Innovation in a Time of Crisis: A Conversation with Upgrade’s Renaud Laplanche — Finovate
1. Upgrade recently raised additional capital at a $1B+ valuation. Congratulations on this funding round. How do you anticipate utilizing this additional funding?
We are going to double down on the existing strategy and use the funding to fuel the continued rapid growth of Upgrade Card, our innovative credit card product, and launch Upgrade Banking, a full suite of mobile banking products.
2. The fact that Upgrade was able to close on a significant round in the midst of a pandemic is a good sign for Fintechs — yes?
Absolutely. The pandemic has brought a considerable amount of pain and anxiety to millions of families, but it also brought an opportunity to accelerate the pace of change in many areas, including financial services. As banks’ branches shut down, many consumers discovered mobile banking and flocked to fintech firms like Upgrade.
3. As the COVID-19 crisis initially hit it seemed like all online lenders hit the pause button as borrowers and investors attempted to assess the market. Is this what Upgrade experienced?
Not so much. As the crisis hit in March we rapidly assessed the situation and had a series of discussions with our loan buyers. We are in the fortunate position to rely on a well-diversified network of small banks and credit unions that continued to have appetite for loan purchases. Like us, they felt that it was their responsibility to keep credit available and affordable during the pandemic. While we tightened our credit policy, particularly in the hardest hit sectors of the economy, we felt that a pandemic was not the right time to cut credit to American families. So we designed a balanced approach that provided the right protection to loan buyers while keeping credit flowing.
4. You have previously said that Upgrade Card originations showed strong utilization in spite of the health crisis. Do you anticipate this to continue?
Upgrade Card originations are growing very fast indeed. Even with a tighter credit policy and very conservative line assignment, we have continued to see 20%+ monthly growth over the last few months.
5. What about your investors. You mainly depend on banks/credit unions — correct? Have they remained steadfast in their willingness to invest in your loans?
They have remained steadfast, and we are grateful to count on such a diversified network of funding sources with many small banks and credit unions whose primary concern is to fulfil their mission to bring affordable credit to consumers, while seeking a fair return on their credit portfolio.
6. Many people have commented on the fact that the Coronavirus has accelerated digital transformation. Is this the case for Upgrade?
Very much so. As noted earlier, with so many bank branches closed during the pandemic, consumers had to find alternatives online. This was particularly notable for more mature segments of the population who, unlike millennials, had not yet familiarized themselves with mobile banking, and were driven to do so in the last few months. We also tried to be as useful to our customers and keep them safe, which led us to launch both a contactless version and a mobile-payment version of Upgrade Card, so Upgrade cardholders wouldn’t risk an infection through surface contact with a payment terminal or handing over their card to a cashier.
7. What about other Fintechs? Are you hearing similar experiences?
I think we’ve seen different type of fintech firms being impacted differently. Small business lenders saw their customers being hit hard by business closures obviously. Legacy consumer credit platforms with concentrated funding sources, or oversized exposure to the securitization markets were also hit pretty hard as these funding sources shut down or sharply repriced over the last few months. Many other fintech firms, however, including neobanks benefited like Upgrade from an acceleration in the digitalization of financial services.
8. What about incumbent big banks? How is COVID impacting these banks? What about the long-term impact on traditional finance?
I think all digital banking solutions got a boost over the last few months, whether they were being offered by fintech firms or banks. Many traditional banks have done a good job in the last few years ramping up their online and mobile offering, and they have also seen record numbers of online account openings and a surge in online activity recently. I think many new consumer habits formed in these times of necessity will perdure, and mobile banking is one of them.
9. Should the US government be doing more to streamline the process for digital finance platforms? Any thoughts on the OCC’s recent move to review Fintechs and the regulatory environment?
I think it is important here to keep financial literacy and access to financial resources in mind. While the digitalization of financial services has been a source of greater convenience and value for mainstream consumers, it is equally important to make sure that lower income and other vulnerable segments of the population, including senior citizens, also get their fair share of the benefits. Keeping some amount of physical cash in circulation for example, will be important in that respect at least for a transition period.
Originally published at https://finovate.com on July 20, 2020.