Jared Kaplan - CEO Interview - OppFi
First and foremost, Bill owns stock in OppFi. This episode is not an invitation or solicitation to buy or sell shares in FGNA, the entity that OppFi is merging with in a SPAC transaction. Second, The Business Brew and Bill encourage listeners to do their own due diligence and talk to their financial advisor before purchasing or selling shares in any security.
With that said, Bill wanted to interview Jared because OppFi sits at the intersection of many Business Brew episodes. To begin, FGNA is taking the company public via SPAC (See Andrew Walker's episode for a discussion on SPACs). Next, Mike Mitchell, our first guest, introduced Bill to Kyle Cerminara, a recent guest, who is part of the group taking OppFi public. Finally, OppFi would have never passed Bill's "smell test" if it wasn't for Tyrone V. Ross' episode where Tyrone talked about the need for serving the underbanked.
In the interest of complete transparency, Bill does not have a significant portion of his net worth allocated to OppFi. Instead, OppFi is part of a "basket bet" Bill made on Kyle Cerminara. Within that bet, Bill finds the incentives of all the people involved compelling. That said, Bill has not done enough work, nor is he convinced enough on OppFi's prospects, to make OppFi a significant weighting in the portfolio.
For the avoidance of doubt, this podcast interview is biased and is part of an open source due diligence project. Bill may change his mind at any time and does not commit to letting people know when he does so.
We hope you enjoy the episode.
Album art photo taken by Mike Ando.
Thank you to Mathew Passy for the podcast production. You can find Mathew at @MathewPassy on Twitter or at thepodcastconsultant.com
+ Transcript
Bill: Ladies and gentlemen, welcome to The Business Brew. I'm your host, Bill Brewster, thrilled to be joined today by Jared Kaplan, CEO of OppFi, which stands for Opportunity Finance. Some of you may know it as OppLoans. We're going to discuss some of their businesses and what they're trying to accomplish. As a reminder, nothing in this podcast is an invitation or a solicitation to buy or sell any security. This is for entertainment purposes only. I do own shares in OppFi and I have committed to a lock myself up for a year. That was as of when Kyle Cerminara’s podcast dropped, and I'm happy to do it for a year since this podcast dropped. That's my bias, and assume that I'm doing my own due diligence as you listen to this. Jared, how you doing?
Jared: Good, Bill. Thanks for having me on.
Bill: Yeah. I think you've got a really interesting product here. We have not spoken yet, obviously. What got me intrigued was hearing Joe Moglia’s enthusiasm when he talked to Josh Brown. I've talked to Kyle a little bit about it, and I think these guys are in this for the right reason, and I kind of wanted to have you on. As I told you getting ready for it, I'm going to try to ask you some hard-hitting questions, and we'll try to answer some of the answers. With that, do you want to talk about how you got to this company?
Jared: Yeah, for sure. I started my career at Goldman. I was an investment banking analyst. It was a terrific entree into the real world, working with just people that are so impressive. I was in the tech media and telecom group there working with the sexiest companies in the country. A lot of the guys that were in that group, some of them are running the bank now, the CFO, the president, they were in that group. You've got guys like Tom Loverro, who was just named to the Midas List, to Coinbase public today. Omer Ismail was in my analyst class, he was running Marcus before, now he's going over to Walmart. He walked in every day looked around and like, “Man, I’ve got some work to do.”
Bill: [laughs]
Jared: These people are pretty good. After banking, I went into private investing, I worked at a private equity firm called Accretive, it was a bit atypical. We looked to start businesses from the ground up. It's where I learned about a term, we called it value edge. Essentially, our definition of value edge was a business who could create value for the customer above and beyond their next best alternative, that was our basis of evaluating potential companies to start. Unlike Goldman, where I was working with some of these incredibly sexy technology companies, I actually focused on some of the most boring industries at Accretive, and it was quite helpful to the rest of my career, because I recognized that some of the oldest industries, the Stone Age industries are most ripe for reinvention. I ended up getting really deep into workers' compensation insurance, which was not my lifelong dream.
Bill: [laughs]
Jared: Through that process, recognized that when you went to Google, no one was bidding on the keyword terms for workers’ compensation insurance, except for lawyers looking to defend claimants. That was the kernel of an idea that I worked on with our founding partner, Michael Cline, to start a company called Insureon, which was InsurTech before we knew what InsurTech was. It was an online insurance agency for freelance businesses. The idea was to procure them business insurance in a streamlined fashion. The brick-and-mortar agents wanted nothing to do with these small businesses. They made money on commission, which is a percentage of the premium that they would place and so it was misaligned. The risk profile, the business often got insurance that was not in line with their risk profile. So, we started this business. Long story short, we hired a CEO and he said, “Well, if you believe in it so much, you'll come join me as my number two.” That's what got me into the operating world, which was an easy decision because that thing was my baby.
Over four years, we built it up to the fastest growing insurance agency and property and casualty insurance. I learned a couple things. I learned mobile acquisition. I learned the importance of delivering really profitable loss experience to balance sheets, how to build proprietary technology and how to deliver exceptional customer service. Then, the Schwartz family came knocking. The Schwartz family is a storied family in Chicago. Ted Schwartz is the family patriarch. He had built a business called APAC Customer Services. It was traditional call center business focused on pharmacy benefit managers. They took it public in the mid-90s, sold it to JP Morgan's private equity group. In 2011, that seeded the family office and his son, Todd, had founded OppFi. He had seen after the Great Recession, all of this capital dry up from the middle income consumer and access to credit really didn't exist. He saw the markets of last resort as being really poor options for this consumer. He said, “I could do something better than that.”
They [unintelligible [00:05:12] the business, had about 8 million of revenue about 15 people at the time, he had hired the smartest guy in nonprime credit, and he's still with us, guy named Chris McKay, to build out the credit philosophy. His dad's business was known for exceptional customer service, he had infused that customer service philosophy and he said, “Okay, let's grow it. Let's grow profitably. But whatever you do, don't screw up the credit, and don't screw up the customer service.” Here we are five and a half years later, access is just part of the story that we're building. We're trying to build the digital financial services destination for this everyday consumer. That is how I got here. It just so happened that all those levers that we pulled at Insureon were directly analogous to this opportunity. I took the job because it was a CEO job. They don't come along too often.
I remember walking into Insureon as the number two being like, “I'm not sure I ever can be a CEO.” At the end of my 10 years, like, “I’ve got to give it a shot.” The opportunity presented itself. Man, it was the best decision I've ever made. It's been a heck of a ride so far.
Bill: That's awesome. At Insureon, you didn't hold the risk, you were in the brokerage position, so you were offloading it?
Jared: Yeah, we didn't hold the risk. We were paid certainly for the experience that we delivered. We made money with some contingent commissions that were driven by the profitability of the book. There was a theme of asymmetric risk there, which was everyone thinks a small business insurance is risky, because one claim can wipe your premium out. The truth is, if you can aggregate small businesses, they don't file claims very frequently, and so the business is unbelievably profitable from an underwriting profit perspective. There's a similar theme with OppFi which is, traditional credit scores are typically looked at as a metric of creditworthiness, but if you're able to see past a traditional credit score, and use alternative data to determine someone's ability and willingness to repay, you can essentially underwrite a very viable product. Then, after you've figure out a customer who's credit worthy and you're able to facilitate access for them, they're incredibly grateful. Now, the opportunity is to help them graduate back to the mainstream in the wraparound to other financial services products over time.
Bill: Yeah, that makes sense to me. I think that one of the things it's a bit confusing from the outside is, you see words-- I was reading your proxy and it's like, it's AI, Snowflake is involved in it, discussed in the proxy. You use that as a service provider. It's kind of hard, like for me, to get my head around, “Okay, well, how sustainable is this data advantage? And what is it about the tech that is sort of moaty?” For lack of a better term.
Jared: For sure. By the way, if you don't say AI and machine learning, crypto and blockchain in a financial technology podcast, what are we discussing? Those are table stakes.
Bill: Yeah, that’s some of the concern. It's like, okay, well, how much is this is reality and how much is marketing?
Jared: Yeah, you can look at our results for reality. I always point to results and the fact that we've been able to run the business gap profitable for five years is a testament to, I think the secret sauce that exists within the decisioning tools. It starts with data, we've got over seven billion data points at this juncture, with the company's history. We've facilitated over a million and a half loans, over 14 million repayment events. We get about 500 attributes per repayment event, so that's how you get to the seven billion. It's some really interesting data from a source perspective. We look at everything from literally how you fill out the application, how fast you go, you do delay on answers that you should know pretty obviously. We look at bank data very heavily, but 90% of the cases, we’re able to get about 90 days of transactions from customers. That's a very onerous frictional process, that's why a lot of platforms don't do it because to convince someone to be comfortable to log into their bank account and send you that data is a high bar, but we’ve become really, really good at it.
With that data, you can look at an enormous amount of interesting attributes. What you spend your money on, how often you go negative, average account balance, how many times you pay NSF fees. We work with alternative data providers to get a number of other attributes, and that all aggregates into our proprietary scoring, which we do use the best in class of AI and machine learning to continuously improve and champion challenge and get better, and expand access without driving up losses. I mean, that's the whole key. We've been really successful at that. We first started we were probably close to the 4%-ish number of a number of applications that ultimately got approved either by us or by banks. we've doubled that now to about 8%, growing up pretty rapidly with the static pools being incredibly consistent, stable. There's a lot that goes into that. It's a never-ending process. I think it is an incredible sustainable competitive barrier that we've been able to set up and get a bit of a first mover advantage for this customer set.
Bill: Do you want to describe sort of the turnout process that you have?
Jared: For sure. In our segment, we're serving these 150 million consumers in the country that have less than $1,000 of savings. It's crazy that the numbers that high. I didn't recognize that before I was approached for the opportunity. This is not a low-income consumer in most cases. It is your median US consumer. They're making 50 grand, they have a job, they have a bank account. In fact, half of them bank at the biggest banks, the big bulge brackets. Half of the customers are at the largest banks in the country.
Bill: Really?
Jared: Yeah.
Bill: And they can't get access to credit there?
Jared: No access. We had this debate internally way back in the day, because we wanted to make sure that we've got all these fancy tools and the process, 80% of time the customer is on their mobile phone. It only takes about five minutes instantly decision, 75% of the time, it's so slick. Here's someone whose car just broke down, they need to get that car fixed, so they can get to work tomorrow. They walk into their bank, and they’re laughed out of the bank, literally laughed out the bank, and then they go online, maybe they find some other near prime platforms, and they're declined. Then they find us, and we're able to facilitate that access, but we wanted to make sure that we check the market first, because we don't want to build a business where just because we're fast and the process is relatively simple, that someone in a really difficult situation feels like this is the best available product for them. We set up a bit of an aggregator on the front of the process. When you come to us from a non-choice platform, we say to the consumer, “Hey, would you like us to do a diligent search on your behalf?” [crosstalk]
Bill: Sorry, non-choice, what does that mean?
Jared: Meaning like, if you come from a Lendingtree or Credit Karma, where they're already providing some of that process for you, we won't take you through what we call the turn-up process, but for about half the business that doesn't originate from those platforms, we're saying to the consumer, “Hey, you found us through search engine optimization,” or, “Maybe you were referred to us by customer. We email marketed you,” or we do a small amount of direct mail in half the business comes to us from sources that are non-choice. “Let's go do that diligence search on your behalf.” We'll go look for a sub 36% APR product, essentially. We go out to about 15 of those platforms, 90% of time, everyone says, no. 90. About 10% of the time, they'll provide an offer, but only 10% of those offers end up closing alone. It's really only about 1% of the apps that actually find a better home, and that's important because we want to be able to provide that service to the extent it exists, but it also shows that access doesn't exist for this consumer. They're completely locked out of what most would consider mainstream credit.
Then we're able to work with bank partners to use all those alternative data, underwriting technologies to figure out whether you have the willingness and the ability to repay. The products are structured in a way that you rebuild credit, now we try to graduate you back to the mainstream, but internal processes is critical. I remember having conversations internally when we set that up was, are we going to cannibalize the business? If we cannibalize the business, amazing. I'll go home and do something else. No one's looking to build a business, that is just because you're fast and easy, a customer's choosing your product, that is it's going to be more expensive, but that proves it with the data, and really sets out a terrific customer service experience, so that they feel like that we've got their best interest at heart.
Bill: Yeah, I think, the tough thing that I have, or the pushback that I have heard, when I talk to people about the product is they're like, “Well, look at the APRs.” The word that comes up a lot is predatory. One of the things that I've started to understand a little bit through some of your footnotes in the proxy is, what the breakeven is on smaller-size loans. But viscerally, that kind of an APR is a little bit shocking. To think that the median consumer is paying that there's something that feels wrong about that. I'm not saying that it is or it isn't, but it's like a shame that that's going on. I know that part of OppFi is OppU. The thing that I have had some conflict in my head, and that you alluded to is, well, where are the incentives here? Because if the customer is trained up, aren't they getting off the platform or out of the OppFi products? Isn't that against op fives incentive? How do you think through like helping a consumer rebuild their credit and trying to drive down the interest rate that they're ultimately paying without just kind of sending them out of your-- you don't want to be like a training ground to give banks, new customers, so how are you thinking about that long term?
Jared: Let's start with the first couple points about just like the headline APR and the reaction that from a customer versus a non-customer. Our customers talk about how affordable and how fair and how transparent the product is, versus the markets of last resort. That's their reaction. I always tell people that our customers-- By the way, it's not what I say, it's what they say. They tell the story much better than I ever could, go to the Better Business Bureau or Google or Lendingtree and read what they say. It's really amazing. We've got these fantastic customer sat rankings, and it's because of that situation I described earlier, which is, you're laughed out of your bank, and you're declined 20 times,and finally someone could see past that traditional credit score to say yes to you.
APR is obviously an annualized rate that is supposedly supposed to be used to compare products evenly. It doesn't really work that way in consumer finance. A lot of people don't recognize the way you calculate APR on a credit card product, excludes fees, leased own products don't have APRs. These products really aren't meant to be long-term products, like the average loan on the platform today, it's contractually 11 months, but it turns over every four and a half months. There's lots of important data points or structure of the products is super important. All the products on platform amortize like a mortgage. There are no fees, there's no prepayment penalties, or origination fees, or late fees or NSF fees. It could not be more transparent. If there's reporting to the credit bureaus, if you're having difficulty paying, we work with you in every which way, if you're willing to pay, we'll figure out a way to make that work. There's lots of product design that is also critical to what we're doing.
What you have seen here recently is the big banking regulators, the OCC, the FDIC, and the Fed, have come out and said, “Hey, access doesn't exist. We need more banks into the space.” The Fed put out a great study that basically said triple-digit APRs are required to break even on small dollar products. Although the headline to a non-customer looks incredibly high, when you break it down, you look at like true cost of credit. what the customers paying, it ends up being much more fair. A per loan basis, our true cost of credit is like 30%, 35%, and just the way that the customer is using the product. That's pricing and how you think about that.
Graduation is critical. The company that will win this space is a company that will not make financial impact and social impact, mutually exclusive. That's critical. I think we've done a fantastic, fantastic job at access, and proving that we're able to facilitate best available products for customers who are essentially locked out of the mainstream, these 150 million customers. Now, we've started to really focus on graduation and how do we get you back to a mainstream product, in longer term build savings, and then after that, build wealth. That's the vision in building this digital financial services destination for this everyday consumer. That starts with Salary Tap, which is the product that we are in beta with right now. Salary Tap is an installment loan, but it's repaid through payroll deduction, which is a really cool technology. Payroll deduction itself is not a technology, but there's a lot of momentum behind technology that makes the act of payroll deduction a lot more simple than ever used to be. If a customer repays you through payroll deduction, that's highly secured, these products can be offered at 20% their current costs. So, it's a win-win for everyone, because it's much lower cost for the consumer and it is still a profitable business for platforms because the losses are much lower.
Then we've got the OppFi credit card launching in the early second half of this year, and that's a perfect graduation product. It's a mainstream credit card, revolving credit, has a higher weight on traditional credit scores, so you should be able to improve your credit score faster. What we're going to do is for customers who have shown a track record of repayment on the installment loans is get them to the credit card over time, which is a much more sustainable long term-finance. But we have to quantify this stuff, and we're going to quantify it by talking about graduation rates, we're going to hopefully quantify it by being able to point to improvements in traditional credit score, and just do what we say, which is for someone that has proven the ability to willingness to repay is to reward them over time. If we don't, we'll lose them, there's going to be the next OppFi that comes along. We don’t have to wait for the competition to push that. It doesn't really exist today, but the market is so underserved and so large, you've got all these interesting players now looking at it Squares, piloting small dollar loans with Cash App, Chime is trying to figure out lending, US Bank, fifth largest bank has launched a product called Simple Loan a couple years ago, which is a very attractive small dollar product. It's absolutely happening, and we've got to continuously improve and do the right thing for the customer to maintain our advantage.
Bill: On the credit card I was looking and it seems like it's a $99 yearly fee, is that accurate?
Jared: It's accurate, yeah.
Bill: Yep, and starts out at $1,000 credit limit.
Jared: Yep.
Bill: When I was thinking about that, I was like, “Man, that is a steep fee because it's almost 10% of your credit limit upfront.” I don't know if you have this modeled out, and if you don't, feel free to say you don't. Do you know how many people are going to be paying with cash for that $99? Are they going to put it on the balance? How do you think through that? Because I keep coming back to the fact that I want to make sure that I'm associated with a team that's trying to do the right thing. It's tough, I don't have the experience of having to go to somebody like you, like, I have access to banks, and I pay for an American Express, but my credit limit is much larger. I can't even contextualize what life is like at the $99 for a $1,000 credit limit. I know that that may sound naive and ignorant and sheltered, but that's kind of what I am. I'm trying to shatter that part of myself somewhat through this podcast, which is why I wanted to do this interview.
Jared: It's a great, great question. A non-prime credit card market today, if you look at the major players in that space, it's typically a $300 to $500 credit line, with fees as a percentage line, much, much higher, for mobile experience in very different customer service philosophy. There's opportunity, we think to reinvent that space, with the product that provides much higher credit lines, much lower fees as a percentage line, and a terrific mobile experience and terrific customer service. It's just another stop on the journey. If you're going from a higher-cost installment product to the OppFi card, your average rate is going to be about half of what it was in the installment product, just by moving to the card. That's hugely beneficial, and much more cost effective. I think we can both agree that's not the last stop on the journey. That's just the next rung up, and you have to continue to make the products better and look more like the products that you're used to, as a customer rebuilds their financial health improves their credit worthiness.
We're committed to doing that. It's absolutely a hard, hard thing right to do, especially in this country. If you look what's happened in the country, and why these products are crucial, it's because of that dearth of savings, the fact that people don't have savings and why does that happen? That happens because wages have been flat. The major costs of living have continued to increase, whether that's healthcare education, or childcare, housing. Our customers on average have a couple $100 in their bank account, on a good day. If something strikes that is unexpected, and you don't have the savings, you have to access money somewhere, you have to borrow. In the products, even the initial entry product, OppLoans product historically is a vastly superior product, to the markets of last resort to payday loans and auto title loans to bank overdraft and tribal lending platforms and unregulated markets. It's a vastly better product, and the customers will tell you that. So, getting them to the OppFi card is that next step, which is a much better product than is currently available to them. We have to continue to improve from there.
Bill: Do you mind contextualizing what the substitute products are? You said this is a much better product than what they otherwise would in a lender of last resort. What does that relationship look like? I just keep going back to what comes back is, look at the APR is, and I can hear it, it's like, “Oh golden ex-Goldman guy, CEO,” whatever, are these guys really in it for the right reason? Talking to Kyle, I mean, he gets really passionate about this stuff. I believe that that you guys really are, I don't think it's lip service. I think contextualizing some of why it's these rates are justified, I just think is important, because it's easy to sort of not understand if you don't have a sense of the alternatives.
Jared: Yeah, I mean, a traditional payday product is going to be a couple $100, it's going to be 300% to 500% APR. It doesn't amortize it, typically single pay, there can be fees attached to it. There's no ability repay calculation, there's no reporting to the credit bureaus, all the pieces that we have built really don't exist in those markets. At the same time, there are ways to structure those products, I think, in healthy manners for the customers that don't qualify for the products on our platform. Everything we just said for our products right there, they're longer term, they are higher dollar amount, they're lower cost, they amortize, there are no hidden fees, there is credit building, there is this willingness to work with the borrower who runs into issues. Just by every dimension, we think it's a superior product to someone whose only option previously were in one of those markets of last resort. That's what they say. They talk about the fact that is much more affordable and fair and the payments are much more reasonable, and they can rebuild credit. They're so thankful that they found us and so on and so forth.
You talk about who's got the most credibility and are you doing what you say you're doing? Ultimately, it is the customer. It is the customer that will tell you, “Hey, this is a much, much better option than what I had to.” Or, it's someone that used to have access to a near prime product, that used to have extra near prime product, they've hurt their credit score, either inadvertently, or not. Now they've been locked out. This becomes the best option, because we see a lot of those customers as well, customers who were high six hundreds, and maybe they got a divorce or had something medically happened to them, and the credit score caters, and now, this becomes their best development product. We have to continue, and we plan to. We talk about that turn-up process today, where we essentially give away a chunk of the business by working with other platforms. We're going to start looking at that space as well. There's no reason why we can't continue to move up the spectrum, and get more into the near prime world. That's a great way to continue to expand the market that we're going after and also to reward borrowers who are performing.
Bill: As you get more data and more relationships, are you thinking at all about trying to drive down the APR, because it seems to me as though your cost of acquisition would go down. The graduation would go as people get educated, your default rate would go down. Is it possible or are you thinking at all about, I'm not saying next year, but 10 years down the road, how efficient are we trying to get with these interest rates?
Jared: Absolutely, you have to give it back to the customer. The banks that we work with have been great about that. We talked about no NSF fees, that's a recent change that they made, as we turn the calendar year this year to eliminate those fees from the product. Ultimately, it's their decision what the pricing is, but they work very closely with us into how the product should be priced. They have agreed to reward borrowers who are repaying over time. I think if you look at the way that we've projected the business, margins are flat for a reason. Margins are flat, because as we continually drive, operational leverage and the technology and the product gets better, we should be all giving that back to the customer in the form of better product design, both in pricing and in structure, and in the form of lower margin, lower cost products that enable them to graduate back to the mainstream. We get a report on this stuff.
I get the question, I think, in most institutional investor meetings about social impact ESG, like it is just such, these are very important topics for most institutional investors these days and retail investors. Being able to report on some of these metrics and graduation rates and how the pricing is changing over time, I think it's going to be critically important to proving that we're doing the right thing.
Bill: Yeah, I mean, it's funny, when I thought of interviewing you, I was almost like, “Man, do I really want to have a lending platform that has these kind of APRs?” But the more I dig-- I mean, so here's a question. How's your NPS calculated? How are you guys so much higher than Apple? That's something that seems hard to even fathom why your NPS score is so high. Again, like, part of me thinks some of what I think is elitist. I don't know, if you listen to the pod, if you don't, you should start it's great. [chuckles]
Jared: I have[?] been listening.
Bill: I had a conversation with Tyrone V. Ross. I don't know, he really reframed the way that I think about a lot of this stuff. I don't think I even would be open to this entity if it wasn't for that conversation. I mean, there's only so long that you can hear something or have a meaningful conversation with somebody before something cracks. I just realized that a lot of my life is filtered through a bubble that not many people see the world through. Then I started thinking about, like, “Who are your actual customers?” I think it's a lot more average Americans than people might think.
Jared: Yeah, the average customer is making 50 grand. I mean, if you look at the US Census data, it is a bull's eye in the US Census data. Remember, we're trying to give the business away, and we're unsuccessful. I mean, that's the first key data point is, we are trying to see if there is appetite for access for this customer profile out there, and it does not exist. That's why it's critical that these products exist. You talk about the NPS, yeah, you go to someone-- we talked about the car breakdown situation, maybe it's an unexpected medical expense, maybe you have to get a laptop for your kid who's in virtual school. It is a frustrating experience to know you're a good person, to know you're going to pay them back, but everyone else says no. For the platform that says yes, that creates tremendous gratefulness, tremendous loyalty, a big driver of the NPS.
We also do some pretty simple things, like, there's a phone number on the website. We don't hide it. Although you can go straight through if you want, we get a number of people who will call us and the number one question we get is, “Are you a real business?”
Bill: [laughs]
Jared: And the fact and we pick up the phone and we say, “Let me tell you about this business that we're building.” We got great business we're building in Chicago, and that creates a lot of trust and credibility in a time that someone is in a really difficult situation. I had the same skepticism as you do when I was approached. I was ignorant when it came to some of the macro economic realities of this country. I said, “You know what, I'm going to go back to that value edge concept that I learned when I was investing. I want to understand the value proposition from the customer's point of view.” I started listening to calls and the first call was a woman. She had called to thank us. Her daughter was in private preschool, they had increased the price of tuition. She'd had a frustrating experience trying to get access, and then she had found us and we had said, yes, and with that capital, she was able to keep her kid in private preschool, and she was in tears. She was so happy and she was thanking us. I was like, “Oh, my goodness.” There is this real problem in the country. If you asked me how you fix it, more banks have to get into the space. We talked about half of our customers bank at the largest institutions. They're banking at JPMorgan, they're banking at Wells Fargo, they're banking at Bank of America, but they don't have access to these products, they're completely ignored. The way that we can get pricing and product structure to advance even faster is, if you get the largest banks with the lowest cost of capital that have the deposits sitting there, which means the repayment is more highly secured. That's the answer here. Just kind of ignoring the problem and saying, “Oh, they're going to figure it out.” They won't figure it out, it doesn't exist, they're just going to end up in products that are worse. It doesn't mean we can't get better too. We continually make the products better every single year, we still have a long way to go. We got to keep doing that, to do the right thing for the customer. Also, because it's such a big underserved marketplace, if we don't do it, someone else will do it.
Bill: What is precluding the banks? I say this as somebody that worked at a commercial bank in the past, and I suspect it's typical box checking, but I don't know-- it seems odd to me that the banks have customers that y'all are just able to pick off because they don't want to serve them for some reason. What is it?
Jared: I think it's a couple of factors, but even the way that we are able to help our bank partners determine credit worthiness is a huge driver. The banking way of thinking is if you have less than a 700 FICO, let alone 650, let alone 620, you're not credit worthy. There's just a lot of bias there of how do we determine creditworthiness. There are alternative methods that can make these products sellable from a profitability perspective. I think there's a misnomer that these customers should be less of the focus because there's just less of a revenue generation opportunity across other products as well, and so they kind of get orphaned within these ecosystems, and that's the opportunity. Our bank partners, we work with community banks, and community banks see the opportunity, they see this unserved marketplace. They have the choice of doing it themselves or efficiently partner with a financial technology firms like us to get the best-in-class acquisition and underwriting and servicing to make it happen, so that's why they're doing that. I think with the financial technology companies, with the banks, with the realities of marketplace, I think you will see the dynamic change quite a bit next couple years.
Bill: You want to go through sort of how the credit risk is held on your balance sheet and the choice of why to hold that credit risk, because I do think that creates a concern that is obviously reflected in the multiple today, I think, or the pro forma multiple. I think that's one of the major concerns of any real credit institution, is credit risk.
Jared: Yeah, so here's how we think about that. The bank partnership model that we operate under looks very similar to the best-in-class bank, FinTech partnership models out there today. The affirms and the upstarts of the world in LendingClub used to operate in that model. Now they've moved to a bank. We essentially are the outsource vendor, and the bank uses the platform, we had been hired to acquire and to underwrite and to service on their behalf. Then after the bank originates, we typically buy back about 95% of the receivable. We then put about 90% of that on our balance sheet, about 10% of it, we sell through a call a quasi-foreign flow relationship. The thought being there, and this comes back to my insurance days is that when I was a broker, I always wanted the full unit economics because there's no better way to make gap profitability than to own the full dollar. When you can manage risk well, and when the duration of the asset is relatively short term, and the asset has performed well through cycles, and we can talk about that last point in a second, we feel it's incredibly well managed, and that's the way you maximize unit economics.
Now, we're obviously looking at the public markets and we understand, I think, the importance of a demonstrating hybrid financing structures and there's lots of appetite to buy these loans and do more forward flows. There's certainly the opportunity to do that and we plan to do more of that, as we get into the public markets. But past decision was all about, “Hey, we really understand this. We think we're world class in understanding the risk, we’ve got so much confidence in the assets that we're willing to hold those on balance sheet and maximize stream economics.” Remember, we built this whole business without equity. Schwartz family put in about $12.5 million prior to 2015. Since I've been CEO, we built it all with cash flow from ops and debt capital. We've made it very efficient from that perspective, and that's because we've been able to drive the unit economics that we've been able to drive. That's been the thought long term.
I think this whole idea of credit risk for this customer, when you look at nonprime, and you look at the Great Recession, and what happened during the mortgage crisis, that was a situation where you had non-prime individuals, taken out mortgages when they clearly did not have the income or the ability to repay. Paramount to this model is ensuring ability and willingness to repay. If you look at--not COVID, because it was COVID’s been a very unusual dislocation. But if you look at the dotcom buzz, if you look at Hurricane Katrina, if you look at the Great Recession, the non-prime consumers always performed much better than near prime or the prime consumer, and that's because in a dislocation, some of the near prime world falls into the non-prime bucket, and there are some of your best borrowers, and because this customer is very resilient. They're recessionary in nature, they're in and out of jobs, they have multiple jobs, so they understand how to deal with some of these shocks. We look at that, and we think it's managed very, very well. It's just a bit misunderstood by the market at this point. At the same time, we can flex the hybrid muscle more and more, and the firm does a really nice job at this with on balance sheet and off-balance sheet financing, to show that we can finance with that mechanism as well.
Bill: Yeah, that makes sense to me. I think that I keep going back to like it's tough to hear about people that are scraping by that are so resilient that have to pay these rates, and I guess as a shareholder if somebody else were to enter the space and more competition were to come in, and the rates were to be driven down, like that would be an outcome that I would be okay losing to, because I do think society would be better off that way. It's hard for me to hold the thought that you guys aren't doing something beneficial to society, and the NPS score is 84, and your Glassdoor ratings are really, really good. I don't know, it's really mind bending to me. What I came back to, to get comfortable with it is, I've done some due diligence to the extent that I can call around on Joe and Kyle. I haven't heard anybody that says a bad thing about Joe Moglia. For him to put his reputation on the line here and back this product, I think says a lot. That's kind of what opened me up. How did you think about partnering with these guys?
Jared: Before COVID, we were trying to figure out what the right public market path would be, we were looking at a traditional IPO path right around the time that COVID hit the whole SPAC, frenzy was beginning, we put our heads down, and we operated for about 90 days just to understand what the COVID environment was going to look like. We were pretty confident after 90 or so days that the business was going to be quite stable. Then, we started to entertain some more conversations and figure out what the right public market path will be. We talked to lots of SPACs, if your financial technology company that's growing and profitable, you get a lot of attention. We were really intrigued with FG, because there was just great alignment with Joe, not only being this unbelievable leader, whether it's business or sports oriented. His background is one that really understands the product, because he grew up from humble beginnings. The customer that we're serving was not that different from what he inherited in Ameritrade, and he brings with them tremendous credibility, and mentorship for me personally, so it was just a really great partnership. Kyle is amazing, and Larry's amazing, the whole team. It was a partnership that we felt made sense to go that path rather than the traditional path. There's some other pieces of the SPAC process that we thought were a better decision for us. They just make us better. Joe's agreed to lock up for two years as part of the transaction. He's not in this for the short term. He's in this for the long term. Ted Schwartz and him, both former public company CEOs, provide terrific leadership and mentorship for me as I transitioned into the public market. It was a big part of the decision. Having Joe out there talking about this platform and the customer and why what we do is so important is definitely a benefit.
Bill: Yeah, I would think it is. I've heard some stories about him, and he sounds like a really cool guy. Hopefully, one day, I'll get to meet him. We'll see. I guess there's a perception of regulatory risk here. What are your discussions with regulators? Is that perception as real as reality? Or, do regulators kind of understand what's going on in the space? Maybe it's the perception’s a little bit bigger than reality, I don't know.
Jared: Well, I think I mean, we spend a lot of time talking to members of Congress, talking to regulators. I find that most are quite educated on the realities of access in the country. What we have to help them with is, not all greater than 36% APR platforms are created equal. For whatever reason, that's become the line in the sand that a lot of people point to, although there's not really an economic reason to come to that line. In fact, I always ask, why is it at 49? Why not? 63? There's no economics. That's why that Fed report was so important when it came out. Our approach to regulators is to walk them through the business, to show them and talk about the turn-up data, the fact that we can prove that access doesn't exist. We have a number of principles of what-- we talked about here, just how the products are designed that we think should be legislated. We think the CFPB is a small dollar rule, which mandates ability to repay, and that you can't go and torture someone with NSF fees is common sense and should be in place. What we need is more regulation, but it's got to be in the form of consumer protection and not rate caps so that you ensure access because the access issue doesn't go away, the demand doesn't go away. There's tremendous demand because the access doesn't exist. The right way is to ensure that the supply is set up in a way that can provide access, but with the appropriate protection. That's our conversation.
I do think the vast majority of people on the hill really understand this and are looking for the right answers. We hope that we can be viewed as the platform that does it the right way, and that legislation can be modeled after, and then some of the bad actors can-- they won't be in business anymore, but that's okay. That's why we do it the way we do.
Bill: How do you try to sort of ingrain that throughout the organization? I'm not trying to heap praise on you, I want to ask you hard questions. Folks, if you're listening, go look at Glassdoor and see what the reviews are like. You seem to have a lot of buy-in from your employees. How does that start at the top? Is it creating an incentive structure? How do you think through that and building a team that's going the same way?
Jared: I think a lot of people think it's mutually exclusive, that you could have a high performing business and a business that's a great place to work. We define our culture on the collective attitude of the employee base on a Sunday night, before they have to go to work. That's how we think about it. We want people to be excited about going to work.
Bill: [laughs] Yeah, if they're dreading going to work, then you're closer to a law firm, no offense to my law firm friends, but I do know your life.
Jared: Yeah. When you help people that helps a lot, just going to work, happy employees deliver exceptional customer service. I don't think OppFi is an easy place to work. I think we're highly metric-- During the days when we used to walk into the office, you walk into our office, it is 500 flat screen TVs that track every metric of the business in real time, like we are all over it-
Bill: Oh, really?
Jared: -and you walk into like, well, now we've got to figure out how to do that virtually for the long term as we move to a more flexible structure, but that was that feeling you got when you walked into the office. It is incredibly difficult from the fact that we are high performing. But we can also be a great place to work. Our second core value is hold the door. That's meant to be literal. It's like don't walk past someone and don't say hello, hold the door. If someone's behind you, help them through it, and treat people with respect, and dignity, I think that's a big part of what we've done. On the customer service side, I give the Schwartzes a lot of credit. We took that and ran with it. I used to send around every single five-star review we got to the firm, it was so annoying, especially for the people I've been there, like, “What are you doing?
Bill: [laughs]
Jared: What better way to instill the culture of we really care about our customers and then to do that, we're just kind of maniacal about the whole thing. Thankfully, we've been able to attract, the best talent. There's no better way to build a great company than to attract unbelievable talent and no better way to ruin a great company than to lose that talent. We're really good at retaining talent. I think I've learned just from observation and such in my career, that retaining talent is a lot more than just compensation. It's autonomy. It's giving people the chance to fail. It's challenging them, it's stretching them. It's creating environment where like you want to hang out with your colleagues outside of the office when it's safe. I always felt like the environments I was in when I was hanging out with my colleagues outside the office, I had a lot more fun in the office. Having fun is a great thing, so there's all these little pieces that we've been able to boil together. Then, transparency. I've screwed up a bunch of times. First-time CEO making a bunch of mistakes, but I think people give me a break because I think my superpower is I'm always willing to admit when I was wrong, it does not bother me at all. I'm very convicted. I come at things with a lot of confidence, a lot of conviction. But if I'm wrong--
Bill: Sometimes wrong, never in doubt.
Jared: Yeah.
Bill: That's how I am too. [laughs]
Jared: Yeah.
Bill: Although lately I've been more in doubt than right, but anyway, I digress.
Jared: That hopefully I think gives-- we don't stand up there and BS. We give people the truth and transparency, and we get a lot of credit for that, I think, from leadership team perspective. Lots of little things. Again, it goes back to the customer, you can't provide great customer service without happy employees, so it helps for sure.
Bill: Yeah. I mean, do you mind going through a little bit of what the customer service aspect looks like? I know you said you have a phone call. I'm big on to phone support, especially when it comes to financial services. What is the customer service? What's a loan work-- Not out, but when you're working with a client to stretch the payment cycle, or to figure out how to repair whatever happened in their life, they lost their job, they're trying to figure out how to make it through, what does that look like, and what is OppU, how does it all integrate within itself?
Jared: Sure. I like to think all the metrics are best in class, except for the recoveries. Metric, as it relates delinquent accounts, that is delivered. We call you up and we ask how you're doing when you're having difficulty making a payment, and trying to figure out if there's a way to get you back on track, everything is done in-house. We don't sell any of the delinquencies, the charge offs. We don't litigate to collect, we're here to work with you, that was a strategic decision not to harass people they don't have money to pay, to hope they pay over time, because they have the willingness to repay, it's getting it right up front. If you harass someone that's got a couple $100 in their bank account to pay, it's never going to work out for you. We just didn't want to build that type of business. That's been the thought process there. OppU is our platform, whether you're a customer or not, for financial educational literacy. It talks about how to best manage your money and has a number of modules to teach you that curriculum. We can do a lot more, we plan to with OppU to integrate that into the product suite, and potentially reward customers who have proven their willingness to go through that program and to certify their literacy, then get that benefit through the products. There's more to come on that, but the content there is excellent, and now we just need to continue to build that into the core platform so there's a closer integration and we plan to do that for sure.
Bill: Do you ever monitor how many customers are engaging with OppU and whether or not that helps charge offs? I would think that there's some correlation between people that are reading financial education and lower credit losses.
Jared: Yeah. We're going through that process right now. There's no question, and we think the data will show that those that are engaged in improving their financial health, self-directed, are going to be great customers. That's why we think there's a big, big opportunity there. As you think about this digital financial service platform, there is that opportunity for an advisory-type role that can be heavily technologically enabled to help people make the right decisions and help them think about what the right products are for whatever they're facing, long term or short term, and connect that into the education piece of this. That's critical.
Bill: Yeah. I would think it would be. I just hope that they do get repaired, and I think I've said it a couple times. The reason I'm okay being long this and publicly long it, when I do think that there's a perception problem on this space, generally speaking, is I think people are in it for the right reason. We'll see how it all turns out, but I am hopeful. How do you think through-- I guess, we've already talked about it a little bit, but when you see some of these other valuations in the FinTech space, and they're not holding any of the credit risk, going forward, I expect that we'll continue to hold the credit risk, but is there a tension inside about doing sort of the right thing economically versus pleasing the market? And you're a markets guy, you were at Goldman, so you kind of understand what's going on. What's your focus? How do we think through that?
Jared: I think you got to build the business with a long-term focus, a sustainable focus, always. I don't think you should get caught up into short term engineering that makes a business look one way or the other. It's not my personality, it's not the company's personality, we're looking to build this for the long term. I think that vision that we've set out, it's a decade-long vision. There's a lot to build there, that we want to build. I think certain products led itself to different financing mechanisms, certainly longer-term products, multi-year-type products. We would have a very different point of view on day one than some of the shorter-duration products, as we can graduate customers to some of the longer term, lower rate products, whether that's Salary Tap product, whether that's some of the newer products, near prime products, we expect to test whether it's the credit card product, those will be financed with different methodologies and philosophies behind them.
The current business, we're obviously very comfortable. I think we've shown our ability to grow rapidly and to manage the static bulls, the static bulls have been unbelievably consistent through the growth and we've actually expanded access to that time. There is an opportunity to make it a bit more hybrid, bring in some more of the traditional forward flow stuff. These assets yield, we're obviously in a very low-yielding asset environment. There is a lot of appetite there. We'll figure out the right inflection point. On a dollar basis, when you look at holding the receivables versus selling, you make about double the money holding it. We've been very thoughtful, but what has really hurt companies historically, is not so much that assets haven't performed, it's that you're not thoughtful about your covenants [unintelligible [00:50:41] facilities, and then lenders get freaked out by environment, and they pull your financing. It's more about the macro term, because you gave them that opportunity. We've got great relationships across the board with our multiple to capital providers and been really thoughtful about where we set those limits to ensure that there's plenty of cushion as it relates to what past dislocations look like. We definitely understand from a markets perspective that the hybrid approach is going to be well appreciated. We certainly expect to move more into that matter, but we also have a lot of confidence in our ability to manage the rest of it with managing.
Bill: For those of us that got a little bit lost when you're talking about was it static pools or static flows? What are you talking about in plain English?
Jared: Yeah, absolutely. We're just looking at the loss profile of the assets over time, essentially. What percentage of the principal goes delinquent over the cohort of a vintage?
Bill: Yeah, that makes sense. You all right if we go to the personal side of this a little bit?
Jared: Please.
Bill: Are you looking forward to earnings calls and managing a public company and all that? [laughs]
Jared: It's totally different. I’m getting crash course. We announced this thing-- I have made the rounds meeting with such high-quality people as part of the process. We didn't raise hundreds of millions of dollars of venture capital. Our customers know us really well, but institutional investors are like, “How'd you build this company? You didn't build any venture capitalist? Who's the sponsor?” There's a lot of dialogue to introduce ourselves to the public markets, and that's an ongoing process. I am looking forward to the platform. I think we realized about two and a half years ago that we had to get much more vocal, we had tried to be under the radar, and we started to really build up our external presence across the board to build the brand a bit more as it related to some of the regulators, some of the members of Congress, get out there, tell our story, make sure they understand how we were positioned versus potentially how other people were positioned.
Being a public market company, now you've got that platform, every quarter to talk about how the company is doing. It can go well beyond financials, and go into the social impact story and the customer story and all of that. I do think that's a big opportunity for us and gives us even a greater chance to differentiate what we're doing from those that came before us and those that will come after us, but it definitely changes my job. Definitely changes my job. Thank God, I got like an unbelievable team, and we built a Fortune 100 quality team of like the smartest, most hardworking people, incredibly diverse. I'm very proud of the diversity that we've built at the company, and that will make the transition that much easier.
Bill: How do you think through-- just given your time at Goldman, and how you see the world and whatnot? How do you think through narrative driving, reflexivity is my real question? Messaging, creating, momentum creating, buy-in, and like all that, how much of that have you seen in your career is real versus how much of it is just kind of puffery? It feels to me, I used to not believe in it at all, and now it feels like it's a very, very real thing. Messaging is really a lot more important than I used to give it credit for. The flip side is, as somebody that is a shareholder, I hope that you're not getting in the quarterly cadence of earnings hits and misses. That seems like the worst possible thing to get yourself in the rat race of.
Jared: Yeah, we're long term focused, as we build this out, definitely, definitely, definitely. There's a reality that you have to do what you say in the public markets. I think we did them on the debt capital side, we built a tremendous amount of credibility there, starting with a very small facility to what we have today, half billion dollars of facilities with multiple partners, and that's because we pitched the story and we put our heads down and we executed and we got rewarded for it.
Bill: Sorry, it's a revolver, right?
Jared: We have this several different facilities, we have a couple traditional warehouse facilities, we've got holdco facility, we've got what I call a reverse forward flow facility, so across the board, we've got about [crosstalk] a number of facilities that we used. My point there is, it's matured dramatically over the last five and a half years, starting with-- I think it was a small $25 million warehouse facility that we started off with, with very high cost of capital and low leverage. Lots of cash locked in lockbox, and now that's a much different story, because we've executed and we've got to do the same thing on the equity capital side. Messaging is critically important. It's how people understand who you are, just back it up. We don't have a lot of tolerance for just speaking without doing it. We try to be very data focused and back everything up. Everything we say with data, we're not going to go out there and just talk about all this great stuff with not being able to show what we have. We've committed to two of these new product launches this year, the Salary Tap product and the OppFi credit card product, those are crucial to the mission going forward. We have to deliver those, they have to be a success [unintelligible [00:55:57]. Then we have to continue to build out this digital financial services vision, this destination vision, which includes a number of additional products along the way that we've got to execute on. The complexity goes up on top of the public markets, but we're ready for it. Yes, the messaging is critical, but we’ve got to back it up with real substance.
Bill: Yeah, no doubt. I did see your app has-- it looks pretty slick. I would imagine that that's a unique product in this customer set, is that a fair comment?
Jared: I think a lot of the unique things you can't see-- it's all the fancy conversion rate optimization stuff you do behind the scenes to drive traffic through the process. You want to make it super simple on someone's mobile phone. 80% is mobile phone at this point, and you have to continuously test it to get to the right pathways. I think we talked about the bank verification process, and getting someone comfortable to log into the bank account and send you the data. There's a look and a feel to that, there's a messaging to that, there's a communication component to that. There's also a technological component to that. We work with four bank verification providers today. We've got some really interesting technology that knows who's up with which bank in real time, so that the traffic can be routed in such a way that enables the success of the data coming back, which is really critical to making sure you make the process as frictionless as possible. That is tried and tested. There's still a lot of room to improve it. We watch those conversion metrics very, very closely.
Bill: How's your business morphed from mailing? It started out as a mailing business to get the leads in the very beginning. Obviously, not exclusively, but I thought that I saw somewhere north of 70% was mailers back a couple years ago. Is that accurate or no?
Jared: Yeah, I think the initial business that we started building out prior 2015-2016 was heavily direct mail-- which a lot of platforms, our direct mail works really well still. We had this point of view that anyone can mail the mailbox. Actually, the first employee we hired after I joined was a comedy writer from Second City in Chicago-
Bill: Oh, yeah. [chuckles]
Jared: -because you can make things really interesting to be shared, which is a critical component of search engine optimization. Today, we lead with the lower cost acquisition strategy search engine optimization, customer referrals, and email remarketing. Those three account for about 25% of the business, about 55% of the business is driven through what we call strategic marketing partners. Those are companies like Lendingtree and Credit Karma, and 50 plus others. They're not the companies that will take you through their application with their brand, and then sell it 15 times. They're the platforms that will refer customers to our platform, so they see our brand and the bank's brands. We have a sophisticated API that we've built, which allows us to work with those partners, and to essentially make their conversion as efficient as possible by focusing on where they source their data.
The tighter you can make those processes, the better it is for the customer, the better it is for the platforms. Then, 16% or 17% of business today, which is direct mail and a couple 100 basis points for other sources. All that leads to cost of acquisition, so we acquire customers for about $200 per customer, $60 per loan. Everyone's acquisition has a big lead in the space. It's a big part of the cost structure to get to ultimately the lowest prices out there. We'll continue to invest in driving cost per acquisition down over time.
Bill: I was shocked when I saw the Fed paper that you cited in the proxy on the breakeven rates that are needed on the smaller loans. Any edge that you can get to drive that down, I would think, is big. They may not be fixed, I guess as acquisition starts to get more variable as it gets better and better, but that was shocking to me.
Jared: We talked about 75% of our decisions are in real time, and it was 0% five years ago. Approvals were up to four 40% automated approvals as of the first quarter, we expect to be close to 60% by the end of the year. All of that drives operational leverage, which means people can be more productive. We've got cost of capital that we've improved, as the debt capital markets have gotten more comfortable, cost of acquisition has come down, losses have remained stable. We've been able to convince the banks to continue to improve the access box. You just keep on doing that, you could build a more and more profitable business, and it goes back to your original points how we thought about this. We've taken the approach of plowing that back into the product design, to make the products lower cost, to make sure that they're structured in the most defensible manner. That's why the margins are considered to be flat going forward. We are committed to doing that. I think we make a fair gap net income marking today about 15%. If you didn't do any of that stuff, and you just kept on just driving all of the components of unit economics down, you'd end up with certainly higher margins. We've made a dedicated decision not to do that.
Bill: Well, it sounds like it goes back to your job after Goldman, and sort of that philosophy of delivering value for the customer and returning some of that value to them. [crosstalk]
Jared: Yeah. That's how a customer makes the decision. A customer, especially in this space for the access piece, they are going to make a decision who delivers the best value creation opportunity for them. All of the other pieces are certainly important. The fact that they do trust us, that they do find it to be a credible company that helps in the conversion decision, but pricing is important as well, for sure.
Bill: Cool. Well, I thank you for stopping by, man. I know you're busy guy, and I don't need to take you all the way to the end of the time that you had, but if there's anything you think we missed, or if you want to say anything, feel free and we can go somewhere else. Otherwise, I'll let you get back to your life.
Jared: No, this is a great opportunity to speak to you and to your audience. I mean, you mentioned earlier, the FG team and how solid they are partnering with them. We're looking forward to getting this thing closed and putting our heads down and executing, and doing what we know best, which is just going to work every day and driving this terrific customer service experience to our customers, but also a vital lifeline that they need to solve whatever unexpected expense just came into their life. Thank you for the opportunity.
Bill: Yeah. Well, thanks for joining me and have a good one, man.
Jared: You too.
Bill: To those watching on YouTube, there was no clothing change, mid interview, I've scheduled a follow-up because I realized that-- I do these things off the cuff, and as I listened to the previous part of this interview, I was very embarrassed that I asked Jared if he only had a revolver as the debt facility that is a noob mistake driven by conversational discussion. I should know that as a banker, I'm upset with the question that was asked, just know that, that's on the record. [chuckles] But more importantly, I felt like when I listened to it, I didn't do a good enough job kind of going into your banking relationships, Jared, and how the business model interacts with banking relationships, and what that-- what am I trying to say here? How dependent is it? How real is this relationship, kind of what do people need to know about the bank partnership or even if it's not a partnership, I apologize for that word, but I'm just trying to frame it.
Jared: I'd love to tell you that we are incredibly unique and novel in forming a partnership with a bank as a FinTech company. The truth is many of the best financial technology platforms have gone to market through bank partnerships, a firm upstart, very similar delivery models. The reason is big banks can potentially do this themselves, but smaller banks, community banks, and regional banks see these massively underserved marketplaces and they lack that expertise of acquisition online, or through a mobile phone of using alternative data to underwrite servicing at scale with technology and the way that the customer wants to be done business with. We have three bank partners. They have all hired us to perform those operations on their behalf. They don't have that expertise in-house. The way the relationship works is they will originate the loan. They are beholden to their federal regulators and their state regulators, and they hire us to do everything else. After they originate, we buy back that receivable, about 95%, that's not novel either. But it's the way you create the most harmonious go-to market, and banks have the ability based upon federal law to lend nationally based upon their state domicile. So, that's a much more streamlined approach. We started off as an 18-state, directly licensed lender, there was a different product in every state, it created lots of inefficiencies, and really the customer loses. When banks do this, the customer wins because banks are set up to do it most broadly at the lowest cost. They have a lot of built-in mechanisms to allow that and so it creates this terrific partnership.
Now, I'll tell you, there is a misnomer out there, and some of the consumer advocate groups will sometimes refer to these as rent-a-bank charters and some really salacious names. I will just tell you, we have three, as I said, three Utah banks to get them to bless us the amount of bank level compliance we had to build is crazy. We have built bank-level compliance to do that. They maintain approval rights on essentially the entire process. I often joke I can't go to the bathroom without the bank approving it. That's the way it should work. They're ultimately on the hook for this. If you would ask me what's the best way, in our space specifically, small dollars, small dollar lending historically, obviously, we're expanding that to other products, but the small dollar lending space, it should all go through the banks. Big banks like US Bank, who has Simple Loan, that's their product, that's competitive, they have the resources, they could do it themselves, and let the community, the regional banks, the credit unions partner with best-in-class financial technology firms, so that they can build their businesses, which is the route that we've taken.
Bill: Yeah, that makes sense to me. When I see who you're competing with, and the APRs, I guess that the thing that comes up for me is this hypothetical 36% APR cap. How are you able to offer-- I guess I have two questions. One, how are you able to offer the products that you have? Two, why are there different rates on some of your different products and sort of how do you think through those things?
Jared: Yeah. The banks control the pricing, it's their credit box, we're making suggestions. It's ultimately their decision. We can't do it by ourselves, we have no right. It's the bank’s right. The pricing, which is done in conjunction is based on risk. The OppLoans product, which is the historical product, that's got an APR range of 59% to 160%. That's largely based on risk-based pricing. Then, the Salary Tap product has an APR of 30%, and that is driven because that payroll deduction as a form of repayment is so highly secured, that it can be offered by the banks at a much lower rate, because the losses are much lower. We're not-- when I say we, it's us and the banks, no one says that the 59% to 160% in the OppLoans product is the way it should always be. In fact, I give the banks a lot of credit. They have demonstrably improved pricing, and product design over time. I think it proves us all to continue to do so. That credit card product we're launching, the OppFi card, that will have an all in yield in the 50s or 60s.
It's interesting credit cards all have a sub 36% APR because the fees don't go into the calculation. We had talked about that the other time. That's the other thing with APR. In consumer finance, you've got this non-apples to apples comparison, in some way the installment-- actually not in some way, it's always the installment loan product is by far and away the most transparent from a pricing perspective, but it's all driven by risk rating. That Fed report that we mentioned, which showed that triple digit interest rates are required to break even on small dollar loans, it's just the reality. These products are much better than the market of last resort. It doesn't mean they can't be improved over time. It's the customer that will tell you why they appreciate it. Whatever we said the other time today, I go back to the customer and how they view it, how they view these products as a lifeline, our challenge as a company that once we've been able to facilitate that access, can we improve financial health? Can we graduate to better products? Can we drive savings? Can we drive wealth? That's the decade-long vision. Someone's going to figure it out. I bet on us, but there'll be others that we're competing with for sure.
Bill: I think that from a regulatory standpoint, if I were in your seat, I would be having those kinds of conversations with regulators. I think some of the regulatory risk and some of what-- I'll just say right now, DC, and you all are in a suit, that seems to me to be part of the table stakes of being in this industry, because it is a politically-- it's easy to attack you guys. I don't think that I'm saying that from a biased standpoint, I think that's a reality. You operate in a space that's easy to frame as predatory and because of that, politics are going to get involved. I'm not trying to put words in your mouth. I did want to at least address that there is a suit that's going on, I think that people will see it if they do some research.
Jared: Yeah, for sure. I'd love to be able to comment more than that. What I can say is we believe 100% behind our business practices, and we are prepared to vehemently defend ourselves. Regulatory risk is a fair question. It is a key risk for the business. We think a lot about it. I think the best way to build a business that is regulatory agnostic is to diversify. That's why we're heads down on Salary Tap, and the OppFi credit card and mobile banking, potentially point of sale in the future, these are all products that diversify regulatory risk. Then, we got to educate. We're investing internally in our government relations team. We are building relationships with key people externally. I spent a lot of my personal time meeting with members of Congress, meeting with regulators, using the turn-up data to show people the issues with access. And we want to get legislation passed, our goal is to get small dollar loan legislation passed, which ensures access with the appropriate consumer protection, and a unified government gives us a better chance to do that.
I will tell you, in my conversations, people get it, they get it. No one likes high rates, and we can debate where high rates are. We'll all agree though that that some of the legacy products in the platform are high rates. They're a heck of a lot better than what the alternatives were previously. Together, we can work to even better answer the customer over time, but we spent a lot of time thinking about it and it's the right question to ask.
Bill: If you think like, 10 years out-- I hear you're talking about-- and I know 10 years, forget about 10, six months is hard enough to figure out, especially coming out of a pandemic. [chuckles] What do you see for this institution, because it seems as though there's a long runway of products that you're thinking about introducing for the customer, and just be interested to hear you riff on what you kind of want to build here?
Jared: You said a lot of people can call the product predatory. I always say we try to give the business away. We are trying to give the business away, we are unsuccessful. That turn-up program, again, 90% of the time no one bids on the customer. Even the 10% of time they do, they only close the loan 10% of time. So, 1% of applications, were able to find a sub 36% APR home for. We shouldn't be given that up though. As we continue to grow and get data, we've used that as the data point to prove that access doesn't exist. We can move into near prime in addition to payroll deduction lending, in addition to the credit card, in addition to mobile banking, in addition to point of sale, mobile banking allows you an entree into savings. Our thought there is as you graduate customers back to near prime, they will have more money because there's less frictional costs from an interest perspective. We can think about some creative dividend policies as well that as people repay, we can maybe fund a savings account for them. A good day for our customers $300 in the bank account, so we can quantifiably show that we're building their bank account, we can surround that with financial education, some credit counseling to help them as well, think about how to better manage their money, tie that financial education to incentives from a product perspective, from a pricing perspective.
Then longer term, there's a whole evolution to digitization of mortgages, our customers don't have enough money for a down payment today. If we're able to drive savings, we can get to the digital mortgage space. Then, Joe Moglia knows a thing or two about investing. There's no reason that we can't develop an investment platform once someone's got savings, and allow them to build some wealth. We don't have to build that directly. We can build by or partner for that. That's the overall equation. Ultimately, you can measure success by the financials, are we hitting our numbers, and by the social impact metrics. Very shortly here, we're coming out with our own Social Impact Report. It's a dashboard, where we lay it all there.
A lot of times, people's social impact report says, I'm doing community service. Ours will show graduation rates, how often we're turning up people, what the improvement of credit scores are, what the true cost of credit looks like, and so on and so forth. There's just this space has shown so few focused on it, but that's changing. Even this week, there are a number of high-profile announcements of people raising money. You had one main financial buy, Trim, which is a really interesting provider that helps you reduce bills. You had Current, the online bank that's focused on the teen population, but talks a lot about credit building and in financial education. The theme is there. We are well positioned to capitalize on the theme. Regardless of the regulatory framework, or the products, what we're great at, what we're best in class is acquiring this everyday consumer. There's a lot of products that we can offer to them.
Bill: Yeah, I like that. Well, man, like I said, I like the way that I perceive you all to be going about this business. It's not the easiest thing to say that I'm long. I said that the last time, too, but at the end of the day, I think this product is needed. I like the approach that I perceive y'all to be taking, and I don't think you're full of shit. I hope that you're successful at it. I hope that it sounds a little bit pie in the sky, but I hope the world's a slightly better place because of the success rates.
Jared: There's a lot of people think I'm full of shit and I say, “Go look at the customer reviews.”
Bill: Well, dude, they're all Ohio State fans.
Jared: Well, hey, I don't want to go there.
Bill: [laughs]
Jared: But it is about the customer, you can't BS with the-- It's so easy to go online and leave a one star review these days. “You declined me, you suck.” That's not what people say. It's not that every single review is an-- our NPS score speaks for itself, 49 out of 5 ranking speaks for itself, read it, do your diligence, Better Business Bureau, Lendingtree, Google, Credit Karma, anywhere out there on the net where someone's saying something about OppFi, you make your own decision. I've never seen better reviews of myself.
Bill: Yeah, it is impressive man, as is Glassdoor. Like I said, I was shocked when I saw it. One more thing that I'd like to just touch on, because I do think it's important, despite my idiocy with a revolver question, how do you think through historically, and you had alluded to it, the access to debt capital is important in a business like this? And how do you think about setting covenants to the extent that you're in those discussions and just like, lining up financing in a sustainable way, so that you don't get kneecapped at the wrong time?
Jared: Yeah, so there's a whole playbook of what we do there. Ultimately, it starts with building great relationships with your lenders, and you do that by delivering on what you say, which we've been able to do. We looked at what hurt firms during dislocations in prior cycles, and it was more about how you set your covenants, that was how the business performed, there are lots of anecdotes of companies that were performing fine, but they trip a covenant. The lender freaks out because the macro environment isn't great. That puts you in a bad situation. We have been really thoughtful about how we set cushions on our facilities to make sure we don't run into those issues.
I think having comprehensive capital structures, different facilities, show warehouse financing, some holdco financing, some forward flow financing, having multiple partners, making sure that the terms of those facilities are staggered. There's lots of different, I think, best-in-class practices that we've been able to do, but it starts with just delivering value for your partners. We've done that. We plan to continue to do so. There's plenty of capacity out there. Debt cycles change. We got half a billion dollars today, I think we're utilized roughly 20%-ish percent, don't hold me to that exact number, and plenty of capacity. We have lots of good things on the horizon there, and many debt capital providers that are looking to provide more capital business at lower cost of capital and more flexible terms.
Bill: Yeah, I guess the problem historically, is at the time that there's a credit event in one of your type of businesses, the underlying bank is also adjusting all their risk ratings downward, because it's not as if the credit event is just siloed, so then everybody gets a little bit worried about what loan losses are going to look like, and then you have a problem.
Jared: That moniker “non-prime” or “subprime” is a terrible connotation for what happened the mortgage crisis. But that was all about providing mortgages to people that did not have income or did not have the ability to repay, this is completely on its head, these products are short term, they're much smaller dollar amount on average $1500. There's a lot of different dynamics here that are completely different. The near prime or the prime consumer, the variability, the variance of loss performance during a dislocation is much, much higher than this segment. In this segment, sometimes the performance is even better, because you've got near prime folks who have fallen in and we put some pages in our analyst deck that showed TransUnion data and what happened to the different customer segments during the Great Recession, during Katrina, during the dotcom bust. That's empirical data, it's really important for people to understand as far as inherent credit risk during cycles.
Bill: Good deal. If somebody listens to this and is interested, is there a contact that they should have? I know you have IR, how should people look up your stuff, find you and interact with the company in general?
Jared: Yeah, so we've got our IR contact at oppfi.com, O-P-P-F-I. Always happy to reach out to me, jared@oppfi.com, and if I can't answer it, I'll get to someone that will, but we have been having a lot of fun. It's been an educational process, getting to know the institutional investor community, we talked about how we're a bit of an unknown entity from investors, because we never raised outside money. We want to build the relationships and happy to answer any follow up questions that may be out there.
Bill: All right. Well, be careful what you wish for, you may get a lot.
[laughter]
Bill: Hopefully, that means, people listened, right?
Jared: That’s right.
Bill: Thank you for doing the follow-up, I appreciate it, man. I want to make sure that it was right.
Jared: Yeah. Thanks for having me, and I hope my wardrobe was equally appropriate this time.
Bill: [chuckles] I think it was.
