Nov 8, 2024
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Chapter 1: Incentivized Account Connections
MYTH: Lenders experience a decrease in conversion when requiring a prospect to connect data to an account.
SOLO Advisor Rob Frohwein, Cofounder & CEO of Keep and previously Kabbage, together with his co-founder, Kathryn Petralia, proved the opposite.
Kabbage achieved a conversion rate above 85% on SBM loan applications by addressing the various friction points where people might not connect their data. Rob’s team developed incentive structures that made data sharing an advantage for borrowers and lender alike, shrinking time to funding from 24 hours to 7 minutes.
Growing Kabbage into one of the first and most innovative digital lenders in the process.
Prior to its acquisition by American Express, Kabbage grew an online loan originations platform that dispersed more than $9 billion in small business loans to over 240,000 borrowers, including nearly $3 billion in 2019, with 57,000 new businesses joining the platform that year alone.
The key to their success: frictionless applications powered by account integrations that stayed synced to customer financials. Kabbage was the first lender to make data connections a requirement for obtaining a loan. That commitment to data connectivity is what fueled the company’s success and eventual acquisition.
Rob and Kathryn and their team’s success is a masterclass in revolutionizing small business financing by optimizing the digital application with first-party data integrations.
This Master Class series highlights the most important takeaways for lenders for:
Incentivizing Account Connections
Implementing a Frictionless Application
Maintaining and Leveraging Connectivity Over Time
Learn how to implement frictionless, data-rich applications to scale your digital lending pipeline.
“When we started Kabbage, the best other lenders could offer small businesses was financing in “as little as 24 hours” but access to capital typically took weeks. These lenders claimed to be digital, but all they had was a slightly more friendly website. Kabbage took a customer from landing on our site to cash disbursement in 7 to 8 minutes - that was the rule, not the exception. It wasn’t that borrowers needed immediate access to cash but the fast time implied that it was hassle free, which it was. Small business owners are too busy doing everything else for their business to spend weeks attempting to borrow money. We could not have gotten borrowers to give us the data access we needed without the proper incentives of a hassle free borrowing experience.”
Rob Frohwein
CEO of Keep Financial, Co-Founder at Kabbage
How to Incentivize a Borrower
It’s simply better to underwrite a borrower based real time on all the information gained from full access into their accounts: bank statements, transaction data, contracts with pay schedules, expense accounts…the list goes on.
How in the world would you get this borrower to actually integrate their accounts into a application?
The answer is simple. Incentivize the borrower with a trustworthy, hassle free product and they’ll connect you to their account data.
From a risk perspective, it makes sense.
We liken borrowers who connect data to those who are willing to let you walk through their house, go through their closets, open up drawers and talk with them for a while (and, with connected data, continue to let you live in their house - more on this later!). These types of people are going to be lower risk than those who, for a moment in time, provide you with the bare minimum information for loan consideration.
Therefore, why not let these people (and businesses) borrow, and borrow on preferred terms?
Integrated accounts are the digital equivalent of the keys directly into the heart of a business your team may underwrite. For this model to work, we have to make sure the product and customer experience fully acknowledge the value account access brings to the table.
Integrated Accounts: (SOLO definition) account access granted by a borrower to a lender as part of a financing application. Access is used to sync the borrower’s data in real time until the borrower chooses to revoke that access, or it expires.
Ex. A borrower connects their lender to their business and personal bank accounts with Plaid to give the lender visibility into their proof of income, credit card repayment history, spending history, and outstanding obligations.
What is it worth to you, as a lender, to have a borrower integrate their accounts, enabling complete visibility into their spending habits, transactional data, financial history, and more?
I’d argue a few things…
Better Rates, since risk is dispersed thanks to traceable verified data and the cost of acquisition is decreased because more borrowers can engage with you.
Faster Funding Timelines, thanks to streamlined document collection and verification.
Expanded Lending Limits capped by the borrower’s individual risk profile rather than an artificial standard (and the ability to expand (or shrink)) limits over time based on ongoing analysis of data.
A More Convenient Application that can be completed anytime, anywhere. No hold music or emailed documents required.
We’ll cover how to create the most convenient application with the fastest funding timeline possible in Chapter 2.
Selecting Account Integrations
Important lesson: don’t get greedy with access to data.
There is an optimal number and type of accounts that a lender should identify for their own process to make the most informed decision with as minimal intrusion as possible.
Lenders must deftly walk this line between asking for too much and not enough.
Start by identifying the optimal integrations needed for a trustworthy decision.
Decide which accounts your borrower should connect based on data richness, the source’s ability to be verified and to verify your borrower, and the source resistance to manipulation or gamification of the system. If you’re going to encourage more data connections, then you’ll also have to increase the incentives you provide for doing so (e.g., lower rates, expanded limits).
Creating Your Integration Matrix By Product:
1. What are the minimum data sources I need? What are the nice to haves?
2. What sources indicate a trust worthy borrower AND can be verified?
3. Which sources are trust worthy, verified, AND manipulation-free?
4. What’s your lending limit using these sources?
5. Will you cross sell? What sources will you depend on for those products?
Risk Reward: What’s On the Line with Account Access?
When we started Kabbage and introduced our concept of lending requiring the integration of customer accounts, we were met with a lot of doubt. Few thought we could actually get a large number of users on board with our idea.
A lot of the conversation focused on the risks we could introduce: won’t application conversions tank if account integrations were a mandatory part of a financing application?
We were saddled (and still are) with a financing system full of redundant paper trails, little transparency in the decisioning process, and financing timelines unable to operate at the speed of meeting an small business owner’s window for opportunity.
We took a risk on a new model. Hundreds of thousands of borrowers got on board with us.
Kabbage was a crash course in learning how a financial team could use customer data synced directly from accounts to streamline:
document collection
data verification
identity verification
risk assessments (yes/no, line and term)
These incentives have to be clearly communicated and, more importantly, delivered. The product has to match the claims in the pitch for borrowers to believe in granting you rights to their data.
That proof of incentive starts with a seamless, easy, trustworthy application. In the next chapter, we cover how to build a frictionless application for maximum conversion.
Subscribe for Full Master Class Access
Future Chapters of MasterClass series highlights the most important takeaways for lenders with Rob's exclusive training resource for banks and lenders scaling a digital lending platform.
Chapter 1: Incentivizing Account Connections. Perfecting incentivized account connections for frictionless credit assessment.
Chapter 2: Implementing a Frictionless Application. A tactical guide to designing and implementing high conversion applications.
Chapter 3: Maintaining and Leveraging Connectivity Over Time. How to keep customer accounts connected for continuous underwriting.
Learn how to implement frictionless, data-rich applications to scale your digital lending pipeline from the Co-Founder of Kabbage. Subscribe for full access and SOLO exclusives with Rob Frohwein.
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