Another credit related firm or lending payment system firm is Credit Karma
A Credit Karma doesn't provide loans directly to consumers
All they do is help you out with your credit
they provide you information
So as a consumer
you can go get a free credit report from Credit Karma
You can also get some other value added services that
will help you improve your credit score
or understand your credit score
or protest something that's wrong
Credit Karma will also provide you with
some consulting or additional value added services
if you wish to have that
But, if your credit is great
your credit score is great
they will also work with you and say
"Would you like a credit card?
Would you like a mortgage loan?
'Would you like a car finance loan?"
I assume you were looking at your credit score for some reason
Would you like some help
or links to good companies?
That might be able to provide you great rates on loans
And because Credit Karma has a good reputation
and hasn't charged anything to its customers
and they're feeling good about it
they're feeling happy with it
When Credit Karma makes these targeted ads or offers of helping you find financing
it doesn't feel as odd or as commercial in its nature
as do some bank commercials or ads
You know, you get a commercial
"Would you like a mortgage?"
And you're watching a YouTube video and you say
"Go away. Skip Ad."
With Credit Karma, you're looking at your credit report and you're now thinking
"I wonder what it would cost me
if I wanted to borrow money to buy a car."
And Credit Karma says, "Have you been wondering about buying a car?
We have some great lenders that might be able to help you with that."
"Oh, yeah. I'll click there. What do you have in mind?
What do you advise? What do you suggest?"
And the banks love Credit Karma because they're getting
a lot of information and a lot of filtering of the front end to the customer
So the banks are getting better referrals
better leads, than they would from just a general ad
They're getting something much more valuable from Credit Karma
and they're willing to pay for that
And the consumers are getting a more customized advertisement
that they're happier with than a general ad
So Credit Karma is doing very well at making money
They're doing this through referral fees and through banks
being willing to pay for leads
The final company I want to talk about is a company that
has been a pioneer and a leader in this industry
They started in 1997
when the internet was young
Now, the Internet itself wasn't young
I shouldn't say the internet was young
The internet has been around a long time in one variation or another
But the web was young
The internet, as a visual graphic-based entity
rather than a text-based entity, was young
And so they were an early e-commerce-like platform
in the early days of web commerce
So 1997, they started up
They are very simple value proposition that would give you loans, easier, faster, simple
particularly for mortgages and
or auto financing, they were very easy to work with and very large
They got some funding from Softbank, from Yahoo
from Sequoia Capital, and that helped them get started
In the first year, they raised $25 million in venture funding
And eventually by 1998
they had received an offer from Intuit to buy their company for 130 million
And that's a big increase in valuation
Now we're talking about four times jump in value in one year
400 percent a year
that's pretty good return. They turned it down
More interesting. They did raise 25 million or 23 million
I think it was from Yahoo for one quarter of their company
which was a lower valuation but it allowed them to stay independent
And eventually, they did sell the whole company to Popular Inc.
a bank holding company, in 2005
a couple of years later, for 300 million
Mind you, this is after the dot com crash
So even though not all companies were
now magically valued at big numbers like they might have been in 1998
By 2005, we're well past the dot com crash
and they're still selling out for huge multiple over
their initial listing of their company and raising of capital
over their private placements
So big gains for the founders, for the company
So this is a success
a cash out, for an early pioneer in payment systems, eLoan
Now you may be thinking
"But I've never heard of eLoan."
Yeah, they went away in 2009
They went away before there were very many smartphones out there
Before we have apps
like we do today of Apple phones
or Samsung phones, or our Google pay, they were gone
Why? Because Popular Bank
who bought them preferred to move
all the direct banking and direct lending under their own name
So now it was Popular direct, not eLoan
And so it's just a banks
front end for originating loans, electronically
And that bank paid a lot to buy this
but they wanted to buy the capabilities, the technologies
the ideas, the ability to assess loan risk in an automated way, and they got it
They got it, they brought it in-house
they turned it into their own brand
And the FinTech startup is gone
That doesn't mean FinTech is gone
that means this particular startup was acquired by a bank
the founder made money
the early investors made money
the users got great service
and then it went out of business as a bank took over that business
But then other firms started up in this space
like our lending club
or like Circle Fund in the UK
or like Credit Karma
and linking in to sell your bank lead information to financial service firms
And so, many firms in this space
there are lots of startups in this space
literally hundreds of startups, some are big
When eLoan was around
it was more than a quarter of the entire lending space
by the time it was bought out
So, big firms, some big successes
sometimes merged into existing financial services firms
Thus, you may say "The banks' view of this may be like Mark Twain once said famously
'reports of my death have been greatly exaggerated.' "
Reports of the death of banks
may well be greatly exaggerated
but we may see FinTech firms getting merged in or purchased
by large financial institutions and becoming part of those firms. Thank you
Theodore Henry King CLARKAssociate Professor
