We synced up with Zack Friedman, VP and Head of Finance at CommonBond, to talk about the state of fintech.
In our interview, Zack outlines how innovations in fintech continue to improve consumer's access to data and how CommonBond is using these innovations to help those who struggle to pay off student loans. He also highlights the need for fintech companies and banks to work together to improve the customer experience.
How has the information age changed the way the financial industry works?
Technological innovation has improved access to financial information — everything from stock quotes to student loan rates. The information age, in particular, has given way to the emergence of fintech companies, including marketplace lenders like CommonBond, which are enabling information to be more readily accessible and far more transparent to the consumer.
CommonBond, for example, is a technology-driven enterprise. On our platform, technology simplifies the application process for our members such that those who want to refinance their student loan can apply for a loan of up to $500,000 and receive their new interest rate in minutes. That's a tremendous advancement in financial services as a result of the information age.
In addition, CommonBond also makes it very simple to apply for a loan on mobile devices. And many of our applicants have in fact done that, which has really been quite revolutionary. When you look at the combination of big data analytics and new online distribution channels, financial technology companies have been leading the way in financial services.
Great answer. You talked about the advantages of financial technologies for fintech companies, but banks are also grappling with these changes. What should banks be doing in light of these changes that they're not doing?
Banks should be focusing on the customer first and foremost. A lot of banks talk about having great customer service, but not enough of them truly focus on the customer. They tend to be more transaction focused than relationship focused. At CommonBond, we dedicate ourselves to executing on a consumer-centric model. Everything we do as a business comes back to serving our members, and we spend a great deal of time thinking about how we can continuously make the customer experience better for our members.
In addition to focusing more on customer service, I feel that banks should make a greater investment in technology to replace outdated legacy systems that have made the customer experience more difficult. In order to modernize those legacy systems, banks have to spend time and capital, which can be challenging for many of them. As we're all aware, many shareholders of public companies would rather see cost reductions than long-term investments. On the flip side, when you look at fintech companies, building the technology from the ground up, it's a different ballgame. It's modern, it's clean, it's agile and most importantly, it's responsive to consumer needs. That, I believe, is the future of finance.
How could fintech companies and financial institutions better work together?
Over the past year, we've seen examples of partnerships and collaborations forming around traditional banks and marketplace lenders. I'll give you three examples. In January 2015, Funding Circle and RBS partnered in the UK to give thousands of small businesses greater access to capital. Several months later, in April 2015, Lending Club and CitiGroup announced a partnership in which Citi would use LendingClub's platform to supply $150 million to underserved borrowers and communities. And at the tail end of last year, we saw OnDeck and JPMorgan partner to provide loans to small business customers.
I think we'll see continued partnerships between traditional and emerging finance companies so long as the relationship can be symbiotic. Traditional finance has brought low-cost financing to the table, or what we deem the “financial backend,” while emerging finance has brought strong consumer products and positive user experience, or the “financial front end.” The overall goal of any of these partnerships is to make life better for the end consumer.
Is that what you'd hope to see as a result of innovation in fintech?
Absolutely. In marketplace lending in particular, more credit is available than ever before to consumers. That means improved access to credit is making people's lives better in a meaningful way, and it's something we'll continue to see more and more of as the industry grows. I can envision a world in which borrowing and lending money is as simple as clicking a button on your phone. That's better for consumers, better for transparency and makes people's lives better.
Let’s talk a little bit more about CommonBond. What was the impulse behind the company?
David Klein founded CommonBond with his two co-founders while he was earning an MBA at Wharton Business School. David, who's a brilliant entrepreneur, experienced firsthand the high rates, poor service, and confusing processes associated with student loans, and he built CommonBond to change all that. He leveraged proprietary technology, sophisticated underwriting, and, most importantly, top-notch customer service to deliver a lending experience that is unlike any other.
For example, CommonBond members receive their new interest rate in minutes through a simple online application that is technology-driven and consumer-centric. And on average, our members save over $14,000, which is tremendous. I also think it's important for us as a company to really give our members a better shake. In doing so, we're offering greater savings, a customer-first focus, and, most importantly, building a strong community among our members. I bring up community a lot because we're trying to make finance a community rather than a commodity. We're accomplishing this by building a lifetime relationship with our members.
We decided to begin with student lending, but it's not where we'll end. It's just the beginning. Our strategy is to work with our members over their financial lives to make their lives better and to be the company that provides products and services to meet their financial needs over time.
Interesting. So what future plans at CommonBond excite you the most?
On the new product front, we're constantly thinking about ways to innovate and better serve our members. We think about ways in which we can keep meeting their financial needs. We'll be launching new products beyond student loans going forward.
I'll give you one example. In the first quarter of 2016, we'll launch a personal loan product and eventually offer additional credit products as we grow with our members over their financial life cycle.
I am also excited by our team growth. Last year, CommonBond quadrupled in headcount, and we expect to almost triple this year. We've also raised over $625 million to date across equity and debt, and expect to raise more capital this year and beyond.
And lastly, something we're really excited about that goes to the center of our values based financial services mission, is our social impact. CommonBond is the first and only company in finance with a one-for-one social mission, which we call our Social Promise. For every loan fully funded by CommonBond, we fund the education of a student in need for one year. That's in partnership with an education nonprofit called Pencils of Promise. We expect to surpass more than $500k in donations toward our Social Promise by the end of 2016. Now, that’s exciting.