I attended my first LendIt in early 2015, a few months ahead of wrapping up my MBA at Wharton. Lending Club was headlining the conference in more ways than one. They’d had a stellar IPO just a few months earlier. I ran into old friends and made new ones. For a graduate soon entering the job market, every conversation was a potential interview. I was deeply curious about the changes afoot and where we were taking the world.

But FinTech was not as hot back then. Maybe it wasn’t even a word. In any case, it was easy to walk up to senior executives and have deep and candid conversations. After flirting with and dating FinTech over several years, the stars were aligned. I took the plunge and tied the knot.

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That evening, as I pored over my notes sitting right in the middle of Times Square in Manhattan, a framework crystallized in my mind. To paraphrase George Box: all frameworks are wrong but some are useful — and this one has been very useful indeed. In fact, I have since successfully used this framework to make two pivotal decisions.‍

Phase One: Simplify Acquisitions

Wave 1 focused on making acquisitions easier. Where potential borrowers previously walked into a bank branch and filled out a form, Lending Club (founded 2006) and Prosper (founded 2005) brought acquisition to the web in a meaningful way. For a while, they also innovated sourcing capital from peers, but that quickly took a backseat.

LC, Prosper, and OnDeck (founded 2006) delivered a seamless and simplified experience from Google/Facebook ads to slick onboarding and fast(er) approval times.

However, any discerning observer would notice two things:

1. LC and Prosper focused on credit card consolidation loans, which, by definition, were given to borrowers with a credit score. Often, these borrowers had a healthy credit score, to begin with.
2. By extension, the underwriting process was intrinsically linked to existing credit reports. Loan grades showed a high degree of correlation with credit scores. There was little innovation in underwriting itself.

LC went public in late 2014. OnDeck went public a couple of weeks later. Their IPOs were the high point for Wave 1 — simplify acquisitions and make it easier to get in the door.

Phase Two: Underwrite Better

What really excited me in 2015 was the Wave 2 opportunities presented by companies like Fundbox, Upstart, and Affirm. Wave 2 looked ahead at innovating underwriting and expanding access.

At the time, none of those companies used credit scores in their underwriting. It was a clean break from the past and presented an exciting promise to expand access by using alternative sources of data. For example, Fundbox (founded 2013) only used insights from the cash flow that small businesses shared with them. It delivered on the promise of granting credit to borrowers who had no reasonable alternative source.

Affirm (founded 2012), Upstart (founded 2012), and Klarna (entered the US in 2015) were at the vanguard of this wave on the consumer credit side.

This framework propelled me to join Fundbox right after Wharton. We innovated with new data, new ways of thinking about creditworthiness, and new ways to expand access at the point of need. During the nearly three years I spent at Fundbox, I surfed this wave each day.

The IPOs of Upstart (December 2020) and Affirm (January 2021) show that Wave 2 innovation is finally mainstream. In fact, Upstart’s IPO lagged OnDeck’s IPO by exactly six years to the day.

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Next Phase: Delightful Service

Granting credit is just the beginning of the innovations that FinTech aims to offer. Each day after a loan is approved gives more insights about the borrower. It is an opportunity to delight them, personalize the experience, and deepen the relationship. This same framework explains which direction the puck is heading.

Wave 3 of FinTech innovation focuses on improved services. Customer experience is broken across the lending lifecycle and there are clear gaps that can be addressed by employing technology.

We started Prodigal (founded 2018) to innovate how borrowers are serviced in good times and bad. During the pandemic, our customers have used Prodigal to train their agents and drive higher empathy towards borrowers. This is just the beginning. After tying the knot with FinTech years ago, I relish this next phase and ride the third wave with Prodigal to bring higher productivity and better borrower experience.