The fintech industry, like so many other tech fields, had a nasty fetish for inclusion that has nearly destroyed it. Companies like OnDeck and Lending Club built their entire business models around inclusive finance, such as community reinvestment, NINJA loans and micro-lending.
While the sentiments that underpin these quixotic efforts to change the basic laws of finance and human nature may be laudable, the end result of believing in financial fantasies is always financial ruin. And this is precisely what has befallen OnDeck and Lending Club, with both companies trading at just fractions of their all-time stock highs and with many observers predicting liquidation for both firms.
GreenSky bets on exclusive loans
But while its fallen competitors were tilting at imaginary windmills, GreenSky Credit was building a viable business around proven money-making techniques. The company opted to go after deals where not just one party would make money, with the other being rapaciously exploited and left to the vultures. Instead, GreenSky understood that by excluding the vast majority of deals and the vast majority of applicants, it could create lending opportunities where the customers, the bank and the retailer all walked away huge winners.
GreenSky did this by concentrating on creating a technological interface that allows for retail customers doing high-end home improvements to instantly access financing in amounts up to the hundreds of thousands of dollars. The secret behind the company’s phenomenal success is that the firm only concentrates on the absolute top end of the prime borrower category. This typically means that GreenSky customers will have FICO scores of 760 and higher, making them highly attractive lending prospects for the largest and most respected lenders in the country.
Because the customers are so creditworthy, the lenders are able to extend loans on some of the best possible terms. The average GreenSky loan comes with no interest or payments required in the first year. After that, the interest rates can jump as high as 18 percent. But most of the company’s customers pay the loans off in full before the higher rates kick in.