An Interview with David Klein, CEO of CommonBond

The following is an interview between Carissa Feria, VP of Finance of Wharton FinTech, and David Klein, Co-Founder of CommonBond. This interview took place March 29, 2015.


An Interview with David Klein, CEO of Common Bond

Part 1: Restoring the concept of community-backed finance

Tell us about CommonBond and your competitive advantage.


CommonBond is a marketplace lending platform that has focused on the broken student loan market. We provide borrowers with lower cost student loan options to either finance or refinance their education and on average save $10,000. At the same time, we provide investors an opportunity to invest in those loans, and get a competitive financial return vis-a-vis pretty low underlying risk.


In the 2.5 years we’ve been in operation, and 1.5 years at national scale, we have yet to experience an industry-standard delinquency, let alone a default. And a lot of that has to do with our underwriting. That has allowed us to expand on the consumer side to more cities and more states all around the country. Our platform’s performance has given investors the comfort and confidence, and empowers us to continue expanding.


The overarching vision is tied less to a particular asset class, and more tied to the underlying customer. Our strategy is less student-loan specific, and more borrower specific. Our borrower right now is 31 years old on average, with very strong credit, very strong income. They’re at the relative beginning of their customer life cycle. And they will continue to have financial needs over time. We aim to provide them with financial products and services that meet those needs over time. Those financial needs will evolve past student loans into home mortgages, personal loans for life events such as weddings, or home improvement, or credit card consolidation. It will likely evolve into asset-based products as well. There is no shortage of opportunities to provide superior products and services to our current customers and burgeoning customer base, as they continue living their lives over the next several decades. That, for us, is the big vision. Our ultimate goal is to be the leading values-driven financial services company.


So you are transitioning from student loans to the broader lending space.

That’s right. We got our start in student loans at Wharton. We launched our very first pilot program in November 2012, exclusively as a student-lending platform. Even to this day, we are exclusively a student-lending platform, but the overarching vision goes well beyond this. In fact, 2015 might just be the year that we, at the very least pilot, another set of products in an entirely new asset class


In the past, you’ve talked about the value of community psychology as a tool to minimize default risk. Can you share how this might influence the kind of lending you might do beyond student lending?

Absolutely. There is an underlying benefit to being a strong community, to both the consumer side and investor side of our two-sided market. And where both the consumer and the investor win, we as a company ultimately win too. This is something I get excited about, and I’m proud of building. Let me first define what community is and how we cultivate it. And then I’ll talk about how it benefits the consumer side and then the investor side of our market.

We’ve had a very strong community ethos from the beginning. I’d say this is one of five key elements that differentiates CommonBond from other players in this space. The community takes on a few different forms. It could be live events that we throw in New York, borrower dinners in Chicago, San Francisco, North Carolina, or DC. We create environments that allow borrowers and alumni within our community to connect in a meaningful way. In fact, we’ve had people already find full-time jobs through the CommonBond network. People connect with others in our network and find folks to share perspective on matters they care about.

Community Induction happens right after a borrower joins the CommonBond community. We ask a series of questions that range from “What are you interested in?” to “What are you looking to do with your career?” to “What is your guilty pleasure?” We take that information and we provide them with a series of thoughtful gifts in the form of a care package.

For instance, someone just tweeted today that he was interested in the study of space. We ended up sending him a Carl Sagan book alongside typical company swag, and an opportunity to earn $200 for every referral that he sent our way. And he tweeted out, “Incredibly thoughtful gift from my lender, best loan I’ve ever taken out.” It is an example of what we do to create a community for our borrowers that is meaningful and in some way personal and/or professional.

We think this is important to do—restoring the concept of community-backed finance. If you study the history of finance, this is where finance originated. But that sense of community has been lost over the past few decades and that ultimately culminated in the financial crisis. We’re the antithesis of that. It is certainly our aspiration to be the antithesis of the type of finance that led us to the financial crisis.

There is also a redemptive quality to creating a community in and of itself in a way that propels personal and professional success of our borrowers. That is what community is. And I believe, in describing what community is, it is very clear how it benefits our consumers.

From an investor perspective, for something as ephemeral as the word community, there is a very strong redemptive quality. From an on-going risk management perspective, it allows us, as the lending platform, to help our borrowers in times of need.  If they find themselves in transition between jobs or in other forms of economic hardship, we are able to, from a very kind and genuine place, help them get back on their feet. We have done this primarily through connecting them to career opportunities. And to the extent we can help them transition in their career, if and when they find themselves in that position, we will do so. Because this increases the likelihood they are able to continue paying their loans, which of course makes the investors happy.

So this idea of community meaningfully engages our borrowers and alumni to help each other achieve personal and professional success. It has a real redemptive quality to both the consumer on our platform, as well as the investor.


Given that institutional capital enables scale and speed in building a lending platform, how can CommonBond engage the community of institutional investors in community building?

In the beginning we thought the community was going to be this community of borrowers and an equal number of investors. That has actually morphed into a community just among borrowers, who themselves are current students as well as alumni, that go back several years. We have the refinance product, for people who have graduated in the years past.  So just among our borrowers community, our company and extensions of our company, we have developed a pretty powerful community -- a community that has served the initial purpose of propelling our borrowers personal and professional lives. We’ve noticed that the power of the community is derived from our borrowers, both current students and alumni, and our platform and situations we create to connect meaningfully for personal and professional success.


Competitors like SoFi allow individual investors to invest in your platform. Is that different from your strategy where you only bring in institutional capital?

We got our start raising money from Wharton alumni. Since then, we’ve decided to focus on institutional capital for a particular period of time to ensure that we were able to raise sufficient capital to keep up with the borrower demand. We are still in that phase where we’re focused on institutional capital but fully intend to reintroduce the opportunity for individual investors to invest in the platform. If I had to venture a guess as to when that would be, we’re probably about a year away from reintroducing that, give or take.


For every loan taken out on your platform, you send a less privileged student to school. Critics of the one-for-one model say that it’s often used purely as a marketing tool. Do you think your borrowers resonate strongly with your mission? Or do you think they’re focused on simply securing the lowest rates?

There are a few different questions here. One question is: “How important is rates to borrowers?” The other question is: “Is your social promise real?” I’ll answer both of those in that order.

There’s no doubt that rate is important to people, period. Rate is going to be one of, if not the most important, factors in a borrower’s decision. But there are a host of other elements that influence people’s decisions: simplicity of process, speed of process, service and experience. Community is yet another dimension. And then the last piece is the values of the company with whom you as a borrower decide to engage. We are proud of our social promise. It is nothing more than a reflection of what we value as a company, as founders, and as employees.

So now, is our social promise real or is it a marketing ploy? There’s no doubt that if you have a strong social mission as a company, you’re likely going to face criticism. A lot of corporations have checked the box of corporate social responsibility. And I think a lot of people over the last couple decades have seen companies do projects to simply check the box. They have lost faith in the idea that business can and should be a force for positive change.

However, CommonBond is different. Frankly, I come from a place that is equally cynical of companies who simply check the box as it relates to social mission. I have been inspired by the likes of Tom’s Shoes and Warby Parker, who do more good the more profit they make.  When going back to business school, I decided that no matter what company I was going to start, it was going to have a very strong social mission.

I believe going forward that great and lasting companies will be founded by people who understand that in building a company, it is important to have a revenue model, to generate profits over time, and to distinguish between competition. But it’s as important to deliver social value and not just economic value. Unfortunately, this mindset is still the exception to the rule. But I do think that we will reach a tipping point. In our generation of consumers, so many people believe and value the need for a social mission.

That is truly admirable and I hope will resonate with many others.


An Interview with David Klein, CEO of CommonBond

Part 2: The future of online lending

In the past, when you’ve talked about having to move down the credit spectrum, you’ve always returned to this sense of responsible lending. What is your view on the use of data for proprietary credit metrics and alternative credit scoring?

Two things: first, underwriting is clearly important, it’s probably one of the most important aspects to get right. As a platform, you create a track record, which capital markets use to determine whether to continue providing capital.

Then you start getting into some interesting questions: How do you underwrite? And is there a better way? Capital markets and investors like to see certain underwriting qualities vis-a-vis results. So although there has been talk that FICO is not as predictive as other measures, FICO still remains one of the most important factors that capital markets use to evaluate credit quality. As are debt-to-income and free cash flow. We certainly incorporate these in our underwriting. Now, the interesting part of underwriting today is how to use publicly available social data on people. For instance: How do you use information that is available on Facebook, Linked-In or Twitter? How do you gather and find potentially predictive attributes that predict future repayments better than some traditional measures? And if you find a series of attributes, how long will it take for the investor community to get comfortable with these new data points?

At CommonBond, we like to cover all our bases. We underwrite to things like FICO, debt-to-income, free cash flow, credit history, employment, and income. These give capital markets great comfort. But, we’re not necessarily stopping there. Over time, with continued data and performance metrics, we can convince the investor community of potentially innovative ways to underwrite, that are more predictive than traditional ways. You will need years of data, but we have already started bringing the appropriate people on board to work at CommonBond to help us continue to figure that piece out.


How do you see the future of the industry, and in particular for CommonBond?

Old and new finance each bring a set of strengths that the other doesn’t have. I’ve had a very strong sense of this for the last two years or so, just as we were starting to become a national platform. Traditional companies bring capital scale and liquidity. Emerging platforms bring a generally superior product: better price, technology for a simpler and easier experience, and improved service. It’s easy to start to see a world in which traditional finance becomes the financial back-end that provides liquidity at scale, and new, emerging companies are the consumer-facing front-end.


So what do you look for in a partner?

We look for a few things. Do they believe in our vision of providing a better product at a better rate through very strong tech-enabled ways with best-in-class service? Those who consider us a potential partner, rather than a threat, are the ones that share our vision. Secondly, does this partner have the customer at the base of all their decision-making? The ultimate decision-making criteria should be the customer. If you’re thinking of the customer first and making all of your decisions through the customer lens, we believe it’s very difficult to lose.


Do you think that it is a race for traditional institutions to begin to partner with these young, emerging companies?

Here’s what I know. Finance is going through massive shifts right now. And traditional incumbents are either not keeping up with those shifts or are otherwise unable to provide customers with innovative products, which are appropriately priced, with intuitive technology and best-in-class service.

With that as the premise, if I’m a big company, and I see that’s where finance is going, and I see finance is running away from me, I’m going to want to know where is finance running to. And one of the places is this world of marketplace lending—the products are superior, the prices are more appropriate, the technology exists to speed up and simplify the process, and the service is better than traditional incumbents. Now, how banks or traditional finance reacts is going to be likely highly variable and dependent upon each company.


In terms of hiring, what is it that you’re looking for and how do you think MBAs can add value to CommonBond?

Love that question. Many times you’ll hear emerging companies say they don’t want MBAs. There’s sometimes a pejorative associated with an MBA in the startup culture. I vociferously reject that. MBA training leads to four of the most important things for anyone to be successful at a startup: First, strategic acumen, which is good business judgment and ability to run with a piece of the business. Second, executional quotient or getting stuff done. Third, internal drive in service of the company. And fourth, of course, is being a good person, this is real. This is something that you just get a sense of when you talk to somebody over the phone, in the interview, over three rounds of interviews.

The third is where I think a lot of MBAs and startups trip up and why there might be a historical thaw in the relationship between the two. Many startups have experience with MBAs who are driven, but for themselves, as opposed to the company. And it’s in those instances where nobody wins. Such qualities are usually tied to ego. Whenever you start managing to ego as opposed to managing to a successful, sustainable company, that’s not a very healthy organization.

Going through an MBA program does not necessarily mean you are going to have these four things. You don’t need to be an MBA to have these things. But I’ve noticed that many MBAs do hold these four things in spades.

And if you have these things, then we at CommonBond will hire you all day long. Roles that we’re hiring for right now for which I think MBAs who fit those four dimensions are: business development roles, potentially product management roles, and our finance team roles.


Anything else you’d like to add?

I think one key point we briefly touched on was responsible lending and borrowing. It is a very big deal. Not a lot of people are talking about it, but I think they should. Borrowers have a responsibility to get smart and make good decisions. Lenders have the responsibility to underwrite appropriately and to help educate borrowers to make those good decisions. Not many lenders are doing the latter. We are different.

One of the things that we spend a lot of time on—and we have full time folks on this—is to generate at least one piece of meaningful content every day. We clearly communicate otherwise complex or overwhelming concepts to people considering getting a student loan, or to those who have it. Every week we publish something called “Student Loan Concepts Explained.” One week we might talk about capitalized interest and another week, we might talk about forbearance. In fact, we have our own channel on the Huffington Post.

We’ve created a tool called MBA Budget Calculator for any student considering whether to go to school, so that they understand what student loans will look like vis-à-vis average or median salaries from their potential institution. This tool calculates monthly income as well as likely monthly payments from debt. We will tell you whether that debt to income ratio is good or bad. And, if it’s bad, we’ll even go so far as to tell you that you should consider either another school that’s not as costly or another path of scholarship that leads to a higher paying job. It allows you to uncover other sources of income or free money like scholarships or grants that you normally wouldn’t have considered because you didn’t have this knowledge. Our goal is to arm potential borrowers and current borrowers with as much information in as simple and structured a way as possible.

Right now this is a reflection of who we are and why we exist. I couldn’t tell you that because we do this, how many more borrowers we might have. But, that’s not exactly the source of why we do it, right? It’s the right thing to do. It’s part of our mission, and it fits our overriding philosophy of being a great company.


Abaris Financial and the Revolution in Retirement Spending

*The following is an interview between Daniel McAuley, Co-Founder of Wharton FinTech, and Matt Carey, Co-Founder of Abaris Financial. This interview took place March 22, 2015.*

*Abaris is a first of its kind online marketplace for annuities that sells directly to consumers. Their initial focus is on Deferred Income Annuities (DIAs), a product that can protect retirees against longevity risk.*


Annuities are something that a lot of people may not be familiar with. Can you start by giving us a little background on Abaris and your product?

Let’s start with annuities. An annuity is a recurring form of income that lasts for your entire life. Examples of annuities that most people are familiar with are Social Security and corporate pensions. The only difference between pensions and social security is that the government provides social security and employers provide pensions. An annuity is provided by an insurance company and you purchase it yourself. Maybe it helps to provide an example. Let’s say I’m 55 today, I want my annuity to start paying me at age 75. $10,000 today could buy you as much as $1,900 a year, every year starting at 75 for as long as you live. And that’s really important, that last part: as long as you live. You no longer have to worry about whether you live to 85, 90 or 95. You want to live as long as you’re healthy and happy and you don’t have to worry anymore about your money running out. These types of products are underwritten by large insurers, household names like MetLife, Lincoln Financial, The Principal, or MassMutual, so buyers can have confidence that income will be there when they retire. We’re not there yet, but we’re working to become appointed with all of these insurers.

Abaris is the platform where people can actually purchase these products. Right now, you have to go through individual insurance agents who might not be appointed to sell a lot of different insurance carriers’ policies. We are able to quote and sell a majority of the market, but we’re not creating these products. What we’re doing is providing people the place to learn about annuities, compare different insurer’s side-by-side and then complete the purchase if they decide to buy. We’re doing kind of like what Orbitz has done for flights or what Coverhound is doing right now for auto insurance. We’re the platform where people know that they’re getting the best price on the product that’s right for them from the insurance carrier that’s right for them.


Why is retirement spending such an important problem to solve and why isn’t much being done about it?

It’s important to solve because in almost every case retirees today are either overspending and running out of money or underspending and forgoing the lifestyle they could have had. In addition, no matter what happens, retirees are losing a lot of peace of mind along the way.

I think there are two reasons though why more hasn’t been done to solve it. The first is that getting people to save for retirement is still an unsolved problem. In order to develop solutions for better retirement spending you first need to make sure that you’ve saved enough and figuring out how to get people to save more and invest it appropriately is really challenging. Only recently have you started to see some big developments with companies like Wealthfront or Betterment, getting people to basically save and to put that money away and kind of forget about it and invest it in a really smart, tax efficient, behaviorally sound way. The markets are still largely focused, for a good reason, on getting people to save enough, so the idea of retirement spending is only starting to be talked about. The innovation is only starting and we’re at the forefront of that. The second reason we haven’t seen as much being done about it is because of the demographic. Customers who buy DIAs tend to be nearing retirement, so between ages 50 and 65. And only recently has internet usage and comfort with online purchasing reached a point where the market was ready for this. If you look, for example, about where Facebook’s domestic user growth is coming from, it’s basically the baby boomers and those who are a little bit younger. They’re doing a lot more online these days than just checking e-mails. So now we feel like it’s finally the time to launch this product because our customers feel comfortable with a process that is partially online, especially at the beginning of the sales funnel.


What do you see as Abaris’s main advantages when compared to insurance agents and other competitors?

We have a few advantages over insurance agents who are the ones selling most of the product today and the first of those is education. At the moment, annuities are sold, not bought. What that implies is that it requires really pushy sales tactics and often times a “fear driven” sales approach to get people to purchase annuities. We don’t think that, in this day and age, people should be buying because they are psychologically forced into a corner. What we’re doing is providing everyone with information about when it makes sense to purchase a DIA but also when it doesn’t, and that is pretty unique in this market. T Second, we offer people the ability to compare different product offerings, and I talked about that a little bit earlier but right now your insurance agent might only be appointed with one insurance carrier and they’re just going to try and sell you that product. But you never know if you’re getting the best price, if you’re getting an annuity from an insurer that is very safe with a high credit rating, and the trade off you’re making between price and credit rating, those sorts of things. So comparison is not something that really exists today and we’re providing it and that’s a huge value proposition to the consumer. Lastly, our cost structure is lower, so our incentive is to make sure that you get the best price, not to sell you a product where we get paid the highest commission, and that also is a big difference. So you can be sure that we have your best interests in mind when you’re on our platform.


There are a lot of mental biases that come along with consumer financial products specifically. What is Abaris doing to help consumers overcome these hurdles and where do you see your biggest challenges?

That’s a great question and something we’ve been focused on since the beginning. The first advisor we brought on is a professor by the name of Hal Hershfield. Hal is a Stanford Ph.D. and teaches at UCLA, and his focus is on the type of issues you mentioned. The biggest psychological issue here is present bias. In order to purchase one of these products, you basically have to say “alright I’m going to take money that I could spend today and put it in a product that’s not going to start benefiting me for a long time into the future.” And that requires a lot of foresight and we know from psychology that that can be challenging. What Hal has done in his research is demonstrate that if you show someone an aged version of their own face, they are much more likely to save. We’re going to incorporate things like that into our platform so people can combat this present bias. Another thing we’re dealing with is, and the annuity market has very much had a challenge with this, is choice overload. We wish the market were as simple as, “hey I want an annuity right now that starts paying me at age 70 or 75 or 80 and I want it to be inflation-protected the whole time and that’s that. Tell me what I should buy.” But right now products aren’t that simple. The market has added a lot of complexity and customization and what we’ve tried to do is essentially say, “alright, tell us a little bit of information about yourself and we’ll suggest some default options so that you’re not overloaded with all these choices and, if you want, you can customize that but we’ll tell you why we chose these default options.” We think it’s really important to get people to actually feel comfortable with what they’re doing.


This is all really cool, innovative and exciting, and it sounds like it’s very good for the consumer. Are the existing insurance companies and the other players in the annuity space supportive of what you’re doing or are you getting pushback from entrenched interests?

I think I would describe it as more support than push back. From the insurance carrier’s perspective this is another channel for them, another way for them to get their products into consumer’s hands. I don’t think it’s a secret that the insurance industry has been a bit behind in terms of innovating on distribution, underwriting and marketing. Now what we’re starting to see is a lot of interest in the insurance community to do more because their customer base is shifting in terms of who is buying these products. The average 50 year old wasn’t thinking about this at all ten years ago and now they certainly are. Everyone, carriers especially, see the opportunity and want to figure out how they can fit this in both right now and as part of their future product roadmap.


Annuities are just one of many financial products specifically. Where do you see opportunities for Abaris to apply this model that you’ve developed to other markets or products?

If you think about how quickly pensions have gone away over the last three decades and how much less of someone’s total spending needs that Social Security actually provides than it used to, you realize that we’ve got a huge opportunity in DIAs alone. In many cases, this product is the one that should be filling that gap and it is not really today in terms of sales volume. So we think there is a really large opportunity to get this product in more people’s hands. That’s our focus for the near and medium term. One way we’re thinking about innovating further in this market is by making it easier for people to purchase these products in low dollar amounts on a recurring basis. Right now, you have to save up 10, 20 or 50 thousand dollars before you buy one of these and it’s pretty challenging for folks to make that big of a decision and it’s not really how they think about their money. Right now, every two weeks, you get money comes out of your paycheck to go to your 401(k), there’s no reason why in the future some of the money you’re taking out of your paycheck for your 401(k) can’t go straight into an annuity and fund your DIA on a recurring basis. That way people can see actually how much they’re saving for retirement.


What advice do you have for aspiring FinTech entrepreneurs out there, particularly MBA’s that may not have technical experience.

I think the key is to go after a market you know. I chose this market, for example, because I worked on retirement policy at the Treasury Department at a time when there was a lot happening in this area. I got to learn the space pretty well and I saw an opportunity to bring technology into the market. I think you’re always going to have the easiest time pursuing a startup in an area that you know really well because if you’re going after a market you don’t know very well there are inevitably going to be things that surprise you along the way. I’d say that’s the biggest piece of advice I have. At the same time, I think financial services and insurance are certainly behind the curve in adopting technology. I think that there are lots of opportunities right now to go out there and find a niche, carve it out, acquire customers and really build a profitable growing business.


That’s great advice. Before we close do you have any last words you’d like to leave us with?

Two things. The first is a huge thank you to you and Steve and the rest of Wharton FinTech. This group didn’t exist during my first year at Wharton and in less than a years’ time it’s already made a huge impact on innovation in financial services, not just at Wharton but in the broader FinTech community. You guys have really established yourselves as thought leaders and that’s great for the school and the industry. Second, this issue we’re talking about is a really big one and I think people are starting to understand how big it really is. When Social Security was created you had people living maybe five or seven years into retirement. Now, on average, a 65 year old is going to live to about 88 and by the time we’re ready to retire that number could be well into the 90s. And what this means is that if you’re living for 30 years post-retirement you really having to think a lot harder and more seriously than in the past about how you’re going to accumulate enough money to live and then how you can be more sophisticated in spending that money down. We’re super excited about what we’re doing because we think that this is just the beginning. There’s going to be a lot more innovation in the space and we feel like this will be a transformational couple of decades for retirement spending.


FinTech and MBA Social Impact

Diverse Perspectives

Since launching WFTC last month, I have had the privilege of meeting many classmates who have backgrounds and interests in FinTech. Even within the relatively specialized industry of financial technology, everyone has a different perspective and unique goal for what they want to get out of their work with the club. Some people are interested in payments, others in lending. We have members who have worked for or with startups in the personal wealth management space or the big firms in the credit card space, among other things.

Social Impact

One thread that keeps on coming up during these discussions spirals around the nebulous domain of social impact. By this I mean the ability of an entity or endeavor to make a positive change for a society beyond the economic value that accrues to its employees, shareholders and creditors (and the government to which it pays taxes). A related term, impact investing, is defined by the Global Impact Investing Network (GIIN) as " made into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances.

On reflection, it isn't a huge surprise that so many of my classmates share an interest in social impact and impact investing, in particular. The Wharton School is home to the Wharton Social Impact initiative (WSII), an organization at the forefront of research on social impact and the practical applications of the practices it entails. In short, there is probably some selection bias in the sample of people that I call classmates when it comes to this topic. And given Wharton's unrivaled pedigree for finance among business schools, it makes sense that we should find a healthy cohort of students with interests in both of these domains.


The intersection of FinTech and social impact is particularly relevant when one considers the arguments that are often made for the social value of financiers and those working in financial markets. The broad strokes are that well-functioning capital markets allocate capital in such a way as to maximize economic potential for societies at large. Therefore, pursuing a career in banking or investment management can be a morally righteous endeavor because allocating capital and providing liquidity are economic valuable activities. Now, this argument presupposes that the people performing these roles are doing their jobs effectively and that any economic value that is generated isn't captured by a select number of economic entities, rather than society as a whole.

I am not going to argue that I, and my many friends who have worked in finance in the past, present and future, were not economically valuable. However, I would accept the argument that the current global financial system provides sub-optimal outcomes for the majority of our fellow human beings. I would posit that this is due primarily to two factors: first, that the human brain is not adapted to making financial decisions; and second, artificial market distortions imposed by governments. The first of these is something that those who build and deploy financial technology have been working on some time on the consumer side of the market, where companies like LearnVest are giving people the knowledge and tools to make better financial decision. I think there may be bigger opportunities in the B2B realm, where bureaucratic inertia and government regulation create disincentives to adopt new technology. That said, I am too pessimistic to claim that similar potential exists in B2G at the moment, where inertia and regulatory hurdles are much bigger roadblocks.

The Future

Because financial technology enables the actors in capital markets and financial systems to operate more efficiently and make better decisions there is a clearly delineated link between FinTech and social impact. Companies like CommonBond are lowering interest rates on student loans by leveraging P2P technology to connect student borrowers with alumni lenders, and mobile banking platforms are bringing financial services to millions of people in emerging markets byleapfrogging the traditional economic entities upon which developed financial systems are built. In essence, the application of technology to finance imposes an ethos of innovation on the financial industry, i.e., how do we solve the problems that users of the world's financial systems are facing? As smaller, nimbler companies are able to successfully navigate the regulatory and competitive landscapes of their respective verticals, they will force the bigger companies to reconsider their focus from protecting market positions to re-discovering and catering to customers needs. If they don't, the big firms won't be so big for very long.

From the perspective of an MBA student who is searching for a career that will make a positive impact on society, FinTech is an industry that makes a lot of sense, particularly for those of us focused on recruiting for early-stage companies. Many of my classmates have extensive experience working for financial institutions which gives them an excellent foundation upon which to develop their technical understanding (essentially, they have the “Fin”, but they need more experience with the “Tech”). Additionally, many of the opportunities in FinTech lie in the B2B channels, where an MBA can bring clear value to a startup right away; this value proposition is often less obvious for early stage tech companies focused on the consumer or that lie in other industries. Using technology, financial institutions can provide billions of people with access to capital and enable them to make better personal and professional financial decisions. This impact is tangible and could be the positive influence that many of my fellow students are looking to have when they graduate from Wharton.

In short

Having a career that is both personally rewarding and makes a meaningful positive difference in the lives of others is a worthy goal. Social impact ventures and the companies that invest in them are providing channels for professionals to realize this duality. Working in the, FinTech industry is one of the best ways for socially-conscious MBAs to start a career or launch a company. I am proud of the members of the Wharton FinTech Club for seeing finance, and the technology that drives it, as avenues to improve the lives of their fellow human beings. I hope that we can collectively play a part in making an impact on our societies by developing and deploying technology to make financial systems more efficient.


How LendUp Is Incentivizing Financial Education


Fintech has the potential to change consumer behavior for the better, if they have the right incentives to do so. Over two years ago, I helped start an online loan company called LendUp, which uses technology to offer customers a transparent, lower fee loan with the ability to build credit. We started LendUp because we knew technology could help us broaden our reach and through design we wanted to create a better product to help get consumers out of debt. Recently, the National Foundation for Credit Counseling reported that 75% of American families said that they live paycheck to paycheck and more than 25% of American families have no savings at all. It is hard to change behavior if you don’t understand personal finance basics, so we created a credit education platform within our website to incentivize customers to take credit education courses.


How Does Lendup Incentivize Financial Education?


When thinking about personal finance, what you don’t know can cost you money. It has been reported that of Americas 21% admitted they do not know what credit is and how it impacts them. We wanted to educate our customers, but we knew we needed to incentivize them to do so. At LendUp, our business model is based around repayment - we don’t make money unless the customer pays us back, which is contrary to what our competitors have done. We call our financial education video platform, LendUp’s credit education series, since we deal with lending a line of credit to customers. With the LendUp Ladder program, each time a customer pays back a loan on-time they earn points. Those points add up to give users eventual access to higher dollar, lower fee loans in the future and have the ability to report their repayment history to the major credit bureaus. When a user watches our credit education videos and takes all the quizzes, they earn the same amount of points they would for paying back a loan on-time. For those who have recently declared bankruptcy and others who have subprime credit want to rebuild their credit but don’t know where to start. LendUp is the solution.


The credit education courses directly address aspects of their outstanding loan and they can learn about the importance of paying on-time with a points incentive. We spent months researching other education programs, gathering feedback from thousands of customers, and worked with experts in the education field to create these courses. We offer these videos for free to customers and the public on YouTube and on our website but, we didn’t stop there. After we created out credit education series we realized that there were still questions our customers consistently asked and we wanted to address those issues as well. So, we also created LendUp’s Fast Financial Facts YouTube videos to address common financial questions in under a minute, so you can get the answers you want, quickly.


Recently we gathered statistics about borrower engagement and found out that that one in four of all our customers take our credit education courses. The customers who complete our credit education series have a 20% higher repayment rate compared to those that do not take the courses. While we do not value removing education from some of our customers to test definitive proof of causation vs correlation, we do see it driving business value in repayment. We are currently operating in 16 states (and growing) so let’s compare that to national averages about financial education. Reports indicated that one in three adults admit to having little to no knowledge of financial education. Not only do consumers have answers to the tricks and traps the credit game can reveal, but they are also given tips on how to solve those financial problems they regularly face. In addition, we allow customers to access LendUp 24/7 from any device. You can use a computer, tablet or smartphone to log into your account to check the status of your loan or take the credit education courses.


Incentivizing financial education is a win-win for both customers and the economy. A 2007 study by the Center for Responsible Lending said consumers are paying fees of $17.5 billion annually, and that money could have been saved for other things like buying a house or car or investing in a college education, which would in turn would revitalize the strained state of many local economies. If a customer has the tools to know what financial situations they are getting into, they will be equipped to make better decisions in the future and possibly avoid defaulting on payments or overdrafting a bank account.


I encourage FinTech companies to work with policy makers like the Consumer Financial Protection Bureau to help Americans get out of debt. However, until they provide real incentives to do so, Fintech can pave the way. Within this space there are opportunities to create market solutions for real-world problems and at LendUp we are seeing positive results. We hope this will have a ripple effect throughout the nation and cause politicians and other financial institutions and startups to rethink how they can best create real solutions to the financial problems Americans face everyday.




Danielle Bicknell is a founding member of LendUp, was Head of Financial Education and is currently pursuing her Masters Degree in International Development and Education, with a focus on financial literacy, at the University of Pennsylvania.

Investing in FinTech

Last week, we published our first original content in an article titled, “What is FinTech?”. Our goal was to shed some light on how we define the FinTech ecosystem and shape the conversation around FinTech at Wharton and beyond. Over the next few weeks, we’re going to dive deeper into different industry verticals and competencies beginning with a focused look at investing in FinTech. At first glance, this might seem like a more nuanced area of focus reserved only for venture capitalists (VCs). However, since online lending and crowd-funding platforms have opened up opportunities for non-bank and non-VCs to lend to companies, coupled with the recent announcement that Lending Club has filed for an initial public offering (IPO), the investment horizon for the FinTech industry is poised to grow and change in previously unimaginable ways.



Historically, investing in public companies by buying and selling shares of a firm on a stock market has been relatively easy, at least in the US. However, private companies have often had to resort to other funding sources including VCs, angel investors or friends and family because no public marketplaces existed for them to raise capital. A private transaction would have to be agreed upon by the buyer and seller, which presumes some familiarity with the financial viability of the company. However, with the proliferation of the internet, there is now a wealth of financial information for public and private companies alike and an opportunity for retail investors exists like never before.


Crowdfunding emerged in the early 2000s as a novel way to source capital and invest in ideas using the internet. A Brief History of Crowdfunding cites ArtistShare (a website that allowed artists to seek donations in exchange for their digital music) as the first crowdfunding platform with its first user raising nearly $130,000 for an album that later went on to win a Grammy Award in 2005. The relatively quick adoption and success in the crowdfunding space made room for innovation in other forms of online lending. Lending Club and Prosper are often credited with beginning the modern peer-to-peer (P2P) lending movement in the United States and since its formation in 2006 Prosper has issued more than $1B of loans between more than 2 million people, transforming the way that people invest.


A closer look at the Lending Club IPO might suggest a windfall for the FinTech Industry. According to their website, Lending club has financed over $5B worth of loans as of the end of 2Q 2014, with nearly 85% used to refinance existing loans (60.95%) or pay off credit cards (22.47%), as reported by borrowers. In its well-circulated white paper “A Trillion Dollar Market By the People, For the People”, Foundation Capital, a Silicon Valley VC firm with FinTech portfolio companies that include: Lending Club, Motif Investing, and OnDeck estimate that “banks, credit cards and other lending institutions generate $870B+ each year in fees and interest from over $3.2T in lending activity.” To put those numbers into context, the white paper claims that marketplace lending could be bigger than the automobile and airline industries, combined.


But it’s not all about marketplace lending to peers or small businesses, and it’s not all happening in Silicon Valley. In their weekly recap of FinTech funding and investments, Finovate noted that in the first week of September 2014 “19 fintech firms attracted $269 million in new funding”, which included an equity trading platform (IEX), a Chinese technology platform for underwriting (Wecash), and technology for distributing shareholder information (Mediant Communications). In a recent report entitled “The Boom in Global Fintech Investment”, Accenture indicates that “global investment in financial technology ventures has more than tripled” from 2008 to 2013 to nearly $3B and between the UK and Ireland the “five-year compound growth rate for fintech financing was twice the global average and twice that of Silicon Valley.” Furthermore, Accenture analyzes the growth rate in investments and deal flow between New York City and Silicon Valley in “The Rise of Fintech - New York's Opportunity for Tech Leadership”. Since 2008, NYC has seen a 45% compounded growth rate in investments and a 31% increase in deal flow compared to 23% and 13%, respectively, in Silicon Valley. Accenture estimates that if current trends in financial regulation, consumer demand and innovation continue, investments in global FinTech could reach $8B by 2018.


If past performance is any predictor of future success, then the near and long-term future of the FinTech industry appears extraordinarily promising. The Wharton FinTech Club is excited to be a part of this movement and we will continue to share and promote ideas for innovation and investment in the FinTech space.

What is FinTech?

I've been at Wharton for four weeks now and have had the chance to meet and get to know some truly incredible people; students and professionals from an array of varied backgrounds, all of whom have accomplishments in their respective fields to be proud of. When I begin to explain to people my background and what I plan to do, inevitably the topic of financial technology, or FinTech, comes up. The question that seems to arise more often than not is, "what exactly is FinTech, anyway?" People often have experience in some part of the industry but don't necessarily appreciate the breadth of the whole financial technology space. I admit that after discussing this with the rest of the club, we found ourselves without a simple definition that encapsulates the plethora of firms and opportunities that inhabit the FinTech landscape. In order to rectify that glaring omission in our repertoire of FinTech evangelism, the Wharton FinTech Club would like to present the following definition:



>Fin·Tech *noun* : an economic industry composed of companies that use technology to make financial systems more efficient.


While my Wharton FinTech Club colleagues and I think this definition succinctly and comprehensively captures what we mean when we use the words "FinTech" or "finanical technology", I am sure there are people in the industry that will disagree with us. This definition may be too narrow or too broad, or perhaps "efficient" is not exactly the correct word to use as the defining adjective to classify the goal of FinTech companies. That said, we are open to discussion on whether this parsimonious definition can be improved upon and if it is a formal description that the industry is willing to embrace. However, my colleagues and I are going to use this as our working definition for the time being.


So, now that we've got a definition of “FinTech”, I should probably elaborate on exactly what it entails. FinTech companies cover a wide range of sub-industries, from crowdfunding (Kickstarter) and peer-to-peer lending (Lending Club) to algorithmic asset management (WealthFront) and thematic investing (Motif Investing). FinTech companies also operate in payments (Xoom), data collection (2iQ Research), credit scoring (ZestFinance), education lending (CommonBond), digital currency (Coinbase), exchanges (SecondMarket), working capital management (Tesorio), cyber security (iDGate) and even quantum computing (QxBranch). Despite operating in such a diverse set of domains, these companies share a common attribute: they build and implement technology which is used to make financial markets and systems more efficient. And while the companies I mentioned above represent only a handful of the spaces and companies that are included under the umbrella of FinTech, I hope to learn and write about these and many more over the coming months.


A recent report by Accenture and the Partnership Fund for New York City, "The Rise of FinTech - New York’s Opportunity for Tech Leadership", indicates that global investment in FinTech ventures has tripled from around $1 billion in 2008 to nearly $3 billion in 2013. This growth is exciting for obvious reasons. However, what is most interesting, and I think somewhat unique to FinTech, is the fact that this investment in innovation appears to be occurring in a relatively geographically decentralized manner. In the US for instance, Silicon Valley and New York rank as the number one and number two clusters for FinTech, with $376 million and $151.4 million of total investments in the first quarter of 2014, respectively. While these numbers are not exactly on par, growth in the New York market has been double that of Silicon Valley over the last five years and NYC is making a push to establish itself as an equal complement to it's West Coast counterpart. Investment in the space is a big focus for the Wharton FinTech club so expect to see more on this in the coming weeks.


Lastly, there is a lot of very cool technology being developed and deployed by FinTech companies. Whether the application of cryptocurrency block chains to problems such as online identity or leveraging large unstructured social media data sources to make better underwiritng decisions, there are a lot of reasons to care about the space beyond the economic and business potential. Again, this is a perspective that we will be covering in detail so stay tuned.


I'd like to end with a thought that has come up during a number of conversations I have had with entrepreneurs, investors and students: the biggest obstacles to success for financial technology companies appear to be neither financial nor technological, but rather psychological. By this I mean that there are lots of ways that FinTech companies can improve financial systems with existing technology and technology in development. However, the space has for decades been dominated by big firms that can often be resistant to change, the big banks being prime examples of this. Overcoming regulation and institutional inertia, and gaining the public's trust will be key to ensuring widespread adoption of new financial technologies.


After having reshaped almost every aspect of our lives, technology-enabled startups are poised to genuinely disrupt the domain of these sleeping giants and I think the big firms know this. Nearly all the major banks and financial services firms are either actively incubating or facilitating the development of startups and their technology in the FinTech space. The Wharton FinTech Club is looking forward to writing about, and being a part of, this trend in the years to come.


Wharton FinTech Goes West: Industry Trek to the Bay Area

For two sunny days in late February, students from Wharton FinTech visited the San Francisco Bay area for our second FinTech Industry Trek. Building off the [successful trip to New York City’s Silicon Alley](, we ventured out of the icy northeast and caught up with some of the world’s most exciting FinTech startups. The trek was oversubscribed with 24 participants and included 11 company visits in San Francisco and two in Palo Alto. The following is a brief rundown of our itinerary - including some tidbits of advice that the founders, investors and operators had for students and aspiring entrepreneurs.

Asset Management

Personal Capital seeks to provide better financial services to consumers with a client-centric business model that with a client-centric business model that combines a human advisor with financial software.

*Life advice:* Bill Harris, [Founder and CEO of Personal Capital](, suggested that young entrepreneurs should “know your own strengths and weaknesses. It’s ok to have weaknesses as long as you find team members that supplement the weaknesses.”

Wealthfront is an algorithmic wealth management platform that aims to provide investors with investment products that are low on both cost and human intervention. They also offer tax-loss harvesting and Single-Stock-Diversification, helping technology employees intelligently diversifty the exposure they have to their respective companies.

*Life advice:* If you are thinking about working at a startup check out the [list of mid-sized start-up companies]( compiled annually by Wealthfront Chairman and Co-founder, [Andy Rachleff]( If you’re in the Philadelphia area, don’t miss [our interview with Andy]( live at Wharton on April 10th.


Chain is an enterprise-grade blockchain infrastructure company that enables developers to build on the internet’s open financial protocol. Their goal is “to make it so simple, secure, and intuitive to build with the bitcoin protocol that ever-greater numbers of creative entrepreneurs and enterprises launch products that could not have existed just a few years ago.”


*Life advice:* Adam Ludwin, Founder and CEO of Chain, talked about the importance of founders who are creating new technology to focus on “serving people and being humble.”


Coinbase is a bitcoin services company that serves 24 different countries and over 2.5 million consumer bitcoin wallets (the most in the world). Coinbase recently opened a bitcoin exchange in the US and had received the most venture funding amongst cyrptocurrency startups until the [recent funding round]( closed by [21, Inc](


Ripple Labs is a technology startup that developed the Ripple protocol, which enables disparate financial institutions and payment networks to communicate on a simplly, safely and openly.




Mattermark is the definitive source for information about startups and private companies, with information sourced from multiple databases and information providers.


*Life advice:* Mattermark CTO, Kevin Morrill, believes that more wealth will be created in the private markets than the public markets in the future, because companies are less willing to go public and deal with transactional investors and SEC regulations. He also suggested picking up *The Possibilities of Organizations* by [Barry Oshry]( for a good read on organizational and leadership development.


AltX aims to become the most accurate and comprehensive database of information on alternative investment managers. The firm wants to research ways to match funds with the right investors, not only by strategy and return profiles, but by behavioral characteristics as well.




NerdWallet is a financial education website that aims to be the neutral party in providing information on financial products like credit cards and insurance to customers. NerdWallet’s revenue model is structured around referral fees from financial institutions who issue the financial products.


*Life advice:* According to NerdWallet CEO Tim Chen, who was a [finalist for EY’s 2014 Entrepreneur of the Year](, “consumer mindshare and trust is more important than having a specific business model.”




Prosper is a leader in the peer-to-peer lending space. Its platform connects investors willing to extend loans to entrepreneurs and other borrowers that are lower than pay day lender and traditional institutional rates.


*Life advice:* [Ron Suber](, President of Prosper, recommends [Daniel Goleman’s Emotional Intelligence]( for learning one of the most important professional and personal traits that many people neglect.




Braintree is a collective of online payment platforms that accepts Paypal, Apple Pay, Bitcoin, Venmo and traditional cards. The company was [acquired by Payal in late 2013]( and has been rapidly evolving to support payments processed through companies such as OpenTable, StubHub, Uber and Airbnb.


Square, the company behind products like Square Cash, Square Order, Square Capital and Square Feedback, emphasized the culture difference between Square and other companies. The vibe at the company is one of transparency, camaraderie and open-mindedness.


Stripe is a developer-friendly platform for accepting payments online and in mobile apps. Stripe processes billions of dollars per year for companies such as Kickstarter, Lyft, Reddit, Shopify, TaskRabbit and Twitter.


*Life advice:* Stripe’s managers emphasized the importance of being a self-starter and driving your own workstreams and projects. “There’s so much work that needs to be done and so many battles that have to be fought at a young company such as Stripe”, one manager told us. “Our teams are expected to go out there and fight these battles with little oversight or direction.”




Citi Ventures was launched five years ago with six investment professionals. The team is positioning itself between corporate and financial VCs and only invests in companies that makes strategic sense for Citi. The team sees the following as enduring themes: enterprise security, data analytics, financial services & technology and commerce and payments.


*Life advice:* The Citi Ventures team recommends that aspiring venture capitalists should develop deep domain knowledge, work at a startup in a field that they are interested in and potentially do some pro-bono work for a fund in order to develop a track record of experience.


Looking Forward


We feel really grateful to have had the opportunity to meet with such exciting companies on the two days we were in the Bay Area. It is clear that FinTech companies are attracting some of the brightest talent in the Bay Area and it will be exciting to see how these companies evolve in the future. Thank you to all the founders and execs that took time to speak with our group - we can’t wait to see all the success you have in the future!



Wharton FinTech Interviews Capital One

Tell us about the evolution of digital focus at Capital One. 


Capital One was founded on an information based strategy. In some ways, we were a Big Data company before that term was invented. What we need to do to evolve is prove that a bank can use that data intelligently, deliver value for clients, and design an experience that is delightful and intuitive.


Banking is a highly regulated industry and because of the more traditional nature of banks (compared to start-ups) it can be difficult to create a culture of innovation.  What is Capital One’s culture like? How is the company structured to innovate?


Capital One’s historic culture believes in the power of data. It’s sort of like that old William Edwards Deming quote: "In God we trust, all others bring data." The good news is that we are still a founder led company and our CEO has set out some pretty aggressive targets in terms of innovation. That means paying attention to all of the startups out there, but not just copying them for the sake of a “me too” strategy. That’s why we’re investing in Digital Labs, design thinking, and user experience (through acquisitions like Adaptive Path).


How does the digital lab work with the business units?


Adaptive Path was recently acquired by Capital One.  Adaptive Path’s Chief Creative Officer said in a blog post that the fit made sense because he felt the fit for the partnership made sense and that it would continue to allow Adaptive Path to do “great work.”  From the point of view of Capital One, what was the impetus for acquiring Adaptive Path?




Adaptive Path’s Chief Creative Officer also remarked that “[Capital One has] built sophisticated practices in digital product design, design thinking, and experience research and development that we can build on and cross-pollinate with our practices”


Can you tell us more about what kind of design principles Capital One uses?


Within Digital and the Labs we are focused on the human centered design experience. That means getting out there and talking to our customers, seeing how they live their lives, solving some of their existing challenges, and also trying to surprise and delight them. One example of that is a program we launched called Second Look. Second Look scans your transaction history for either suspicious purchases (like a double swipe) or bills that vary more than usual (say your Comcast bill increased from a promotional rate to a higher price point). We launched this as a Minimum Viable Product with just email alerts, but the response from customers has been so positive, we are now looking at how to expand the offering. Second Look is actually a good example of co-creation with our customers, since we are tweaking the experience based on real-time customer feedback.           


Each of those parts of the business shifts the focus back to the customer. And when you give customers


Capital One is developing functionality to improve the experience for its customers.  I understand that the bank developed a Purchase Eraser feature that lets customers buy plane tickets or hotel stays with a credit card and then, within 90 days, pay for those purchases with reward miles instead. In November, Capital One launched SureSwipe, which replaces passwords on its iPhone app with a pattern customers trace over a screen of dots.


Can you tell us some about the things Capital One is developing now in the world of digital and innovation?


How do you determine what types of products or services to create or prioritize? How does Capital One leverage the data it has on consumers and consumer preferences related to their banking products to inform this strategy?


In a world where customer data security is of huge importance, how is Capital One innovating in this space?


There are two quick examples that spring to mind. The first is SureSwipe, a feature which makes it easier for customers to log in and access their data on mobile, without having to remember (or re-use) the same password over and over. The other is our Digital Wallet, which launched with ApplePay last month. When customers use their iOS device to pay – either at the point of sale or online – we will send a single use token instead of the customer’s full 16 digit credit card number. This makes life harder for fraudsters and gives our customers more confidence that they can use their phone for payments.   



In 2012, Capital One acquired ING Direct, now Capital One 360 which was an online bank (no physical branches).  Has that acquisition had an impact on digital at the company?


Apple Pay has the potential to have a huge impact on the payment industry and the customer’s payment experience.  Can you tell us some about the approach Capital One took with Apple Pay and how the company thought about the digital interface and innovation for this service?


For banks with a branch network, one of the industry’s initiates is to create a similar look and feel with all of its acquisitions channels.  How does that impact your work? How is Capital One designing digital experiences that translate across channels?


Recently Rob Alexander, CIO of Capital One discussed, how Capital One is in the midst of moving from 70% to 75% outsourced IT to 70% to 75% in-house so that the company can write its own code for customer facing software.  Can you talk some about this change?


For Wharton MBA students, do you have any suggestions for pursuing a career in digital strategy and innovation?


As most alumni will tell you, the soft skills are incredibly important. Every day I think back to classes like communications and negotiations, but only occasionally do I have to build a really complicated financial model (although it does happen!). In this type of role you’ll have to influence people, both internal stakeholders and partners, tap into different parts of the organization, build new projects with limited resources, and then argue for why those projects should be launched at scale.


One last question: from a personal standpoint, what is a company you admire for their digital and innovation leadership?  What do you think Capital One can learn from them?


I think Larry Page has done an incredible job at Google. If you look at the company, they are firing on all cylinders when it comes to innovation. One of the reasons for that is that different groups are empowered to participate, whether it is through 20% time, Google X, investing via Google Ventures, or acquiring startups via corporate development. When I think about where we want to get as an organization, that model is incredibly helpful, since it seeks out innovation from multiple sources both inside and outside the company.




Capital One IT Overhaul Powers Digital Strategy (Rob Alexander article)

Wharton FinTech: Zero to One

Wharton is all about doing what *you* want. Whether that’s networking, learning, running a conference, recruiting, traveling, starting a company or some combination thereof, Wharton gives you the opportunity, and the resources, to tailor your experience. Students here have a lot of options and latitude but that means that we are largely responsible for making Wharton a place that attracts and engages the kinds of peers that will continue to make it as stimulating and entrepreneurial as it is today.

This environment gave us the opportunity to start a student club focused on an industry that we are both passionate about. Financial technology, or FinTech, was a space that we had each worked in before coming to Wharton, on both the investing and operational sides. After spending time talking to our classmates during Pre-Term about our experiences and what was going on in FinTech, we quickly learned that we weren’t the only people on campus that wanted to learn more about the intersection of technology and finance and get in front of the companies and investors driving innovation in the space. This was the genesis of [Wharton FinTech](

Demand from within Wharton and industry itself has driven incredible momentum in a short period of time. Over the last three months, Wharton FinTech has grown to nearly 200 members. We have hosted guest speakers from [NewFinance]( and [WRDS](, and our VP of Education, Sasha Dobrolioubov, has delivered educational sessions on both the [peer-to-peer lending]( and [personal financial management]( markets. In November, twenty club members joined a [trek to New York]( to visit with FinTech firms and venture capitalists, including [Betterment](, [SecondMarket]( and [FinTech Collective]( The [Wharton FinTech blog]( has also been a huge success, with 16 articles posted in 16 weeks, and nearly 1,000 unique visitors during the last month alone. And we were very busy on [Twitter](! We are also proud to have been supported by our founding sponsors: [Infrastructure Group](, [Pave]( and WRDS. 

When you’re passionate about an idea, there’s nowhere to pursue it that’s quite like Wharton, which is why we will continue to add value to the FinTech industry while providing exciting opportunities for our members. Next semester, Wharton FinTech is heading to the West Coast to meet with FinTech startups and investors in San Francisco and Palo Alto, including [Nerd Wallet](, [LendUp]( and [Mattermark]( We will be offering the opportunity for students to engage with [Prosper]( on an independent study project, and bringing speakers to campus from FinTech firms such as [Chain](, [Aspiration]( and [Tilt]( The club will also be hosting another sponsored social, and we are working on educational content around payments, blockchain economics and FinTech social impact.

None of this could have been possible without the commitment and dedication of our peers. Wharton FinTech is driven by students for the benefit of students and in this regard it is reflective of Wharton as a whole. If you want something to exist here you just have to find other people who share your vision and work hard to make it real. For us, that was Wharton FinTech, for you it could be anything.

*Daniel McAuley and Steve Weiner are first-year MBA students at The Wharton School and Co-Founders of Wharton FinTech. Prior to Wharton, Daniel was a Financial Engineer and Director at Verus Analytics, and Steve spent six years in the US Navy’s Submarine Force and worked at Goldman Sachs.*

The Millennial Generation and the Future of Finance: A Different Kind of Trust

Trust is still fundamental to the exchange of goods and services, and to the efficient functioning of every financial system. However, a generational shift is underway that is challenging and reinventing notions of trust in financial services.

As millennials, we came of age during the global financial crisis and the sluggish period of recovery thereafter. Our generation is particularly mistrustful of established financial brands and institutions, and coupled with our comfort with new technologies, this lack of fidelity towards incumbents is creating new market opportunities for FinTech players.

Last fall, when we were getting Wharton FinTech off the ground, we were approached by Peter Vander Auwera, the Founder and Curator of SWIFT’s innovation arm called [Innotribe]( Peter was interested in our thoughts about how millennials viewed the shifting landscape in financial services, and we had several phone calls to discuss our theories. Wharton FinTech ultimately partnered with Innotribe to examine how the Millennial Generation will help shape the future of finance, which we lay out in this [white paper]( and we will play an important in this year's Innotribe program at [Sibos](, taking place in Singapore from 12-15 October 2015. 

The paper explores three main themes:
Trust in technology: Millennials trust technology rather than face-to-face relationships and the traditional ‘bricks and mortar’ on-premises user experience. They want entirely new digital products that are relevant to their daily lives. However, there is a fine line between trust in technology and over-reliance on it, and information and identity security is an area of risk that needs to be managed.

Trust in networks: FinTech startups built on the back of social networks have a distinct advantage over incumbents when it comes to customer acquisition. By focusing on user experience and viral or ‘word-of-mouth’ marketing, these young firms are often outperforming their better-funded rivals. For those financial services firms looking to gain market share within the Millennials segment, this is an extremely important approach to master.

Trust in social causes: Millennials demonstrate a stronger likelihood to buy a product from, or indeed work for, a company with a defined social or environmental mission. They trust companies with social or environmental objectives more than those that are perceived as operating solely for profit. While declaring affiliation to a social cause can attract customers and improve engagement, companies must be careful not to mislead Millennials – they tend to do their research to make sure a company’s claims can really be justified. 

Socio-economic and generational dynamics play a critical role in the evolution of financial services. As companies reinvent the way people interact with their money, finance is becoming faster, cheaper and more efficient for individuals and businesses.


ZestFinance & My Internship in FinTech


*As the summer approaches and many students are preparing for internships at FinTech companies, we thought it would be appropriate to ask Shantanu Gangal (WG’15) to explain his internship at ZestFinance and what advice he has for future interns.*

ZestFinance is a FinTech startup founded in 2009 and based in Hollywood, CA. They describe themselves as “Google-style machine learning meets CapitalOne-style credit scoring.” This post captures my experiences and learnings over the summer at Zest.

What Zest does

Zest applies big data analytics to credit underwriting. Through their proprietary machine learning algorithms, Zest analyses “thousands of potential credit variables – everything from financial information to technology usage – to better assess factors like the potential for fraud and the risk of default.” The entire application is online and the credit decision takes only a few seconds. If approved, borrowers could get funds the next day. Zest provides credit to “roughly one in four Americans who don’t have access to traditional credit cards [at rates lower than payday lenders”]( but much higher than credit card rates.

Zest has grown fast over the last six years, recently raising their third round of VC funding from Peter Thiel [bringing total funding to ~$112m] ( Prior investors in Zest include Lightspeed and Matrix, among others.

My role during the internship

Zest’s proprietary model relies on data provided by applicants and other external databases. Using this data, the model spots applicants that are lacking either intent or ability to repay a loan. However, we wanted to go beyond reported data. We decided to investigate if we could identify behavioral factors that would add color to an applicant’s profile. I classified applicants into two categories:

**Readers:** the folks who were very diligent about what they were borrowing
**Speeders:** people more cavalier about the process as a whole

By testing the actual performance of these applicants over historical data, I was able to establish that Readers were a much better segment to lend to. We further established that the result was statistically significant even in the presence of existing information about the borrowers. It is a moment of pure joy when data validates a gut hunch. Exhibit A illustrates the benefit of the new classification (scrubbed data).
I extensively used SQL (database querying), R (statistical modeling) and Google Analytics (tracking) over the summer. In addition, to make a mark among the wickedly smart PhDs at Zest, I needed to lean heavily on the Wharton STAT core course (who would have thought?!). I would strongly recommend being on top of these materials if you are interested in working on a similar project.

A window into startup culture

This was my first experience working at a startup (after jobs at BCG and Blackstone – both relatively large and global companies). I noticed that everyone got their hands dirty with coding, testing or analysis as the case may be. While there was a reporting structure, each one of us was empowered to make all decisions regarding our work streams. Formal check-ins with managers were limited to only about an hour each week.

In my role I needed to apply a wide range of analytical and statistical tools and there was a lot learnt by asking the team around me. Being able to walk up to people with a question multiple times within a single hour was what made it a very efficient and collaborative learning experience.

Zest was also my first experience with fantastic startup perks – wearing jeans to work and playing ping pong during the lunch break!


My experience at ZestFinance was extremely rewarding. Coming from a finance background, it was an excellent segue into the startup world. I learned about startup culture, had a chance to apply the statistics and data tools from MBA classes and most importantly, met a bunch of smart folks working on interesting problems in lending over the internet.  Good luck to all the students interning at FinTech companies this summer!


Shantanu is a second year MBA student at Wharton. Earlier, he graduated top of his class at IIT Bombay (CSE). Shantanu is very interested in tech-enabled credit. This past summer, he worked at ZestFinance.  In the following semester, he completed an Independent Study on Lending Club’s portfolio and is currently working on one with Prosper. Prior to Wharton, he worked at Blackstone & BCG.