Wharton FinTech Podcast
00:08:46 · Matt Palese
[00:08:46] S1: Yes. Ever since Earnest was founded in 2013, we helped customers by refinancing over $24,000,000,000 of student loan debt. Currently there's about $10,000,000,000 that sort of effectively sits on our balance sheet. And so if you translate that into actual customers over the life of Earnest, it's well over 400,000 customers and active customers today, it's more than 250,000, as an example. And you're right, I mean, all of our servicing today is, it is complex and servicing is something that we have been extremely intentional. Almost all of our servicing today is managed internally by Earnest employees. We do augment that with a servicing partner, but they mostly handle back office processing. Nearly all customer facing interactions are handled by someone at Earnest. On the tech side in particular, and as I mentioned earlier, we've been extremely intentional about how we leverage, where we leverage technology. One of the value propositions for Earnest, and this is directly from customers, is the value that they put on the human centric servicing approach that we provide. And we want to continue with that focus even as we scale. So you can think about our technology investments today largely related to augmenting, whether that means self serving on our web portal and making sure they have access to the right information to help them make decisions after they take out a loan, whether it's sending us an email and interacting with us through that channel or using chat to get sort of real time responses, we want to make it as seamless as possible. I'll give you an example of how that works in practice today. So if they want to talk to a live team member, we are typically able to get them connected with a live member of the team within ninety seconds of their request. All of this is really built around the goal of providing on demand service that enable our customers to get the support they need, using whatever channel is most convenient for them.
00:11:00 · Vaibhav, Matt Palese
[00:11:00] S0: Yeah. And speaking of technology, would you describe Earnest as effectively a FinTech company in that it's different from traditional lenders who might be in the same business? [00:11:13] S1: Yeah, absolutely. The way I think about FinTech is largely managing the customer experience through a digitally native lens and leveraging technology in ways to make the experience better, faster, and more effective. Everything that we do today in terms of how we acquire the user, which is largely across digital channels, how we help the borrower navigate the application process online, how we help the customer get a fast and easy decision that's understandable, the data sources that we use to facilitate those decisions, all of those are using technology in a way that helps us get to that decision and the ultimate outcome for the user. There's a loan disbursement mechanism that happened, is automated as well for us to actually disperse the funds directly to the servicer and to make sure those funds are dispersed and processed by the loan servicer that we're paying off quickly and automatically. And then there's the servicing component, right? And that's just optimizing for one particular channel there. That's making sure that we are optimizing for all the channels in order to serve all of our members.
00:12:25 · Vaibhav, Matt Palese
[00:12:25] S0: As you said, I can appreciate that a lot of the technology here is all consumer facing, all the way from acquiring to servicing, to helping them, on an ongoing basis. You also mentioned data sources for making the right decisions. I'm curious what your underwriting model slash process looks like. I can think of data points like education, employment, credit score, things like those, but would be to hear from you how your underwriting process is currently placed and how that might be, let's say, different from others. [00:12:56] S1: Yeah, the way I would think about this is our goal here is to really form a complete picture of the borrower as fast as we possibly can to give them the best possible price in the least amount of time. Right? That's the North Star. That's the objective. When you think about FICO in particular, which is heavily used across the lending space for a lot of different reasons, that is one critical input into helping us form that picture. But we also look at things like career trajectory, what your real free cash flow is after things like taxes and other debt obligations. You know, what your savings behavior is, whether you have other sources of income that we should be taking into consideration. So the better we understand someone as an individual using the right data, the more accurately we can assess their risk, the more competitive the rates we can offer to our borrowers, and the higher chances and the higher the likelihood of them actually saving over the long term.
00:12:56 · Matt Palese, Vaibhav
[00:12:56] S1: Yeah, the way I would think about this is our goal here is to really form a complete picture of the borrower as fast as we possibly can to give them the best possible price in the least amount of time. Right? That's the North Star. That's the objective. When you think about FICO in particular, which is heavily used across the lending space for a lot of different reasons, that is one critical input into helping us form that picture. But we also look at things like career trajectory, what your real free cash flow is after things like taxes and other debt obligations. You know, what your savings behavior is, whether you have other sources of income that we should be taking into consideration. So the better we understand someone as an individual using the right data, the more accurately we can assess their risk, the more competitive the rates we can offer to our borrowers, and the higher chances and the higher the likelihood of them actually saving over the long term. [00:13:53] S0: I was having a conversation with, I don't know if you know Christian Widham, who's the CEO of Bloom Credit, and he was talking about the need and the importance of alternative data sources just beyond the traditional credit score. Curious to hear if that's something that you heavily incorporate in your underwriting model and how you think about that.
00:13:53 · Vaibhav, Matt Palese
[00:13:53] S0: I was having a conversation with, I don't know if you know Christian Widham, who's the CEO of Bloom Credit, and he was talking about the need and the importance of alternative data sources just beyond the traditional credit score. Curious to hear if that's something that you heavily incorporate in your underwriting model and how you think about that. [00:14:14] S1: Yeah, I actually listened to the episode. I think traditional data sources, in the way I think about them, is largely credit reporting data in particular. That gives you a pretty clear picture of what has happened in the past and where does that currently put you on the scale of your ability to kind of pay back. The other things that we look at is sort of affordability measures. What is the income? How does that translate to your disposable income after real things like taxes and debt obligations? We look at your savings behavior, as I mentioned, to understand how disciplined you are in saving and also your career, right? Because we want to look at where you're going. And I think when you start to add up all these pieces together, that helps to form the picture between using traditional data, again, which is mostly gleaned from the credit bureaus, but also other affordability measures. And both of those things are taken into consideration to ultimately form a decision on the overall risk, which allows us to make sure that we are being as competitive possible on the pricing side.
00:15:23 · Vaibhav
[00:15:23] S0: Now, zooming out for a moment and thinking about the industry as a whole, from my vantage point, I can see that FinTech lending has faced headwinds in the last few years, like rising rates, defaults. I'm sure we're going to talk about that in a few minutes. Perhaps stricter regulations. Would be interesting to hear, where do you see opportunity in student lending today that perhaps other might be missing, that you might be working towards as a next step in Earnest's journey?