Wharton Goes West: Two Days in the Bay Area
Last month, Wharton FinTech held its second annual trek to the Bay Area. Students from the Wharton MBA and undergrad programs visited ten companies–including lenders, payments companies, wealth managers, and others–and met with numerous Wharton alumni over the course of two action-packed days. Here are a few highlights and themes from the trek.
Lending: through marketplaces, to small businesses, and at point-of sale
The alternative lending industry has surged over the past few years, and we experienced this explosive growth firsthand by visiting six lenders on our trek. Our visits included Lending Club and Prosper, rapidly-growing peer-to-peer marketplaces; Earnest, a company that provides personal loans and student loan refinancing services; Funding Circle, a small-business marketplace; FundBox, a working capital lender to small businesses; and Affirm, a point-of-sale lender. Each company has developed its own unique product offering and go-to-market strategy in an effort to provide credit to under-served borrower segments. Four companies even captured spots on H2 Ventures and KPMG’s Leading 50 FinTech Innovators list.
We noticed three major differences across the lenders we visited. First, companies rely on different sources of capital. Lending Club sources roughly one-third of its capital from institutional investors and two-thirds from retail investors, whereas Prosper’s mix is–by design–more heavily skewed toward large investors. Second, companies rely on different data points to underwrite their loans. Lending Club and Prosper leverage traditional measures like FICO and expressed skepticism about using social data, whereas Earnest relies heavily on social data and analyzes over 100,000 data points per underwriting decision. Third, companies have different views on partnering with traditional financial institutions. Companies like Lending Club view partnerships as a natural extension of their existing business model, whereas Earnest and FundBox took a more adversarial position — Earnest wants to disrupt banks, and FundBox prefers to retain exclusive control over its business.
Despite these differences, we also observed several similarities.
Each company emphasized how technology differentiates their products and services from traditional providers of credit. With sleek user interfaces, data-driven underwriting processes, and operational automation, these companies streamline the credit application process while maintaining high standards of quality and security. Applying for a bank loan can take weeks, but these lenders compress the approval process to days, hours, or even minutes–making credit more accessible for eligible borrowers.
The companies we visited view themselves as technology companies first and financial services companies second (if at all). The “tech” in FinTech was extremely palpable. At Affirm, for example, even members of the finance team are proficient programmers who can build their own software when stock tools aren’t up to the task. And each company understands the value-add of business school students–that said, as FundBox indicated, the most desirable candidates are those who possess a business background along with an interest in and understanding of technical skill sets like SQL, R, Python, and Tableau.
Beyond lending
Although we love lenders, we also visited several other companies during our trek.
Wealthfront aims to serve as the premier automated investment service. It was clear Wealthfront lives and breathes its mission — everything that can be automated is automated, from the investment service itself to various dashboards and KPI monitors. We met with President and CEO Adam Nash as well as two members of Wealthfront’s data science team–Roberto Medri MBA ’11 and Daniel McAuley MBA ’16 (and Wharton FinTech co-founder). Adam shared his view on how MBAs can successfully position themselves for careers in FinTech: find a company you’re passionate about and develop a strong case for how you can add value starting on day one.
Poynt provides smart payment terminals and an open commerce platform to merchants. Over time, Poynt hopes to develop an app ecosystem for the proprietary Android-derived operating system that the terminals run on, creating a two-sided market based around the payments platform and network. The payment terminals will do more than handle transactions; they will also contain applications that merchants can use to track inventory, monitor KPIs, and assist with other business operations. Poynt’s rapid growth in the US and Brazil highlights how being nimble across geographies is critical for success–especially given how rapidly technology changes.
Taulia enables businesses to use excess cash to pay invoices more quickly, thereby reducing accounts receivable days for vendors and putting surplus cash to good use for purchasers. The company offers direct integration with existing enterprise software which allows clients to easily incorporate the service to their operations. The platform is a win-win for both vendors and their clients; by using Taulia’s platform, firms with excess cash sitting on their balance sheets have the opportunity to pay invoices early, resulting in a discounted overall cost for the service. Meanwhile, vendors are able to smooth their cash flows and ensure that their accounts receivable days do not grow out of hand. Taulia is also highly globalized, with offices in San Francisco, Austin, England, Germany, Bulgaria, and other locations around the world. Aside from the fun travel opportunities this provides for its employees, such expansion gives Taulia the opportunity to better serve some of its largest multinational clients which also have operations that span the globe.
The Center for Financial Services Innovation’s Financial Solutions Lab (“FinLab”), in partnership with JPMorgan Chase, sponsors a series of competitions for social entrepreneurs to identify and enhance tech-enabled innovations that address consumer financial health needs. Check out our exclusive interview with Asad Ramzanali–Manager of CFSI’s FinLab. CFSI is accepting applications for its 2016 challenge–weathering financial shocks–through April 7.
Ten companies in two days–a packed agenda but well worth the trip. Thank you again to all of our hosts, especially our Wharton alumni. We can’t wait to see you again soon, either in the Bay Area or on campus in Philadelphia!
