With all the fintech and focus on the unbanked and underbanked, there are still tens of millions of Americans who lack access to mainstream financial services. Those are Mission Lane’s customers. A spinoff of LendUp, the firm’s credit card is the first product in a portfolio designed to address this demographic’s financial needs and wants.
Shane Holdaway is Mission Lane CEO. After a career on the other side of the aisle, running businesses for large traditional financial institutions, he’s charged with leading the company into its next stage of maturity. We talk about his personal transition from finance to fintech and how that informs his work. We talk about why the financial industry has failed so many and what he and his firm plan to launch and grow in the future.
Shane's background: Shane joined Mission Lane two years ago, shortly after it spun off as a separate company almost spending almost two decades inside large financial institutions -- banks -- in the US.
"One of the things I observed when I was inside larger financial institutions: you tend to carry the consequences of technology and other marketing decisions that happened years ago for a long time."
Why banks don't serve the underserved: "I observed from inside the challenges that large banks face in serving half of the adults in the US -- not for lack of talent, or lack of desire, or even lack of vision, but there's structural aspects that large financial institutions have to deal with that make it challenging. They have real or perceived questions about reputation risk and regulatory constraints serving this audience. There's also the highly technical nature of underwriting higher risk consumers, which, unless you've spent years building up your data and your underwriting, it can be daunting."
The Mission Lane Mission: "Embedded in our company name is the notion of Mission Lane. We talk about the lane, to provide a path forward for people to help them improve their financial lives. We do that in a couple ways. One is that we lend money, where it is difficult for others to do so. And we do that through our proprietary underwriting, which is a very data- and technology-intensive undertaking. The second thing we look at is how do we create a positive wedge in people's personal finances."
Communicating around credit opportunities: "If you think about the problems we're trying to solve, for a lot of our customers, it comes down to getting access to quality credit. So in terms of messaging, we say that we can provide that access. We obsess about the way we communicate in a very clear, candid, and uncluttered kind of way.
The product pipeline: "We want to be able to serve as many people as possible, and we want to be able to do it in a way that will be cost effective and a good value for them. So one vector of our product roadmap is creating a family of products. We call them internally credit builders, but they're products that allow people to enter the Mission Lane franchise, and help them graduate to the next product."
Read the full transcript
I joined Mission Lane two years ago, shortly after it spun off as a separate company. I spent my career prior to that -- almost two decades -- inside large financial institutions in the US. I observed from inside the challenges that large banks face in serving half of the adults in the US -- not for lack of talent, or lack of desire, or even lack of vision, but there are structural aspects that large financial institutions have to deal with that make it challenging. They have real or perceived questions about reputation risk and regulatory constraints serving this audience.
There's also the highly technical nature of underwriting higher risk consumers, which, unless you've spent years building up your data and your underwriting, can be daunting. And then there's the cost of serving these consumers who traditionally have lower deposits, lower usage of many of the larger banks products -- so with legacy cost infrastructures that are quite heavy, it can be expensive for these institutions to serve these customers.
The Mission Lane Mission
We've focused our whole mission and attention on this segment. We've looked at the risks and said, well, let's understand them, embrace them, and find ways to serve these customers. Embedded in our company name is the notion of Mission Lane. We talked about the lane, to provide a path forward for people to help them improve their financial lives. We do that in a couple ways. One is that we lend money, where it is difficult for others to do so. And we do that through our proprietary underwriting, which is a very data- and technology-intensive undertaking. The second thing we look at is how we create a positive wedge in people's personal finances. We think about how can help them improve income and suppress expenses in their lives.
We think of our customers as credit challenged. We don't use FICO for underwriting purposes, but just for categorization, depending on whose data you look at, there are about 110 million to 120 million adults in the US who have a credit score that is considered nonprime or don't have a credit score at all. So we start with that population. We serve some people in the prime space as well, but we start with that population as our target because most of the large banks use that definition and thus you see a real drop off in access to quality financial products when you get below cut off for prime.
One of the things I observed when I was inside larger financial institutions -- again, a lot of very talented people working really hard -- but you tend to carry the consequences of technology and other marketing decisions that happened years ago for a long time. One of the advantages we have at Mission Lane is we've built our entire underwriting stack from scratch. Everything, from the tests we do up front and the data we ingest from the outside world, on through to our modeling and decisioning infrastructure, was all built from scratch. What that allows us to do is ingest new data sources and test them quickly to see if they have predictive power.
The real secret sauce ends up being the testing we do on our end. When you combine that with publicly available data, that's when you get the real risk insights. The infrastructure allows us to do that very quickly, and roll out new models. Like everyone else, it's all machine learning, but it's our ability to adapt and quickly roll out new insights -- that's really the power behind Mission Lane.
The product portfolio
We started with a credit card, which as a product, has obviously been around for a long, long time. But it has some unique characteristics that we really like, both from a consumer standpoint, and from a business standpoint. From a consumer standpoint, the credit card is this beautifully flexible instrument -- the original buy now, pay later product. You can spend on it, you can borrow on it, you can choose to go back and forth. And so for consumers, it's a really core element of their wallet and of their day to day finances. But for this customer base that we serve, they tend to not have as many opportunities and not a lot of quality opportunities to be able to access a credit card. So we liked the supply-demand balance we saw there. We liked the utility of the product.
From a business standpoint, credit cards are a tricky beast to build and get right, because some of the things that make them very valuable for consumers make it difficult to build and manage. Like the fact that it's an always on, open ended unsecured credit line means that your underwriting is more complex and more nuanced. The way you fund your capital markets has to be more complex, more nuanced. Your customer service, your servicing technology, the back end, all of those different elements have to be really sharp for you to be able to build something at scale, which is why we don't see a lot of emerging scale card providers in fintech. It's a challenging thing. That's where we started: we wanted to build that piece because it's the most difficult and then build out from there.
In March, we hit our millionth customer. And over the last quarter, we've added well over a quarter million. So we're accelerating our growth and scaling the card business and then building out from there.
The next product that we've begun to build out is is our debit product -- with the concept of credit and debit being the twin pillars of a consumer's wallet, accounting for 80+ percent of transactions in the US. We started that work with an acquisition of a company called Honeydew that has a nice PFM platform for couples and had built out a debit product. We're building off of that and then moving into other other products over time. The idea is to build that core consumer commerce platform of debit and credit and then build out the other elements that can help people create that positive wedge in their personal finances.
Go to market
If you think about the problems we're trying to solve, for a lot of our customers, it comes down to getting access to quality credit. It's kind of a high priority for them. So in terms of messaging, we can provide you that access. We obsess about the way we communicate in a very clear, candid, and uncluttered kind of way. And then we provide a path to increasing their ability to access more and more credit based on their performance with us.
We use a lot of the channels that you'd expect in terms of direct mail, which we use quite effectively. We use online affiliates quite effectively. We use search and display, as well. But most of our new customers come through direct invitations to them.
The journey of improving credit
[This message] really resonates with this audience. At one level, this is just a fundamental human desire. We all desire better; we all desire improvement. At that level, it resonates. But then when you get specifically to this segment, who traditionally was not always treated with a lot of respect and dignity (or at least, had felt ignored), when we reach out and provide something that is very easy to understand, that provides a path forward, it resonates quite a bit.
When they become a customer, we obsess about the service that we offer. We want to provide a service experience that feels like you're a prime customer at a larger financial institution. And so the digital experiences, the app, the web, and even when they call one of our agents, we want to make sure that it's an incredibly high quality experience for these wonderful people.
The move across the aisle -- from banking to fintech
Everyone's journey is unique. When I started working in financial institutions, I would not have predicted I would be there as long as I was. But as life goes by, there are interesting problems to solve and new challenges. And I kept moving forward. But I had a number of experiences over the last few years inside a couple large banks where a few things became clear. One was just the struggle to innovate. I think this is a big company challenge in general -- it is not unique just to financial services. A lot of really talented people work really hard and had many of the right ideas. But it was just really difficult to overcome the inertia of past technology and product decisions at scale. It's really, really difficult to overcome those things.
I found myself, as I was leading larger and larger pieces of these businesses, facing the frustration and the challenge of seeing where we should go, and finding it incredibly difficult to move this massive ocean liner, to pivot and move in a different direction.
The second factor was the lack of innovation for non prime consumers. I hadn't experienced it. At the last institution, I led their fairly large US consumer bank. It's a top 10 card issuer -- a really meaningful business. We had a lot of discussions internally with the board about trying to serve a broader audience. And it became very clear to me that despite lots of good intentions and a lot of good discussion -- my team had put together beautiful PowerPoint decks extolling the virtues of serving non prime consumers -- we were just not going to get there as a broader banking institution, because of perceived reputation risks and regulatory constraints and so forth. As I combine these things, man, it's just really difficult to move these large institutions in different directions.
Sometimes serendipity falls on us when we least expect it. I got a call out of the blue from an investor who had been part of the team that had spun Mission Lane out of a company called LendUp. They were looking for a new CEO. And that's how I got involved.
If you think about what we're trying to accomplish, we want to be able to serve as many people as possible, and we want to be able to do it in a way that will be cost effective and a good value for them. There are some customers we won't be able to serve with our credit cards, because we're only willing to charge a certain amount and the risk profile is such that we won't be able to serve them. So one vector of our product roadmap is creating a family of products. Internally, we call them credit builders, but they're products that allow people to enter the Mission Lane franchise, and graduate to the next product. That way, we can say yes to more people and invite more people in and come along the journey with us.
Another path that we are actively exploring is one of partnership with others. We don't think that our destiny is to manufacture everything ourselves. There are certain things we're good at. And we will pursue those but in other cases, we know that our Mission Lane members have other needs that others can meet. So we're in active discussions with several other providers across the financial landscape where we will offer their products to our customer. To do that, we screen them both in terms of their effectiveness and delivery but also in their mission orientation and how they're going to treat our members.
It's a little bit of marketplace and point solutions. We start from the what is the problem that customers are trying to solve. As we envision this developing over time, and given the number of customers that we're serving, we believe it'll evolve into more of a marketplace concept.
We believe that the capabilities necessary to serve this segment are unique and well suited for what we do. As you can imagine, like in any organization, there's always discussion of should we do this or should we do that? And when we look up market, we see lots of great financial institutions serving a lot of great people up there but we don't see as many of the gaps and opportunities to create something new and unique that those customers aren't already using in terms of products. And when we think of moving down market, we do look at that more from the credit builder angle and can we help people get into the mainstream of the credit world?
It's just a reality of the modern world in which we live that the credit score dictates not just what we borrow, but employers look at your credit score and when you go to rent an apartment, they're looking at your credit score. It's become ubiquitous. We do look at that segment further down market and are looking at ways to bring them help and progress into the mainstream.
Goals for the business
I'm the kind of person that has more goals than I probably should. There are two I'll call out. One is to continue to scale our card platform. It is the nature of the product that everything gets better with scale: your operating costs, your funding costs, the data that you can use to better underwrite and provide better products for people. So, adding the next million customers and the next million customers after that is kind of obsession number one.
Obsession number two would be the building out of the broader ecosystem, so that we can serve more people in more ways, and tying all those pieces together in a way that will feel coherent for Mission Lane members.