Are we turning a corner on the FinTech Narrative? Is profitable growth happening?
You’re familiar with the standard industry narrative about FinTech success: grow fast with a modicum of risk management, then sort the rest out later. Have we come to accept the ‘success’ stories of Monzo, Revolut, N26 and Klarna who have been operating at a loss in lieu of growth?
If you grow fast enough, the losses become a smaller and smaller part of the pie, right? If CAC (cost to acquire a customer) is one of the biggest FinTech challenges, just prove you can conquer it, right? If you stick to measured growth, you’ll miss the FinTech land grab and lose anyways, right? Go big or go home, right?
Maybe not. Are we finally witnessing a counter-narrative?
At the start of the year, we saw Starling Bank move to profitability. Founder and CEO Anne Boden said: “Now that we are profitable and growing responsibly, we’re gaining momentum, generating our own capital, and executing on our strategy to expand lending.”
Another example is OakNorth who focuses on underserved SMEs. Also consider Lendable, for whom, “There’s a big emphasis on automation and identifying strong credit. It’s also very personal customer service on the collection side.”
Do we have examples of profitable FinTechs in the US?
Enter Octane Lending who is becoming a force in powersports lending. How did they do it? They offer speed and ease of underwriting, a strong customer experience, and a workmanlike attention to credit policy and process. Sound boring? Not when Octane is both net income and operating cash flow positive.
BankersLab has been working with Octane Lending and able to witness firsthand a case study in sustainable and profitable growth. In BankersLab Simulation Workshops, we put cross-functional employees into an Octane Lending “virtual lab” which allows everyone to test their theories in a safe environment. Through this lens, we witnessed a strong risk-minded and customer-centric culture proliferating before our eyes.
Do we see profitable examples in emerging markets?
Consider a FinTech in Thailand, Ngern Tid Lor, who have rapidly expanded lending to the underserved vehicle title loans. In the BankersLab Simulation Workshops, we immediately noticed a broad mix of skills, ranging from seasoned former bankers to young tech folks. As part of this mix, we also noticed a workmanlike, and data-driven approach to balancing risk and reward. Sound boring? Not when Ngern Tid Lor is growing their revenue with strong, positive net income.
- Cross-Pollination of Skills. The technologists are taking time to learn how lending works, and the seasoned lenders are learning how tech and automation works.
- Speed and Ease for Customers. Speed counts these days. Quick turnaround times at the point of sale are now ‘table stakes’.
- Focus on underserved market segments. What’s the ‘secret sauce’? A data-driven, and ‘test and learn’ approach enables smarter lending to these groups. For both Octane and Ngern Tid Lor, we configured the BankersLab simulation to be their ‘virtual lending world’ to further ingrain this thinking.
- Customer-Centric Collections. We notice that profitable FinTech’s have a strong collections game. Not necessarily Fancy AI. Or being more harsh on customers. Quite the opposite – a customer-centric approach which is continually optimized through test and learn experiments.
- Diligent focus on balancing risk and growth. Last but not least, you need to be able to anticipate the results of today’s decisions, months and years into the future. If you buy a bad bottle of wine just after it was produced, it’s not going to age well. If you become skilled at tasting young wine vintages and have a sense of which will ‘mature’ nicely, that is something worthy of a toast.
So it would seem that there are profitable FinTech lenders…. No longer an Oxymoron. It appears that brighter times are indeed, ahead.