Where Credit’s Due Ep.3: Looking at the future of lending as a service with Amount and Stilt

This episode focuses on lending as a service - you’ve probably heard of everything as a service by now, and lending is no exception. 

However, lending is one of the trickiest lines of business in our industry, and it comes with many complexities and challenges, as well as opportunities and that's why I’m talking to some really awesome and experienced folks in this area. We have Adam Hughes, who’s the CEO of Amount, and Rohit Mittal, the chief executive of Stilt. 

Amount is a lending as a service platform, helping banks build simple digital lending experiences. The fintech is a spinoff of Avant, an early online consumer lending business, which launched Amount as its B2B service around seven years ago. 

Now its clients include HSBC, PNC, Barclays, and TD Bank, among other financial institutions collectively managing just over $3.1 trillion in US assets and servicing more than 50 million U.S. customers.

Meanwhile at Stilt, the fintech initially focused on lending to underserved communities, but has expanded to offer credit-building services to other companies. Stilt recently raised $114 million, fuelling its plans of expansion into B2B lending products, launching its lending as a service platform called Onbo, where fintechs can build credit products without a bank sponsor while making sure they stay compliant. 

Stilt is known for offering consumer credit focusing on immigrant communities, but you're now entering the lending as a service space with the launch of Onbo. What were some of the factors that drove that expansion?

Rohit Mittal:  We started as a lending company, we built a lot of infrastructure in house that we were using to lend only to our customers. And during this time, I was talking to a lot of founders, helping them all launch credit products on their own, based on our experience of building Stilt. At some point, we realized we can actually serve all of these founders through the infrastructure that we have built. We signed up our first clients even before we started working on the product. Since then, we built API's on top of our infrastructure, through which licenses, compliance management system, payment system, credit reporting, underwriting debt, capital – all of those things are now abstracted away.

Amount was originally in the lending as a service space, offering account opening loan origination and buy now pay later solutions in consumer lines. Earlier this year, it announced the acquisition of Linear, a small business loan and account origination platform. What were some of the factors that drove that acquisition? How did Linear complement Amount?

Adam Hughes: We actually started as a B2C lending platform under the name Avant. In 2016 we recognized the technology we had built around digital lending, digital originations, account management, fraud prevention, which is lightyears ahead of every bank that we are interacting with, and saw an opportunity to spin out our technology and start a separate business where we would be white labeling that technology to really digitize the branch experience for banks, as well as help them in buy now pay later and embedded finance. We did that in 2020, and we've had a lot of success, we've raised significant private capital, and we have 20 plus bank partnerships today.

We started on the consumer and embedded finance side, and after our last capital raise, we had always said the use of proceeds was going to be around M&A, and talking to our bank partners and talking to our channel partners like FIS, we kept coming back to small business as the huge value add for our clients. And from our perspective, the clear leader in the SaaS small business lending space was Linear. We were thrilled to acquire the company, bringing its CEO Sam Graziano and his fantastic team to Amount has been awesome.

What are the challenges banks are facing on their digital journeys? What is driving the demand for lending as a service products?

Adam Hughes:  A couple of reasons why more and more banks are much more open to partnerships than in years past. 

Number one – there's more competition from them today, there's certainly been a rise of not only fintechs, but also challenger banks that are very focused on providing better experiences and better banking products to banks’ customers, so banks are starting to lose customers to those fintechs and to those challenger banks.

Number two – consumers' digital expectations have significantly increased. When we can do everything from our mobile phone, customers want that same experience for their basic banking experiences. And when they don't get those experiences, they're gonna choose other alternatives. Banks have recognized that, and are quickly trying to catch up to make sure that they are keeping their best customers and best merchant partners. 

The reality is that many banks have technology that's been cobbled together through years of acquisitions, and it's just really hard to do. And by partnering with an out of the box platform like Amount, they're gonna be able to provide their customers and their merchant partners with best in class products and experiences in a matter of months, and that's extremely valuable for them. Not only can they provide this product quickly, but also innovate and test as well to make sure that they're staying ahead of those consumer preferences on a go forward basis.

Rohit Mittal: We see demand more from fintech and non-fintech companies wanting to launch credit products. All of these companies actually have had to work with a bank sponsor to really lend money. Everyone goes to all the usual suspects, they try to set up a partnership, and it takes about 12 months to go live with the lending program, both on the consumer or the commercial side. So what we do is we reduce that 12 month time window to eight to 12 weeks, even shorter for most companies. The fastest we can take someone live is two to four weeks.

If you want to launch a credit builder product, you can come to us because we have our own licenses with our loan management system and payment systems and so a client doesn't have to go to different vendors. 

What does it take to form a solid partnership that works?

Adam Hughes: What it comes down to is execution – banks are going to partner with a technology provider that can provide that elite experience product quickly. If you are a startup looking to get into the space, expectations are really, really high. Not only do you need to deliver the experience, you need to deliver that in a compliant fashion, that's going to make sure that you hit the mark for everything that the bank's procurement and compliance departments are going to demand. 

The good thing is that if you can execute and really hit the bar for that bank partner, you can land and expand that relationship, because that bank is going to logically look to you to do more. If you can deliver at a certain standard, you're going to win a lot of believers and champions within that bank. That's always number one. 

Number two, you're really being an innovation partner for the bank. Being able to take our experience as a disruptor in the space and pair it with great best in class recommendations to the retail lending leader at the bank, we also find that to be extremely valuable. Banks really value that we're not only providing them this out of the box technology, but we’re also holding their hand so they can grow a large profitable portfolio.

Rohit Mittal: I think one of the main things that helps form a solid partnership is compliance infrastructure. At Onbo, we are always trying to say yes to new and innovative programs, but that comes with a level of compliance oversight. 

As we see clients open towards being compliant, that actually forms a solid foundation for more programs in the future, and scaling of existing programs pretty quickly. We collaborate with them and help them innovate on new programs, and if you set up a solid compliance foundation, everything else takes care of itself. 

How do you balance growth with compliance risk?

Rohit Mittal: In our case, compliance risk definitely increases as the company grows. All the regulations that are meant to prevent harm to consumers are actually coded into the system – any one individual cannot take an action that actually ends up harming the consumer. 

We have actually built a lot of technology around managing compliance, both in terms of oversight, and in terms of not leaving room for individuals or employees to make mistakes as the programs are scaling, and that becomes very important. 

The second part that we really focus on is making sure we are underwriting consistently and compliantly as we scale. Every company starts to cut a little bit corners as they scale in terms of underwriting and managing risk, but we have made all of those things a core part of the infrastructure. So as companies on our platform scale, they can be confident that everything will be compliant.

Adam Hughes: Helping a partner maintain compliance is certainly a huge part of the job. We built the platform in such a way that we have a tremendous amount of confidence in everything from rates and terms, the way that you display contracts to a customer or small business, reporting to credit bureaus, etc – that it's all trackable and auditable. 

We've gotten to a place where at any time our bank partners can take a look and walk away with a lot of confidence that we're really checking the box for them around everything they need to stay compliant as they grow a digital portfolio.

What are some of the biggest challenges of running a lending as a service platform?

Adam Hughes: For us, it's really about staying focused, because there's so much opportunity not only here in the US, but also around the globe, helping banks digitize and roll out better products and experiences to customers around the world. 

We're constantly getting opportunities coming in through our direct sales channels or channel partnerships, so we really try to stay disciplined around what we call our big three – where we put our bets, our time, and our resources to make sure that we are building these elite products, that our clients are extremely happy, and that we're not taking on too much that we're losing that focus.

Rohit Mittal: I just want to explicitly say doing lending is hard. It's complex. It's super regulated, I think it's one of the most compliant, most heavily regulated fintech products to launch across, say debit cards and investment products and other things. Lending is the most complex

Let's say you're doing an unsecured personal loan – if you charge less than 36%, then you are probably okay. If you charge 36.1%, you may not be okay. And there is no way for people to know what that line is. 

We abstract away all that complexity, you're basically getting many years of constant compliance, and regulatory oversight through just one set of API's. And building that is extremely challenging, but that's also the way the industry is going to innovate. So as we take on that responsibility of dealing with all the complexities of the lending world, our clients can choose to focus on their customers and innovate for them. 

Do you see the ‘platformization’ of the traditional lending industry as a natural evolutionary step in this new digital mobile economy?

Rohit Mittal: I think fintechs started with integrating payments, then came debit cards, and the next step in my mind is credit products. Payments is a low margin, high volume business – credit is the largest revenue driver of all of these products. And as companies now try to increase revenues for the customers that they have acquired over the past decade and try to monetize them, credit is the most obvious way to move forward.

Launching lending products is tough – you generally need a 10 to 15 person team working on it for a year to get any material lending product out in the market. Nobody wants to wait that long, nobody wants to put that many resources behind it, so companies will look for partners. 

Adam Hughes: This trend that we're seeing, we don't think it's slowing down anytime soon. By being more open to a partnership with a platform, you don't need to build it in-house.

Banks are also recognizing and waking up to the fact that they can compete and win in this space. Banks have massive advantages. They have cost of capital advantages, massive customer bases that have been with them for decades in certain cases. There's certainly a massive trust factor that customers and small businesses have with their banks. 

They also have a treasure trove of data and so they can be really innovative and really understand who that customer or small business is. Pairing the banks with the right technology, as they're bringing to the table this data advantage, their deep experience around compliance and risk assessment –  that's a marriage that can certainly win into the space. And I think banks are recognizing that as well.