LendIt Fintech USA – Seven Years of Fintech Innovation

It’s hard to believe that the most attended Fintech conference LendIt Fintech USA had its 7th birthday in the Mecca of Fintech, San Francisco this past week.

Thousands of attendees from all over the world descended into San Francisco’s Moscone Center for this once a year pilgrimage to the center Fintech universe. The who’s who in Fintech can be seen on stage, in the halls, and various event.

The atmosphere is one of eagerness and anticipation. Are there any big announcements? Mergers and acquisitions in the works? New innovations and collaborations?

Last year, LendIt Fintech was all about banking collaboration with a blockchain flair. What’s in stores this year? Let’s find the latest and the greatest in this year’s keynotes.

Machine Learning is Taking Over

Doug Merrill of ZestFinance and Roger Hochschild of Discover Financial Services took the stage at 9am Pacific Time on the day one, moderated by Selina Wang of Bloomberg.   

Doug Merrill and ZestFinance, previously known as ZestCash, has been around the industry for almost a decade.

Starting as a lender in the subprime lending space, the company quickly pivoted into using its analytical algorithms to help Chinese search engines and selling its artificial neural network models to other lenders.

Rocking his rock star appearance on stage, Merrill answered questions relating to the evolution of the credit score.

He imagined that there should be a credit score in the future, however, Merrill explained that what is in the score should be looked at with rigor. He paid homage to Fair Issac, the company that brought credit score to the forefront financial industry, however, the traditional algorithms that Fair Issac uses are losing sensitivity and better and more powerful algorithms should take its place.

The addition of alternative data to the credit score ingredients without rethinking the recipe is nothing but a farce.

Another question from Selina was about the concept of Social Scoring currently employed in China. Both Merrill and Hochschild jumped on this issue.

Although scary, both conceded that social scoring is already happening in America. Your personal Uber rider score, AirBnB ratings, Yelp scores are some of the classical scores no one really pushed back on but scoring each one of our behaviors without any independent verification.

However, I beg to differ.

State-sponsored social scoring, such as the ones employed in China, is very different than Uber’s peer-to-peer rating system. When a government uses your digital footprint, geolocation, spending behavior, and online comments to systematically deny your freedom of travel, speech, and access to public infrastructure, this makes Uber rating looks like child’s play.

I hope social scoring and the invasion of our privacy doesn’t come to the United States and that our social contract, religious beliefs, tradition, and culture keeps us free.

The ZestFinance and Discover’s joint venture in fraud detection is interesting and the results of their partnership remain to be seen.   

Merrill and  Hochschild also provided some advice to Fintech startups:

  1. Understand what you have to sell and whom you are selling it to.
  2. If the Product and Solutions that create value makes it a easy sell
  3. Understand your client’s business model and pain points
  4. Once you find the right person, the sale goes smoothly.

It’s All About Partnerships

Next on stage was the CEO of Max Levchin of Affirm moderated by Deidre Bosa of CNBC.

Right off the bat, Bosa read a review back to Levchin, the review painted Affirm as “Modern Day Pay Day Lending Branded For Millennials…”

The audience could see that Levchin was visibly upset and seemed to have been caught off guard and couldn’t come up with a proper response to Bosa. Sorting through a myriad of comebacks in his head, he could only state that he was strongly opposed to that comment.

However, Levchin quickly recovered and talked about how Affirm may have been misunderstood in the media and they need to do a better job at getting the word out. Levchin stated that Affirm has a net promoter score of 83+.

A net Promoter score of 50+ is good, 70+ is exceptional. A net promoter score is calculated based on a single question “How likely is it that you would recommend our company/product/service to a friend or colleague?”.

Levchin then started attacking the pitfalls of revolving debt, we can assume that he’s referring to credit card debt. He said that each of his loans is purpose driven and they are always used to buy a product. I am thinking that credit cards can be used the same way as well, but however, there is a big difference.

An installment loan is fully amortizing with each payment is paid towards principal and interest. Where as credit card debt is amortized using a compounding interest method that one may never able to pay off their debt in theory.

The biggest question raised by Bosa is Affirm’s partnership with Walmart. From the audience’s perspective, Affirm may have bitten off more than it can chew, but Levchin seemed unfazed.

Max gave us some insight into the relationship with Walmart. It is a multi-year relationship and it took Affirm a few years to get their infrastructure dialed in to handle Walmart’s volume, both in terms of technology and funding volume.

Speaking on Walmart’s existing relationship with credit card issuers, Levchin jumped on that issue as he claims there is no competition and they serve customers that these credit card companies wouldn’t serve.

I can only assume that Levchin is talking about folks who have a 660 and below credit score which banks traditionally won’t touch.

When it comes to questions around the impending recession. Levchin danced around the subject by broadly stating that when there is a contraction in the broader markets, only the strong survive and urges everyone to actively prepare for the next downturn by conducting self-imposed stress testing with their capital market partnerships.

The gist of the matter is that when there is a recession, most companies in the lending space will get wiped out. But they always come back every 7 to 10 years.

Who should we fear? The moderator asked Levchin point blank about Amazon getting into the financial technology market. How will Affirm compete with a company like Amazon with a seemingly unlimited budget?

To that end, Levchin recited the Affirm’s founding principles, and that is Affirm will always offer a transparent and fair option for their customers, no late fees ever. And if Amazon is coming into the lending space, Max wants them to be fair to the consumers and offer no-fee products to help the industry to set a new standard.

Last year I wrote an op-ed piece on Amazon on Crowdfund Insider aptly titled “Amazon, stop being everything to everybody”. In that piece, I detailed Amazon’s progressive behavior on taking over every aspect of our lives, including banking and finance.

If Affirm is offering loans to buy products… who owns the product and the virtual shelves spaces? Wait, they have physical shelves too, Whole Foods. My word.

51% of World’s Population

By now, you are getting a pretty good picture of how Fintech is solving some of the biggest issues in our society. From solving complex transactional fraud issues at one of the biggest credit card companies to partnering with the world’s biggest retailers such as Walmart.

The Fintech industry is continuously innovating to uplift and moving towards a brighter future.

Ellevest is right in the heart of changing how 51% of the world’s population save and invest. CEO Sallie Krawcheck provided some incredible insight on how the investment infrastructure is built by men and traditionally services men. Krawcheck asked the audience to challenge this idea by building a brand new investment platform dedicated to women.

Her session was titled “The $700 billion untapped investment segment”. And she is right, women are the driving force in our economy and they need to be empowered by technology, tools, advice purposely built to suit their situation.

Let’s look at some numbers.

In 1970, only 1% of dentists were women, however in 2007, 28.3% are women. 

The percentage of physicians jumped from 8% to 30% and lawyers from 5% to 32.6% in 2007. And the most recent equal pay movement is marking a new era in our society and it should be celebrated.

Access to education, training, and most importantly, access to capital and investment for women should be on everyone’s agenda.

Sallie sounded more like an inspirational leader than a Fintech CEO. I think she will lead the charge on many fronts such as the gender pay gap and glass ceiling issues that still confront America in the 21st century.

Day 2

Day 2 of LendIt FinTech USA had several keynote highlights that are worth mentioning.

Family Office vs. Venture Capitalists

There were some really interesting folks on stage this year. Each one of them was fighting for their rightful place in why family offices should be considered when Fintech companies want to raise equity.

Greg Wasson of Wesson Enterprise, Kevin McGovern of McGovern Capital and moderator Ron Dimond’s conversation was very engaging with a ton of humor and candor.

Here are some of the reasons why you should pick a family office as your next fund source, according to the panelists:

  1. Family offices are more resilient than venture capitalists. If you find the right family that shares your vision, you will be covered by the family.
  2. Family offices are strategic partnerships and not financial engineers.
  3. Family offices have a vast and strong network. There’s always someone that can advise you on your journey.
  4. If you share the same passion, family office and the companies they support will go a long way.
  5. Family offices are disrupting how money is raised.

These gentlemen also gave us entrepreneurs some straight forward advise

  1. Every company should have a CPO, a Chief Passion Officer
  2. Lots of startups will end up pivoting at some point. Don’t be afraid of it.
  3. Good leaders may not be good managers. Good managers may not be good leaders.

2019 and Beyond

Next year, LendIt Fintech will be hosted in New York again. Although we are almost halfway through 2019, I think there will be some exciting things happening for the second half of 2019.

If you haven’t read my “Fintech Predictions for 2019. Where We Have Been & Where We Are Going”. Take a look at it. The #2 prediction has already come true.


Timothy Li is a Senior Contributor for Crowdfund Insider. Li is the Founder of Kuber, MaxDecisionsAlchemy and has over 15 years of Fintech industry experience. He’s passionate about changing the finance and banking landscape. Kuber launched Fluid, a credit building product designed for college students to borrow up to $500 interest-free. Kuber’s 2nd product Mobilend is a true debt consolidation product, aiming to lower debt for all Americans. MaxDecisions provides financial institutions with the latest A.I. and Machine Learning algorithms and Alchemy is a state of the art end-to-end white labeled Lending Platform powering some of the best FinTech companies. Li also teaches at the University of Southern California School of Engineering.

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