? That may be work there a while ago, but the touch on the obvious to the profitability and growth first. Yeah, sure. No. Thank you. Kind of a handful of things in there, I think. The growth of the growth opportunity is really really significant offer of on right now to try the car business even in 2020. During the

pandemic was you know we grew volume about 80%. I think we we anticipate we're going to double it this year should grow another 100% this year. So we end we actually think the loan business is going to absolutely Skyrocket at once. You know. So are we get a little bit back to the full normal seeing you got the consumers, fully engaging, the economy Foley open stimulus checks in the rearview mirror. You going to kind of see that that the man come back. So you know, very excited about both of, you know, the demand than sort of the the volume opportunity profitable. Yes. We've been profitable for

a couple years. I think we'd achieve sustainable profitability and that's really exciting for us that we're at a point now, where we can really say scale in leverage, a lot of big, big fixed investment that we've made across our team across Market. He's dating all these things that we built that we're going to finally going to be able to continue to Leverage I really grow the additional, you know, the balance sheet in and become more and more profitable and I think talked about earlier, but the auto of the POS launches were very excited about all this to your to your point that you are also

making. I think, you know, we're seeing a much greater, you know, sort of awareness acceptance of investors of what's happening in 10 pack and realization of this is here to stay. Like, this is really Monumental transformative changes happening in the industry. That's using a lot. It's using a lot of Technology information data. That should be able to provide better products to consumers in a easier more seamless way. And that's just going to leave. Like I think that, you know, if you've got a better product you can deliver more quickly in that meet

the customer's needs. That's the one that they're going to go for. So that's really what this space has been focused on for a long time. And I think you're finally starting to see some of these strategies of some of the earlier company. You know starting to you know round into like in our case you know a multi-product strategy that needs a lot of customers needs. Other people are are pursuing different strategies but I think what what the realization is that? There's a massive Market opportunity that companies like ours are taking advantage of and moving into and I think you're seeing

investors recognizing that and rewarding bad nursing staff transactions IPOs and things like that across the space which is really excited. Being sold on the clock that we are out of time. So I'll thank everyone who's on here cuz you're who called just be me and you and that it's possible. And the nice people helping run this conference to thank you all. I'll give it to you to put on parting words in while Brandon. Thanks for hosting. And thanks for the Montgomery so much for having us. It was it was a

pleasure to be here and which everybody well, enjoy the rest of your day and thanks for having us. Bye-bye.

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