The fintech sector has been wracked by systemic problems and unicorns that turned out to be little more than ponies with fake horns strapped on their heads. Many of the industry’s startups were heavy on revolutionary fervor but light on anything resembling a viable business plan. These companies, such as OnDeck and Lending Club, sought to overthrow banking’s old regime and replace it with a radical new model where street people and drug addicts could have access to the same kinds of credit as General Electric. The results have been as clear as they were predictable. With both of those companies’ market values decimated, the fintech sector has been described by some as being on its last leg.
But there is one fintech company that has followed a radically conservative approach. GreenSky Credit, rather than chasing new ways to make NINJA loans work, decided to instead focus in on a tried and true way of making money in the lending business. By lending only to prime borrowers, GreenSky Credit has found a way to add tremendous value in the purchase of big-ticket items.
Unlike some other businesses in the sector, GreenSky Credit understood from the beginning that lending is not the same game as venture capital or futures speculation. The reason that the current banking model places so much emphasis on taking only good risks and being properly compensated for anything approaching subprime is that lenders do not participate in the upside. This means that the relative risks for lenders are not offset by the potential for huge gains. For bankers, those huge gains only come from steadily making solid loans to high-quality borrowers.
GreenSky Credit was able to apply this principle to borrowers who were looking to complete home renovations but who didn’t have the cash on hand to make the deal happen. The company recognized that many such deals were simply falling through as a result of customers underestimating the cost of home renovation projects.
Now, with loans from GreenSky Credit, everyone wins. The customers get their renovations, which often add more value to the homes than the projects cost. Banks get good loans to pad their books, and contractors get jobs that they would have lost.