Lending Briefing: Extend puts its foot on the gas as others retreat in the downturn

HSBC and BMO are big names – how does Extend go about choosing partners, and what is that process like?

We've always said that our core is “infrastructure”. Banks rely on banking partners for much of their technology and capabilities, like card networks – American Express, Visa, Mastercard – they rely on core issuer processors, like TSYS, FIS and Fiserv. We essentially slot in as another provider that wraps around their existing core technology, and powers it up for the 21st century.

We partner with strategic players to deliver capabilities to a bank that can help them compete more efficiently and more effectively, relative to emerging players like Marqeta on the issuing side, and on the neo-card issuer side, compete with players like Brex and Ramp.

How long do partnerships take to come to fruition?

We signed our collaboration with Mastercard in the Q2 timeframe. It's taken us a couple of quarters to get the deals signed. But we were also pretty much ‘live’ with both partners.

It’s one of those accelerated timelines where the contracting, onboarding, setup, and also the go-to-market – in terms of defining how we're going to go after the existing cardholder base – has all happened within six months. Whereas I'd say with some of our other partners, when you bring go-to-market into play, then those deals could have taken us as long as three years, which is what it took for us to get American Express up and running.

What kind of results has Extend seen with its bank partners?

A lot of what we've seen is really rapid adoption. We are in a position where in the first year, we onboarded 1000 companies, and now at the end of our second year, we have on-boarded over 5000 companies. We're talking orders of magnitude that are drastically different.

Then, as far as the volume is concerned, we've now seen a threefold increase in volume this year alone. We'd be pressing close to 3 billion again in our second year when we're in the market, which is pretty meteoric growth for these issuers. It's all predicated on the fact that we've changed the whole onboarding and adoption for end corporate customers. In the past, they had to go and sign a contract for a new product, and then had to implement that product.

We've made it completely seamless, in that you can pull out your BMO or HSBC card, in the instance of the two recent launches, and within minutes, you're up and running. You have the whole slew of capabilities around digital card issuance to a vendor or contractor. It all happens right in an instant.

What is Extend planning for the coming year given the down market?

That's the beauty of the model. Our model is somewhat contrarian to fintech – we have always been able to partner with the established players. A good reason for this is that established players also fare very well through downturns. The banks have been around, they've been through these cycles.

But if you think of where we are in our journey, we've effectively enabled 5000 companies, but there are millions of small, midsize businesses in the US alone. All of these businesses use a credit card of some shape or form. For us, from an acquisition perspective, we haven't even scratched the surface of general availability, where every cardholder receives an email and is effectively notified that their card can just do a lot more now going forwards.

That's where I feel very good about going into the downturn – our acquisition strategy is just kicking off. It's predicated on cards already in circulation.

In 2021, you spoke about talent acquisition, and pointed out that fintechs are hiring people at exorbitant rates, and it might not be sustainable. Given the news about recent layoffs, do you think your thesis has been confirmed?

Oh, 100%. I think fintech has harbored the illusion that capital was free. All of a sudden, capital is not free. It's essentially a shock to the system when people realize that raising money isn't the prize. Being profitable is the prize, it's never been anything different. We couldn't hire during some of those periods, frankly, because I knew that we would have to end up getting rid of people when we have to rightsize the business.

At the end of last year, we were just about 45 people, and we just did an all-hands meeting here in New York City, we brought everyone together, and we're now 85. So just as everyone else is taking their foot off the gas, we've put our foot on the gas, because the labor market was coming back to us in such a way that we felt  we could now scale the business in a fashion that would allow us to have long-term business continuity.

Chart of the week

While the economy seems to be struggling, lending is showing consistency that might offer the system some resilience against the geopolitical instabilities. In the US, serious delinquencies on loans continue to be at all time lows and defaults on student loans and on mortgages are low as 3.99% and 0.37%.

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