Drinks with Borrowell

October 16th, 2015 by Potato

Before CPFC15, Borrowell hosted a drinks and appetizers mixer thing, and I got a chance to ask them a few questions about what they do (and full disclosure: they fed me snacks and a coke).

In particular, I was interested in how they approve borrowers, what their risk processes were, etc., and whether they were using any of the data available online to create fancy algorithms for approving loans. Interestingly (and reassuringly, if you’re an investor of theirs) they use very conventional risk metrics. Transunion and Equifax have been in business a long time, and it’s hard to beat credit scores and debt service ratios for determining risk and ability to repay debt. They can look at other factors to provide small tweaks or help identify potential fraud, but the basics are at work here.

Co-incidentally, after I got back I saw this great quote tweeted out: “Every company with a smart way of making loans others won’t later turns out to have a dumb way of making loans others won’t,” which got to the heart of what was on my mind as I was first hearing about Borrowell and innovative lending. And not that I have anything at stake, but it’s what I worry about for fintech start-ups: innovation is great, but there is over-innovation, and while it may be possible to find the decent gems the big banks reject out of hand and lend to them profitably, it’s hard and creates blow-up risk. And having some of these guys blow-up is not in anyone’s interest. There has been some talk about leveraging “big data” to make better loans, but it’s hard to do much more than tweak what already works, and it’s nice to see in practice that the fundamentals are at play there. They also mentioned that there’s a lot of tension between the underwriters and the marketing team, which is essential IMHO (if the underwriters aren’t killing the marketing team’s buzz something has gone wrong — indeed, if the underwriters aren’t separate from the marketing team, something has gone wrong).

The pitch was quite good: they’re not trying to make loans that no one else will, but rather to make it more convenient for people with decent (if not stellar) credit to get a loan without having to go in to a bank, without having to wait a long time to hear back, and without having to risk facing their neighbourhood branch manager to receive bad news. Also, that their main competition was as much credit cards (who do no risk analysis and just lend at high rates to all comers) as banks, especially since banks these days are mostly interested in pushing lines of credit instead of short-term (~3 year) amortizing loans.

Finally we talked for a bit about behaviour and how they can help. It was good to hear that they’re setting up referrals to debt management programs to point people towards if they get flagged by the system during an application as being over-stretched or in distress. And focusing on small-scale, amortizing loans (i.e. not revolving lines of credit, which are just about all the big banks offer these days), they can be more useful for those people trying to get out of high-interest debt.

It’s not a service I anticipate readers here to use — while the rates will depend on individual circumstances, and they will likely be a damned sight better than a credit card or subprime auto loan, they won’t be as good as a line of credit at a bank if you’re in good financial shape (which I assume all of you are) — but nice to know it exists.

One Response to “Drinks with Borrowell”

  1. Daniel @ SaveWithDan.ca Says:

    Nice insights!
    It would be nice to see a comparison between their products and similar ones (wink, wink).