The fintech sector has had a rocky ride over the last decade. Companies like Lending Club and OnDeck have become famous for a litany of scandals, with both companies losing around 85 percent of their market cap over the last few years. These companies had largely bet against the system, trying to tear down the old lending models and naively assuming that new customers could be brought into the fold by simply ignoring the risks associated with lending to them.
But GreenSky Credit CEO David Zalik saw the error in trying to burn the old system to the ground when nothing was really wrong with it in the first place. GreenSky Credit, unlike other fintech companies, seeks to work within the system, creating value where the big banks haven’t been able to by spotting opportunities for prime lending that the big players simply weren’t able to see or to capitalize on.
Zalik first got the idea for GreenSky Credit while working on another one of his companies, an online consultancy firm that did a great deal of business with home improvement companies like Home Depot and Benjamin Moore. Zalik learned that huge numbers of sales were simply being lost due to the fact that few homeowners had any real expertise at appraising project costs. This sometimes led to homeowners overestimating how much a project would cost. But far more often, it led to severe underestimations on the costs of renovations, additions and new construction. When homeowners came to the realization that the project would cost them $10,000 to $50,000 more than they had anticipated, many simply backed out of the deal.
GreenSky Credit is able to step in with promotional financing. Because almost all of the customers doing high-end renovations have high FICO scores, the loan terms are often extremely favorable to the customers, often including no interest or payments for the first year and no prepayment penalties. At the same time, the banks love the customers because the default rates for this group approach zero. GreenSky Credit can, in turn, instantly approve on-the-spot loans of up to seven figures, helping push deals through that otherwise wouldn’t happen.