One of the true pioneers of the fintech space joins us for the show today. This is someone who has become a giant of the fintech space, taking two companies from an idea to unicorn status in just a few short years.
Our next guest on the Fintech One-on-One podcast is Renaud Laplanche, the CEO and Co-Founder of Upgrade. He is back on the show for the third time (here are the first and second shows) and the first time since he started Upgrade. We cover a range of different topics today and we delve deeply into some of Upgrade’s unique product offerings.
In this podcast you will learn:
How Renaud describes Upgrade today.
Why the Upgrade card is a very different kind of credit card.
How they created their rewards programs to reward paying down debt, not spending.
What makes their checking account/debit card different.
The adoption of their credit health monitoring and credit simulation products.
The lessons Renaud took from LendingClub that he has applied to Upgrade.
How Renaud is able to attract investors at ever increasing valuations?
His thoughts on the public markets today.
The thought process involved in putting together a board of directors.
The fintech trends that are here to stay.
Renaud’s vision for the future of Upgrade.
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Welcome to the Fintech One-on-One Podcast, Episode 320. This is your host, Peter Renton, Chairman and Co-Founder of LendIt Fintech.
Today’s episode is brought to you by LendIt Fintech LatAm, the region’s leading fintech event. It’s happening both online and in-person in Miami on Dec. 7th and 8th. Latin America is still the hottest region for fintech in the world and LendIt Fintech LatAm features the leading players in the region. So, join the LatAm fintech community this year where you will meet the people who matter, learn from the experts and get business done. In-person and virtual tickets are available at lendit.com/latam.
Peter Renton: Today on the show, we have someone who needs no introduction if you have been around the fintech space for any length of time. Renaud Laplanche is the CEO and Co-Founder of Upgrade, he was also the CEO and Co-Founder of Lending Club for many years. He is back for his third time on the show and really wanted to dig into today about the different offerings at Upgrade, what makes them different, what makes their credit cards so unique, we talk about that in some depth.
We talk about the lessons that he learned from Lending Club that he is now applying at Upgrade, we talk about raising money because there’s very few people on the fintech space that can raise money like Renaud Laplanche, we talk about going public, the public markets, the valuations that fintech companies are receiving today and Renaud opines on what fintech trends he thinks are here to stay. It was a fascinating interview, hope you enjoy the show.
Peter: Welcome back to the podcast, Renaud!
Renaud Laplanche: Thank you, Peter, for having me. Glad to be back.
Peter: Okay. This is actually your third time on the show, but actually only the first since you’ve been at Upgrade so good to have you again. Maybe we can get started by ….I’d love to kind of get your perspective on how you describe Upgrade today.
Renaud: So, Upgrade is now really a neobank, offers affordable credit and responsible credit to consumers and it’s really a attempting to deliver more value and a bit of experience to consumers than traditional banks.
Peter: Okay, okay. So, I’d like to go through some of the different things you’re doing and find out where it’s at. So, you started off with unsecured consumer loans, is that still a big part of your business, is it growing, tell us about that.
Renaud: Yeah. So, credit, in general, is a very big part of what we do and even though, you’re right, we moved beyond credit, we are still what we call a sort of credit-led neobank. There are two types of neobanks around the world, there’s Nubank in Brazil, Upgrade in the US, maybe Tinkoff in Russia that really started with credit and often lead with credit in the consumer relationship. Others like Chime, Dave in the US and Revolut, N26 and Monzo in Europe really started from the debit side of things, payments and debits and might be moving to credit at some point. So, we are sort of credit-led, but we think it’s a better positioning, if nothing else, credit is 70% of bank revenue, in the US, and is a very big part of banking.
It also has to do with who our customers are, you know. Customers are very mainstream, we are trying to appeal to a very broad audience and on average 40 years old, $100,000 individual income, they have mortgage, a car loan, a credit card so they use credit as a means to support it, they’re pretty heavy credit users. So for all these reasons credit is a really important part of what we do and, you’re right, we started with customer loans in 2017, that’s still a very big part of the business. It’s more than half of the revenue today and it is growing really fast. In total, we did about $7 Billion in credit, loans and cards since inception and we are doing another $7 Billion just this year…..
Renaud:……so we are doing as much this year as we did in the last four years.
Peter: So, you launched the Upgrade card, probably a couple of years ago now, I’m guessing, maybe three years ago, but I remember at the time we chatted and I was concerned that it was not going to be very easy for the consumer to understand, it’s not like a traditional credit card. So, how are you positioning the Upgrade card today and do consumers get it?
Renaud: Yeah. I mean, we believe the Upgrade card is the only credit card that’s good for you. (both laugh) It’s a credit card that gives you access to credit when you need it at the point of sale as it has that flexibility and convenience of credit cards, but it also comes with lower rates, no fees and really the discipline of paying down your balance every month at a fixed rate or fixed monthly payment so the same discipline as a personal loan that’s embedded into a card.
There are several ways to think of it as a business. One, it is a hybrid between traditional credit card and a loan, another is just a more responsible and lower cost credit card and yet another one is BNPL, right, sort of a “buy now pay later” facility embedded into a card and it helps spread large purchases over several months, this is really what BNPL does. So, we have a lot of tools available to us to explain it, the question is how you distill it to a very simple, easy to understand message for consumers.
I think we typically take the angle of cost, it’s a lower cost, more responsible credit card because it’s lower cost in many ways, right, it’s lower cost because the rate is low, because there are no fees and also because the balance amortizes down faster so you end up having less outstanding balance at any point in time so even if the rate was the same, the cost, general cost for consumers will be lower. So, we typically lead with lower cost, but then I think a lot of benefits are really discovered by our customers over time, they might not understand every aspect of how different it is from the get-go, but they really learned to appreciate these benefits as they use the card.
Peter: Do they amortize like say someone does $1,000 worth of purchases in the first month, does that $1,000 balance amortize, is it three years, two years, do they get a choice or is it set into the product?
Renaud: They can choose, could be two, three, five years, often depends on how big of a balance that is and then how much we’re going to stretch it, but, you’re right, it is really the main of our other cards, the main way it’s different, it’s the amortization feature. That really makes it more responsible than a typical credit card and avoid the never-ending revolving debt traps that so many families fall into. You access credit when you need it and then you pay it down over a set time period.
Peter: So, people I guess who are attracted to it are people who want to avoid that minimum balance trap because, it is obviously, they can have a higher monthly payment to make each month, but they just say they pay it off much quicker, they save a lot in interest over the life of it. Are the people who you….are they self-selecting as being more responsible?
Renaud: It’s not for everyone. We’ve got a lot of customers who are perfectly happy kicking the can down the road and not paying the balance every month and actually call them….the Upgrade card isn’t the right choice, but I think there’s a growing contingent of consumers who understand that credit cards are bad for you, credit cards, they tend to move ….they are very, very expensive, pay high costs and I think that’s one of the reasons BNPL is so attractive and successful and why so many people are drawn to it to be of great help.
Peter: You have other cards as well. It was just earlier this year, I saw you released a Bitcoin Rewards Card, I think that was a debit card from memory, I can’t remember. Do you do debit cards as well, tell us some of the other card offerings.
Renaud: Yeah. We have different flavors of the Upgrade cards. The Upgrade card is a credit card, but there are different Rewards Programs. In any case, all of the Rewards flavors have something in common that we’re really proud of which is….we believe Upgrade card is the only card that’s good for you and the Rewards Program really encourages consumers to pay down their debts, consumers are doing the right thing, following what’s good for them in the right place.
So, pretty much, all of our credit cards reward consumers for spending, we do the opposite. We reward them for paying it back so the rewards payment is made when consumers pay down their debt so if it’s say 1.5% cash back rewards, they make that payment and they get 1.5% cash back at the time they make their payment. So, it’s really encouraging them to pay down their debt, it’s not in our interest, but it’s in our customers’ interest.
Peter: Right, right.
Renaud: The different flavors, so the basic card is 1.5% cash back on all charges. We have a Triple Rewards Card that gives 3% reward on home expenses, auto and health categories so these are three categories you spend a lot on, you might want to get that card, it’s 3% rewards on these three categories and 1% from everything else. Instead of getting 1.5% on everything, you have three-in-one so you really can choose, depending on where you spend the most. We selected these three categories because we are sort of pandemic-friendly, we realize that people have been spending more over the last 18 months, it would be nice to do something there. And then, you’re right, just about a month and a half ago, we launched that Bitcoin Reward card which is also 1.5% paid in Bitcoin so in addition to the immediate benefit for the rewards, we get some potential acquisition there if the price of Bitcoin continues to rise.
Peter: Are you partnering with like Coinbase or Gemini, who are you partnering with on that?
Renaud: Yeah. We’re partnering with NYDIG.
Peter: NYDIG, okay. And then, you also have like a checking account, right, or I think it’s with Cross River Bank, if my memory serves me correctly, but maybe you can just describe the checking account you have.
Renaud: You’re right, that’s where the debit card comes into play. We really wanted to deliver a rewards of checking account that really caters to a very mainstream audience. A lot of the neobanks in the US are focused on some carriers of the under-banked population who are either lower income, downgraded consumers, people who aren’t necessarily squared in the target of the main banks, our customers are different. Again, they are the 40-year olds, they have pretty established personal finances and they’re all fully banked, they have a Wells or Citi, we believe we can give them more value and a better experience than they’re getting from their traditional banks.
So, for that type of consumer, we can credit, it’s a very big part of banking, but in terms of non-credit products, they are not necessarily going to be moved by getting their paycheck two days early, they’re not living paycheck-to-paycheck. I think what they’re really going to be interested in is getting more value from their bank relationships so the three main value propositions of our rewards checking account.
One, no fees at all, including ATM fee reimbursement five times a month, that covers pretty much every trip to the ATM. Second is really top of the market rewards so 2% cash back on every day expenses and monthly subscriptions, really hard to get anywhere and the third one is really tying it all together. So, for consumers who are banked with Upgrade, they get a lower rate on an Upgrade loan or a higher limit on their Upgrade card so those are the relationship benefits.
Peter: Are you finding that people are taking up the checking account in order to sort of get those additional benefits of lower interest rates and that sort of thing.
Renaud: Absolutely. It makes sense in many ways, right. I mean, when we get the bank account that gives us a lot of additional data we can use for underwriting and servicing that helps us lower risk and justifies lower rate on the loans. For consumers, it’s also easier to apply because we already have most of their data so there are many benefits there.
Peter: I remember when we chatted when you launched Upgrade and you were really focusing on this credit health path and you’ve got this credit health monitoring, you’ve had it for a while, tell us how that’s going and what data do you have to demonstrate? Are your customers actually improving their financial health?
Renaud: Yeah, yeah. So, the adoption, the usage rate have been pretty good, about 25% of our customers use Credit Health at least once a month. The most popular features are free credit score, credit score monitoring, credit products and what do you call it, Credit Score Simulator, it helps you visualize all your credit lines, all your debts and simulate the impact on your credit score of financial decisions you might be making.
So, if you decide to get another credit card or pay off credit cards, close the credit account with an additional payment towards your mortgage or your auto loan, all these things would have an impact on your credit score that’s not necessarily intuitive, sometimes it is quite counter intuitive. So, it’s great to have this ability to simulate that impact before making the actual decision so that’s a pretty popular tool and we’ve seen impact. So, those customers who use Credit Health at least once a month are 40% less likely to be late on their loans or card. We’ve seen a lot of benefits there.
Peter: Okay. I want to switch gears a little bit. We haven’t mentioned Lending Club yet, obviously, the first company you founded in the space, maybe you could sort of give us some insights. What were the lessons you took from your days at Lending Club, you were there for, you know, like ten years or so, what were the lessons you’ve taken, you’ve implemented at Upgrade?
Renaud: So, there were many, right, I am sort of ten years wiser. (laughs)
Renaud: You know, the space has come a long way, right. At Lending Club, we were really pioneers in fintech, there were a lot more things that the industry has figured out. I think probably the main learning will be in terms of product strategy, I think Lending Club, like many other first generation fintechs, was focused on a single product and then trying to get it exactly right and deliver more value than the banks with the particular product. In hindsight, it probably took us too long to diversify into other products and when we did, we probably went first with small business loans which was a good product in itself, but did not have a lot of overlap or synergies with personal loans for consumers, different customer base, obviously, so pretty much no cross selling opportunity.
So, Upgrade is sort of the opposite of that, I mean, all of our products are very complementary to each other and we target the exact same consumer segment which is a broad segment, but consume a very high attach rate already with loan customers so consumers coming to us asking for personal loans to refinance their credit card balance. We know they’re credit card users and once they refinance that balance at a lower rate that’s great to take care of past purchases, but they’re not going to stop using their credit cards going forward.
So, rather than going back to their other card and pay high rates, high fees and having to refinance again a year later, why not directly get into an Upgrade card which is a card you will never have to refinance. We see a lot of complimentary incomes of customer life cycle and, obviously, when you work on some mobile banking on top of that, that really wraps it all together with the traditional data. It gives us more frequency to make the grant more relevant in the everyday life of our customers.
Peter: Okay. So, I remember at one stage, you were the largest individual shareholder of Lending Club stock, do you still own shares of Lending Club?
Renaud: Yes, plenty.
Peter: Plenty, okay.
Renaud: I’m a happy shareholder.
Peter: Yes. (laughs) And they had a nice little run up in recent weeks, I’m sure you’re happy about that.
I want to talk about raising money because you’ve done an amazing job with this over the years and now, you’re really one of two people who have ever started multiple fintech companies that have become unicorns, the other one being Mike Cagney who’s also great at raising money. How are you able to continue to attract investors at ever increasing valuations, how are you able to raise so much money?
Renaud: Luck is a big part of it, I’m in a…I mean, fintech became very popular with investors, part of that was our doing, but a lot of it wasn’t, right, so it was just…a lot of companies got to scale over the last five years and so when you see Robinhood at $40 Billion, Coinbase at $80 Billion, Upstart now at more than $20 Billion, Affirm $30 Billion, so it obviously creates a lot of interest from investors looking for the next Affirm or for the next Coinbase and being far more willing to invest $3,5,10 Billion when there are now examples of companies worth multiples of that. It was harder to drive valuations at Lending Club for the entire space when we were the highest valued company and we couldn’t really point at an example of a fintech company worth multiples of what we worth at that time.
Peter: But, you still raised plenty of money there at a good valuation.
Renaud: At the end of the day, what investors like is soft growth and profitability, a lot or these companies aren’t profitable, Upgrade is profitable. Upgrade has the benefit of doing both, we are up four times from last year, we did about $100 Million in revenue last year and trying for $400 Million this year so it’s spectacular growth and profitability which is really a rare combination. But, even when profitability doesn’t happen right away, I mean, you can show investors on a cohort basis, once you’ve paid back the customer acquisition cost and the onboarding costs then these accounts become profitable quite quickly.
I think another part of what drove fintech valuations higher and we’ve sort of benefitted from this, we really moved from the framework of like one-time revenue like we had with personal loans at Lending Club and here at Upgrade to more recurring revenue, almost like a SaaS model. Once we put the cards in the hands of customers, we do a good job and continue to deliver good service and good value. That card is going to generate revenue forever and so we see this really very steady stream of $20 per user per month type of revenue that’s very predictable so it’s almost like a SaaS model and investors obviously have a lot of appetite for that. They can see a lot of predictability for each cohort of customers and they can see the cohorts getting bigger every month. That’s a good combination.
Peter: So then, what about…..once you get up to these kinds of valuations the talk obviously turns to the public market. I think I have read something that you’re saying that you are considering going public at some point. I remember when we chatted when you started Upgrade, you were somewhat reticent to explore that given what happened last time. But, maybe you can say, what would you do differently given…we’re not going to get into what happened in 2016, but obviously that was a really seminal moment in many ways for fintech so what are you going to do differently as you approach the public markets now.
Renaud: One thing is the public markets have changed, right. I think there is less of a dichotomy for these public/private investors and a lot of crossover funds now. Some people who have been investing in fintech for five years were also very active players in the public markets. So, with Lending Club we…one of the bad things about being a pioneer is you’ve got to educate everyone for the first time and at that time, you really had private investors who got it and investing in fintech and public investors who for the most part never had the chance to invest in the space and knew very little about it. So, I think that the education process has been done now, there are a lot more crossover funds, players or sometimes they’re the same, we learned a lot as well, right.
To the point I was making earlier, I think there’s a very critical difference between getting that one-time revenue for a customer with a personal loan, with maybe the hope of a second loan, there are two or three. But when you have a situation when you have to really earn and generate new revenue required, which was the case with personal loans, the situation with Upgrade card and mobile banking and many of the fintechs are going public now where you have lots of cards in the hands of the customer or an account that generates revenue every month, that makes the revenue a lot more predictable. I think the short lessons from Lending Club was really two things; one, they have to generate revenue every quarter and supply that funds if they can’t find new customer acquisition channels or increase the ones we have.
Two, there’s also this notion that we have to find new loan buyers every quarter and continue to sell more and that market has also changed a lot. The depth in that pocket is incredible. In the beginning, Lending Club ended up selling loans to banks and now it’s really how to find any other top 100 banks that’s not buying loans from fintech companies or platforms. I think times have changed quite a bit.
Peter: Follow-up there, I wanted to ask about board make up. The events of 2016 were obviously driven by, in many ways, the board that you put together, how are you thinking about board make up now and adding new board members at Upgrade.
Renaud: We learned quite a bit there as well. One of the mistakes we made at Lending Club was we gained this sort of celebrity board that really helped put us on the map and generate a lot of trust when the company was in its infancy, but sort of backfired obviously in 2016.
The way the Upgrade board is assembled is really based on skills and experiences and complimentary skills and experiences. We have board member who are extremely good in some different areas of the business, some in risk management, others in compliance, banking, customer acquisition, but don’t have a big personal brand that they will need to protect against the interest of the company, they have sound, good decision makers who really have made great decisions for us also.
Peter: Right. We’re almost out of time, but before I let you go a couple of more things I want to get to. As you look over the fintech landscape today, I mean, what are the trends that you think are going to prove sustainable and what are the things that you think will fall by the wayside?
Renaud: The big thing that happened in the last 18 months is that how much more broad-based fintech adoption has been. I think the millennials are already there, I think what happened in the last 18 months is a lot of bank branches closed down and a lot of more mature consumers who had grown up driving to a branch, and that was their banking experience during that time, had no choice other than going online or on their mobile and that really has spurred acceleration in the adoption.
I don’t think they’re going back, now they realized, for the most part, that there is no reason to drive to the branch and they can do all these things remotely so I think that’s here to stay. I mean, the banks are going to continue to get better at what they do and there’s going to be back and forth and some banks who are getting good at innovating, but, in general, I think it’s safe to say that smaller, more nimble startups built on a more modern technology stack and a younger talent pool who will probably keep the edge and keeping innovating faster than banks would.
Peter: Okay, interesting, interesting. So, last question then, what’s your vision for Upgrade, is this going to be a massive company and one of the major players of the 21st century or where are you taking this?
Renaud: Yes. I could not have said it better myself….major players of the 21st century, that’s exactly what the plan is. I mean, we’re all trying to build a mainstream customer brand that people love and use so we are developing some innovative products that we think are better, fundamentally better for people and the Upgrade card is a big part of it, but, generally, a great brand is all about giving our customers better tools, better products so that they can make better financial decisions and Upgrade not only got credit, but we have a great financial situation and get to a better place. If we can do that well and continue to reach a bold audience and design products that are appealing to a really bold swathe of the population, we will continue growing fast and continue building up the brand.
Peter: Okay. We’ll have to leave it there, Renaud, it’s always great chatting with you. Thank you, thank you so much for coming on the show and best of luck!
Renaud: Thank you, Peter, it was great to be on the show again.
Peter: Okay, see you.
You know, in many ways, I look back at Lending Club and obviously a company I’ve been following since 2009 when I started investing, they were a trailblazer and really there was no game plan and there was no formula that they could follow because others have gone down before, I mean, Lending Club, in many ways, was forging a new trail.
Now, with Upgrade, I think it’s such a different time, as Renaud mentioned there. Not only is it a different time, but he would have learned from what worked and what didn’t work at Lending Club and apply that to Upgrade and then have investors really understand what they’re trying to do and what we’re all trying to do here in fintech and have lots of investors interested in the space. It really, in many ways, this is the golden age of fintech and Renaud is extremely well-positioned here to take advantage of that investor appetite.
Anyway, before I sign off, I just want to remind you, if you haven’t yet done a review of the show, we would really appreciate it. If you think the show is great, please give it five stars on the podcast platform of your choice, I’d really appreciate it. I certainly read every review that comes along.
Anyway, on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.
Today’s episode was brought to you by LendIt Fintech LatAm, the region’s leading fintech event. It’s happening both online and in-person in Miami on Dec. 7th and 8th. Latin America is still the hottest region for fintech in the world and LendIt Fintech LatAm features the leading players in the region. So, join the LatAm fintech community this year where you will meet the people who matter, learn from the experts and get business done. In-person and virtual tickets are available at lendit.com/latam
Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.