Member Exclusive

Lending Briefing: Five questions with Vince Passione, CEO and founder of LendKey

  • LendKey founder and CEO Vince Passione talks to Tearsheet about the evolution of the lending-as-a-service model, as well as the current macro lending landscape.
  • Alternative lending is getting traction in some global markets, driven by Big Tech increasing its footprint in financial services.
close

Email a Friend

Lending Briefing: Five questions with Vince Passione, CEO and founder of LendKey

Ten years ago, everyone wanted to build a direct lender, but LendKey took a different approach by going B2B. They wanted to work with lenders like regional banks and credit unions to help them power their own lending business. 

LendKey is now a well networked lending platform designed to deliver capital and liquidity management to banks, credit unions and fintechs. 

I spoke to the company’s founder and CEO Vince Passione about the evolution of the lending-as-a-service model, as well as the current macro lending landscape. 

How did LendKey start in the lending-as-a-service business?

Back in 2009, we saw the need and need was simple – many of the clients that we deal with, especially local community lenders, right community banks, credit unions, didn't have the technology nor the capability to offer a digital lending solution.

We started in education lending, which was fairly digital as students were applying online. It made sense to enable local community lenders by building a lending as a service platform for them. 

Our solution became very popular, so we started moving into other asset classes as well. We built a full turnkey solution, providing the decisioning capability, the origination platform, as well as the servicing system, and also providing the call center and the operations.

What makes a good partnership between a technology provider and a bank?

The first and one that’s probably overlooked is about culture – the first thing you need to do is build a company that's very focused on building a culture around serving a partner who has to deal with a prudential regulator. That means talking to those regulators and explaining what you’re going to do. In each instance, it wasn't an easy conversation. Regulators don’t really like change. 

Having been in business for 12 years now, we’ve built a very strong working relationship with the regulators that oversee the credit unions because we're very focused on ensuring that our clients can get through their exams properly.

The second part is about customer service to our clients, the credit unions and community banks, which means being there whenever there’s an issue. And that starts at the top, our entire management team will take those calls, including myself. 

I'd say the third thing that we learned in building these network lending programs is building cooperation amongst the varying parties. When people asked me how I do this, I would say it’s like herding cats.  You're trying to get folks to agree on common underwriting processes, and every single client has their own idiosyncrasies in how they underwrite. It takes time, it takes patience, but you become better at it each time you do it.

What do you make of the current macroeconomic situation and how it impacts lenders? 

First and foremost, I've had the benefit of living through three recessions – there are some things that are different now, and some things that are the same.

It's been 10 years since we've seen these kinds of rate increases. When our clients see that there's a pending recession, they will typically start to become a bit more conservative in their underwriting – they tighten their underwriting standards, income verification processes, preparing to see their consumer come under some stress. 

However, most of them realize that they’ve done a good job in underwriting these loans to begin with, and as a result, they can get through this as long as they have a good servicing operation.

As rates rise, it typically takes about three years before community banks and credit unions start increasing their deposit rates. I think in this cycle, we're seeing the same thing.

What are some differentiating factors that you're seeing in this market cycle?

There are no more digital deniers, and this time we're not going to see a rollback. In the past, people thought the digital wasn’t going to really take off, but those days are over. Now you cannot be in this business if you don't have a digital strategy. I think that's one of the largest differences this time around.

I think the second is understanding the diverse needs of balance sheets. We identified from the very beginning that the best balance sheets to use with those are depository institutions. The cost of funds for credit unions is 65 basis points – you're not going to find that kind of balance sheet anyplace else.

What we see with a lot of lending as a service platforms is that they'll start out using the capital markets, and then try to gain access to deposit-taking institutions to partner with. Many new market entrants are discovering the benefits of partnering with credit unions and community banks like they discovered fire, but this model has actually been around for a very long time.

What is your take on the evolving relationship between fintechs and the incumbent industry?

It happened before the industry, and it'll happen again. Most innovation has to start with proving that your product has demand. It's by far more difficult to go directly to an institution, and ask to use my software to prove that it will work.

I refer to it as Fintech 1.0 - “I’ll disrupt you” – this gets everyone’s attention. I was the CTO at Citigroup for a number of years, and I would sit back and watch as disruptors would go out there and demonstrate to us customer acceptance. And then we had two options: we could buy the company, or we could partner with that company. That’s Fintech 2.0 – “Let’s work together”.

We've seen it over and over again, that it's just a common innovation technique that happens in the industry.

Chart of the week

Fintech lending is lagging payments in terms of innovation and adoption, but is becoming increasingly significant, according to a new World Bank report. Estimates show that global fintech lending was $125 billion in 2020, while big tech lending stood at $637 billion.

The study also noted that alternative credit could soon increase its market share at the expense of traditional providers, but it’s still got a long way to go – now it’s estimated to be less than 2% in any of the major fintech markets. 

What we’re reading 

Improving consumer credit: A deep dive into the FCA’s recommendations for Fintech 

Goldman Sachs’ Marcus losses could exceed $1.2 billion this year 

Private lenders are offering cheaper debt than Wall Street banks

How crypto lender Celsius overheated, drawing interest from Goldman Sachs to buy its assets

What we’re writing

0 comments on “Lending Briefing: Five questions with Vince Passione, CEO and founder of LendKey”

10-Q, Member Exclusive

Can MoneyLion gain ground in the long term on the strength of its underlying businesses?

  • MoneyLion's Q4 2022 results show a profitable December -- however, the firm saw net losses for the quarter and year.
  • Opportun reported its fourth quarter 2022 results on Monday. In the revenue line, the company reported $261.9 million, missing estimates by $1.1 million.
Sara Khairi | March 20, 2023
10-Q, Member Exclusive

Is Dave a ‘fintech survivor’ after all?

  • Dave's Q4 2022 results show that this might just be the end of a rocky road for the neobank -- meanwhile, it is bracing for 2023 head-on.
  • Apple's shares regained momentum last week following Goldman Sachs analysts' optimistic outlook -- based on the firm's new product innovation and margin expansion driven by services.
Sara Khairi | March 13, 2023
Member Exclusive

Tearsheet Pro Live #1: ChatGPT, fact and fiction: What FIs should know about the future

  • In this first Tearsheet Pro Live session, editor Zack Miller interviews a Stanford professor and a machine learning scientist about generative AI.
  • Dev Patnaik and Moses Guttmann share their perspectives on the future impact of technology like ChatGPT on financial services.
Zachary Miller | March 09, 2023
10-Q, Member Exclusive

Less focus on Bitcoin and more Cash App inflows — a sound strategy for Block?

  • A week ago, Block reported its Q4'22 results with earnings missing expectations but surpassing gross profit from a year ago.
  • The surge in the stock is owing to the firm’s strong gross profit growth, which was up 40% in Q4 2022 compared to the prior year.
Sara Khairi | March 07, 2023
10-Q, Member Exclusive

Coinbase beats revenue expectations, but will its struggles end anytime soon?

  • Last week, Coinbase reported its Q4'22 results – while the exchange has been experiencing a period of financial hardships, it continues to pivot to subscriptions and generate income through charging fees on transactions.
  • The subscription and service revenues grew 34% to $283 million, accounting for almost 50% of overall revenue for the quarter -- keeping the company afloat.
Sara Khairi | March 02, 2023
More Articles