Building a Public FinTech Company From Scratch: OppFi CEO Todd Schwartz (Part 2)

Sramana Mitra: How did you steer your career from that point on?

Todd Schwartz: I went through the crisis of 2008. That’s when I learned a lion’s share of what I know today. I learned about investing. I learned about allocating capital. I learned what not to do. I learned it not from having success. We got ourselves in a little bit of a pickle. It was a very tough situation. Unwinding a lot of that was painful.

Once we felt like we were on good footing, we still retained a large percentage of APAC. That was sold to JP Morgan One Equity Partners. Some of that liquidity came in 2011. We also successfully navigated through. Most of the things people held on to came back a little bit. Things were not as bad as people perceive.

We started looking at what was next. We had been through two scary years. Now we were optimistic. Things are getting more healthy. I’m very entrepreneurial. I wanted to solve a large-scale problem. I didn’t know what I wanted to do. I first thought that affordable housing was my calling because I knew the business well.

It hit me one day when I had lunch with a friend who was managing two pawnshops. One was located in downtown Chicago. He showed me the pawnshop and how it works. I walked in. To my amazement, a woman walked in with nursing scrubs on and said, “I’m here to pawn my ring.” After the transaction, my mouth dropped. I didn’t understand. Why did she have to do that? Can’t she get a loan or credit card? My friend said, “Our business is booming. Since the bank has tightened credit, people are resorting to these alternative finance markets.”

I didn’t really know that world. He said, “You can do the research, but a large part of the population is underserved.” I didn’t believe him. He said, “1% to 3% of our customers are retained by providing an unsecured loan. We don’t have an aspiration to expand that business model because it’s really just done as an accommodation and a customer retention mechanism. There’s a license element.”

Lightbulbs started popping in my head. Maybe I can change the way people access credit and provide a better option. As I started to go down the rabbit hole of doing my investigation, what was clear was there were 45 million to 60 million in America who interact with banks by having a traditional checking account, but the banks don’t lend to them. They essentially profit off of customers with fees.

There’s no real unsecured credit extended to them. It’s more of a fee-based relationship. Yes, they get the benefit of having access to ATMs, but they don’t have the benefit of credit. I also saw that there were payday loans. Payday loans are not only small-dollar amounts, they’re non-amortizing. They don’t check people’s ability to pay. They don’t have reporting to credit bureaus. Then the APRs are astronomical. There are title loans where people’s cars can get repossessed.

I thought why can’t we look at somebody’s bank statement and their pay stub and figure out maybe they don’t have the credit or maybe their credit has been impacted because they made mistakes when they were young? Then provide them with loans that had friendly repayment with no prepayment penalties and allow them to improve over time. We didn’t have the technology to do this, but eventually got positive trade lines to the bureaus. That was my theory that we could do this.

This segment is part 2 in the series : Building a Public FinTech Company From Scratch: OppFi CEO Todd Schwartz
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