Elevate Credit Inc.
4150 International Plaza
Suite 300
Fort Worth 76109
817-928-1500
www.elevate.com
Employees: 615
2017 revenues: $673.1 million
NASDAQ: ELVT
In May, Fort Worth’s Elevate Credit Inc. celebrated having served more than 2 million non-prime customers. It was quite an accomplishment for a company established in 2014 that focuses on customers who many financial institutions and businesses pay little attention to and, in some cases, avoid.
Elevate, now with more than 600 employees, is a publicly traded, tech-enabled provider of online credit for non-prime customers.
Sixty percent of Americans are what banks and financial institutions call non-prime customers, said Elevate CEO Ken Rees, a veteran of almost 20 years in the banking industry. Non-prime means that a person has a low (below 700) or no credit score, he explained.
That comes out to 162 million non-prime American customers.
Think this doesn’t matter?
According to Rees, non-prime customers are nine times more likely to be turned down for credit, six times more likely to be turned down for a job, and 12 times more likely to be turned down for an apartment.
While they may have a checking or savings account, financial options like credit and short-term and long-term loans are out of reach or are available at such high interest rates that they will likely never be paid off.
Elevate wants to change that.
“It’s actually a bigger market than the world of prime lending. Actually, two-thirds of the U.S. has a credit score less than 700 or no credit score at all,” Rees said. “They’re typically not well-served by banks and, in fact, following the recession, banks have really tightened up their credit and pushed non-prime customers into the hands of payday lenders and title lenders and what we consider to be dead-end products.”
Rees has been in the finance industry since the 1990s when he worked as a management consultant. It was during the early days of his finance career that he learned about what others in his branch referred to as “lobby trash” — non-prime customers. Rees said he knew that since traditional banks didn’t really have products to offer the non-prime population, there was a need and opportunity for a business that did.
So in 2001, Rees formed Cash Works, which worked as a check-cashing, pre-paid debit card, payday loan-style business. He sold the business in 2004 and was approached that same year by Fort Worth businessman Mike Stinson.
Stinson had started what would become Elevate and asked Rees to step in as CEO. Since then Elevate has gone through change, evolution and pivoting to get it to where it is today.
When Rees joined as CEO, Elevate worked as an online payday loan company, but he says he began to understand the market of the non-prime customer and think “there’s got to be better products for customers – longer-term products – both installment loans and the lines of credit.”
And now, through that thinking and years of change and evolution, Elevate is recognized as one of the leading online lenders in the country.
“We use technology and advanced analytics to serve the non-prime customers, what we call ‘good today, better tomorrow,’” Rees said. “We want to be a good solution to their immediate need for credit, but we want to be there to help them get better with credit, so we help customers build up their credit scores, we provide free credit monitoring and other things to improve the financial health of our customers over time.”
Elevate’s current iteration of the business offers three products — Rise and Elastic in the United States and Sunny in the United Kingdom. All were started in 2014 after the business split into what is today known as Elevate and a technology licensing business called Think Finance.
Rise is a state-licensed online installment loan, in some states a line of credit, that aims to help customers rebuild their credit and offers interest rates that lower over time.
Elastic is a bank-issued line of credit up to $3,500 that aims to give Americans a way to stretch their paychecks.
And Sunny functions as an alternative for the U.K.’s short-term borrowers who need between 100 and 2,500 pounds. And the loans come with no fees.
Something unique to Elevate’s underwriting system is the fact that customers are locked in at a certain interest rate, on average a little over 100 percent, which is then cut in half after a couple of years with Elevate, with the ultimate goal of getting the percentage down to 36 percent — something Rees says is all but unheard of for non-prime customers.
Elevate’s loans and credit are unsecured, meaning the loan is unsupported by any type of collateral.
“Our customers are the riskier customers. There is a chance that they won’t be able to make the payments, but we think that customers shouldn’t be worse off if they can’t make their payments,” Rees explained. “So we structured what we do. We don’t have any late fees, we don’t have any added on fees. We don’t sue customers that can’t make their payments. We try to work with them … We think, let’s just get smarter and smarter about the underwriting experience and then be as flexible as humanly possible if the customer has problems.”
“I mean if you have two-thirds of the U.S. that’s not being served by banks and is looking for credit and the only options they have today are payday loans and title loans, it gives us a great opportunity to build a long-term growth model in this space,” he added.
Rees said that he and the Elevate team think of the United States as a non-prime nation due to three key elements – rate of savings, income volatility and low credit scores.
First, 40 percent of the population has less than $400 in savings, effectively living paycheck to paycheck.
Second, Rees said, JP Morgan Chase looked at its account holders and found that 40 percent of its customers had monthly income swings of 30 percent.
These two elements, he explained, make consumers ripe for financial hardship and contribute to the third element, a low-to-no credit score. Income volatility and lack of savings, plus financial hardship, are leading to the erosion of credit scores, leaving 60 percent of the nation with a score of 700 or less.
With a credit score of 680-700, consumers begin losing credit options, he said. But not all non-prime customers are the same. Some are young people or people new in the country without a credit history, which makes it hard for traditional lenders to underwrite. Others, Rees said, have had a financial stress a few years ago and charged out their credit cards, thus looking like a bad option for traditional lenders.
“So we build very different types of underwriting to meet those different needs. We look at bank account, transaction information sometimes,” he explained. “We can now pull a full year of bank account information on our customers and be able to see: Is their savings trending up or down? What does their income volatility look like? How quickly do they spend their money after they get it? And all of that factors into the scores that we build to meet these unique needs.”
Rees added that when they have a customer with no credit information they build it based on what information they can see such as the history of payments with payday lenders and title lenders, checking account information and other information.
Elevate has a dedicated advanced analytics team in San Diego, California, that uses machine learning and advanced data techniques to build scores, to build different types of solutions for their customers.
According to Rees, the big financial stressors in people’s lives are marriage, children, divorce, health issues and job loss. If someone is working hard to build up credit and then experiences one of these financial stresses and can’t make payments, it can drastically affect their credit.
“We try to understand people that had a one-time problem but are actually pretty stable versus people that are having sort of ongoing problems, and you have to look at them differently,” Rees said. “What we do is we sort of tailor the size of the loan to what we think is their affordability and then we use a level of risk-based pricing as well.”
For the customer who had a one-time issue that has had a pretty negative impact on his credit score but who has been pretty stable since then, Elevate can offer a $5,000 loan pretty easily. But for others, even though their checking account may look good, if they have a history of credit problems they may only be offered a $500 line of credit, Rees said.
Rees said the things that set Elevate apart as an online lender are not only that loans and lines of credit fund directly into the customer’s checking account, but that the system provides a decision in about 14 seconds and then funds overnight.
And Elevate has begun using geo-fencing technology to push ads to people as they walk into a payday loan or title loan store, allowing the company to “really target to the type of customers that just don’t realize that there’s a better option out there.”
As of 2017, Elevate has originated more than two million customers and hopes to grow and expand its services.
“We just see the opportunity ultimately to be a Fortune 500 company in this space,” Rees said. It’s a massive market, [but] there are no really well known and trusted brands and that’s what we’re hoping to do.”
Once an Elevate customer, these non-prime consumers are also given the financial tools to help them improve and ultimately get to that prime status. Elevate offers a budgeting tool, financial literacy video training, and free credit monitoring, in addition to reporting to credit bureaus to help customers build their credit.
All of this, Rees said, is imperative to aid what he sees as the new middle class.
Rees said that when he was growing up the country had a solid middle class with savings and stable incomes. Now, the middle class is living largely paycheck to paycheck and experiencing increased income volatility due to the gig economy.
“Now what used to be a strong middle class is kind of this new middle class, which has a lot of financial stress and doesn’t have savings and doesn’t have high credit scores and banks are not serving them well,” Rees said
That, he said, is why Elevate created its research institute — The Center for the New Middle Class.
“This is a public policy issue,” he continued. “So that’s kind of what we’re all about is let’s recognize that there’s this new population, the new middle class, which isn’t going to have a lot of sort of stability, isn’t going to have a lot of savings and is going to have financial stresses. And then how do you build up a whole product structure and how do you build up underwriting and how do you build up a way to serve customers that just look very different from the way you know that the average American looked 30 or 40 years ago.?”
One product Elevate is working on is part of a collaboration with MasterCard for a credit card product for this new population.
The product is set to launch in the coming months and will include a credit card with on/off function, credit score monitoring, a full-service mobile app and custom purchase and fraud alerts.
Rees said that while most credit cards for non-prime customers offer only a few hundred dollars of credit availability and many high fees, “our customers deserve real credit lines.” The MasterCard product will typically feature $2,500 or more credit availability and interest rates very close to the prime rate.
Elevate is able to offer these lines of credit and lower rates, Rees said, because of its extensive experience with underwriting non-prime customers.