Innovating in Fintech: Jason Hogg, CEO of Lending.com (Part 5)

Sramana Mitra: What does that mean? Are we talking about a regular credit card issued that’s your card?

Jason Hogg: It was a Revolution card. We had our own brand and our own network. When you walk into a CVS and you see a MasterCard, Visa, and AmEx sticker in the window, you would also see a Revolution sticker. Our angle of attack was we had a differentiated business model because we said, “Traditionally, you’re getting charged 2.5% to 3% and we’re going to charge you only 0.5%. We need help getting customers on to the network.”

Instead of the issuing bank providing the funds to market and get consumers, we actually work with the retailers, and the retailers provide benefits. For example, Murphy’s Oil gave 10 cents off a gallon every time you used a Revolution card. They put displays on top of their gas pumps on how to apply for a card. We co-opted and worked with the retailers in order to expand the network. It really became a matter of making sure that you continually deliver on the promise. It became a piece-by-piece effort where we kept deploying more and more merchants. As we got more merchants, we got more consumers. The virtuous cycle started.

Sramana Mitra: Talk to me a little bit more about how acquired the consumers. Yes, you got more merchants and as a result, you got more consumers. What was the proactive process of acquiring the consumers?

Jason Hogg: We had two different types of consumer sets. The first set is what I’ve been talking about which are our credit card consumers. That was through partnerships at Walgreens and CVS. We focused on everyday spend. These are places where consumers would use their card on a regular basis for their daily lives rather than big ticket purchase items like a Plasma television or something like that. In doing so, we were able to use the retail channels to do the acquisition.

If you think about it from a supermarket’s perspective where gross margins are 3% maybe on groceries, if you can eliminate 2% anytime someone takes a credit card out, that’s a 40% to 50% increase in their gross margins. They were incentivized to get their customers to adopt our card program as well as to use the card program on a regular basis. The other way was, at that time, we created a product of the system called Money Exchange. That was the precursor to a lot of the things that you see now with Serve and American Express. It was the first system outside of PayPal that enabled peer-to-peer money transfer. We created whole series of tools through the online medium to enable small online retailers to adopt our money exchange product as a payment mechanism.

One of the most effective things that we did was we created buttons that enabled people to hang some HTML codes onto their listing. We gave them an incentive that said, “For every person you get to sign up, we’ll give you $10.” We didn’t charge a fee for the peer-to-peer transfer. What happened in Etsy is it started to take off because the merchants on Etsy would hang the button there and then they would put in their listing with all sorts of different incentives like, “If you use Money Exchange, I’ll give you free shipping or an extra pair of socks.”

We had a deal with AOL where you could IM money using AOL Instant Messenger. We went from essentially a thousand customers to hundreds of thousands of customers—where we had to know their full social security number. It’s not like it a social network. In order of scale and magnitude, it was unprecedented at that time. Then that’s probably when it got really interesting – being in charge of a startup when the financial crisis hit, and being in the payments industry. The timing was challenging to say the least.

This segment is part 5 in the series : Innovating in Fintech: Jason Hogg, CEO of Lending.com
1 2 3 4 5 6 7