The following questions were submitted by audience members of the Emerge live virtual conference on Tuesday, June 24, 2020.
Oportun CEO, Raul Vazquez, and Financial Health Network President and CEO, Jennifer Tescher, hosted a virtual fireside chat titled “The Role of Credit in Stabilizing Vulnerable Communities.”
The questions asked during the live stream have been edited here for clarity.
Q: How is Oportun dealing with the collection of loan repayment given COVID-19, and how do you see the future collection of these loans?
A: Great question. On our COVID-19 Response Fact Sheet, we outline how we are working with our customers during the economic crisis that has followed the public health crisis. Including:
- Offering payment deferrals and loan modifications, and waiving fees for customers in need.
- Following applicable regulatory requirements, including the CARES Act, regarding credit reporting for those customers who informed us they are impacted by this situation.
- Encouraging customers to interact with us online or by phone and waiving third-party payment fees for all customers to ensure they have access to multiple payment locations and digital options free of charge.
- Offering all customers free, personalized financial coaching as well as access to helpful local resources in both English and Spanish through our community program partners.
- Sharing information on how to avoid fraud and gain access to free assistance that is offered in their community.
Q: Do you use a network of lenders or does your organization make the loans?
A: Oportun funds and services the loans we make via our omnichannel network.
Q: As a mission-driven organization do your investors apply different success metrics and/or expect a different ROI?
A: As a public company, our investors value the fundamentals of our business. We tend to market our stock to “long-only” investors who are seeking to have mission-driven stocks in their portfolios, though obviously anyone can buy or sell our stock.
Pre-COVID, on a GAAP and non-GAAP basis, we had a well-established track record of profitability. Our business succeeds when our customers succeed, and by remaining profitable we can scale to help millions more customers financially.
Q: Have you pulled back on deploying credit due to the increased risk associated with customers losing jobs and wages?
A: We are very sensitive to the needs of our customers and prospective customers. As responsible lenders, the worst thing we can do is to make a loan that our customer cannot afford as that will ultimately leave them worse off and less likely to qualify for an affordable loan in the future. And yes, unfortunately we have had to tighten our credit standards temporarily.
Q: How has becoming a publicly traded company impacted Oportun’s strategy?
A: It has not changed our strategy; we are both mission-driven and profit-driven, these are not mutually exclusive goals. In fact, our profitability fuels our ability to fulfill our mission, at ever-increasing scale.
Q: What is your underwriting process? How do you creatively assess customers’ ability to repay the loan if they do not have collateral, credit, or assets?
A: We use a variety of scoring factors, including verifying employment and factoring in other considerations, such as their history of paying for utilities, phone service, rent, and more. If the customer has a credit score, we factor that in as well, along with the other data points we can access. As a customer builds a good history with us, subsequent loans have decreasing APRs, and they are also actively building their credit scores as we report their payments to the bureaus.
Q: Similar to Oportun’s great algorithms to assess initial creditworthiness and amount sizing, how busy is the company developing collection algorithms. What are critical borrower facts you look for?
A: First and foremost we verify their employment so that we can best understand their capacity to afford a loan. Our most profitable loans are ones that are repaid, on time. We don’t make money on late fees and the like; we do best when our customers are successful, so we want to be sure we don’t put anyone in a position where they are not able to pay us back and end up even further removed from the financial mainstream than when they started with us. In terms of collections, we invest heavily in customer service and in offering our customers a multitude of ways to make their payments so we can be sure that we are able to meet them where they are.
Q: Can you talk more about what kind of financial education you are providing?
A: Through our partnership with UnidosUS, one of the nation’s leading nonprofit consumer advocacy organizations, we offer every customer a live, one-on-one financial coaching session with a bilingual credit counselor for free. In addition, we provide basic credit education during the application process and provide extensive financial literacy information on our website.
Q: You mentioned a heavy data analysis approach to better understand your customers. Any particularly exciting insights into your customers’ needs or pain points from this research that influenced how you structured credit product and pricing?
A: One insight that led us to continue investing in having a physical presence in the communities we serve is that our customers have typically made about 40 percent of their payments in cash, and our storefronts are essential to our ability to collect cash payments. As we have all adjusted to COVID-19, that volume has slipped to about 30 percent and the increase in demand for our digital channels during this period shows how quick our customers are to adapt.
Another insight is understanding what products our customers are getting elsewhere that they might choose from Oportun if the option were available. That led us to roll out our credit card product last year, which has so far been very well received. The other was to launch a secured personal loan product, where the customer’s vehicle serves as collateral. We launched this earlier in the year and it is allowing us to make larger loans to some customers and to approve certain customers we might not otherwise be able to serve.
Q: How have you established KPIs or other success metrics to ensure alignment to the mission-oriented goal of your company?
A: The most critical way we ensure alignment with our mission is in the design of our products. We do not make a profit on origination fees, late fees, the collections process, etc. We only succeed when our customers succeed. Our most profitable loan is one that is paid back on time. And by treating our customers to super-prime service, which has resulted in our brand being favorably compared to Ritz-Carlton, Apple, and USAA on an NPS basis, our successful customers may ultimately choose us for their next loan and eventually a credit card too.
That said, on a quarterly basis we do measure the extent to which we continue to advance our mission through our social impact metrics, which track the total number of individuals we help to establish their first credit score and the total savings on interest and fees that our loans provide, relative to the alternatives typically available to our customers. As of March 31, 2020, Oportun has helped 850,000 people establish a credit score. We have also saved our customers more than $1.7 billion in interest and fees.
Q: So the algorithm discriminates against people who have established credit? How is that equitable? Seems like they are cherry-picking for credit virgins.
A: Oportun’s mission is to provide inclusive, affordable financial services that empower our customers to build a better future. The individuals we serve are predominantly from low-income communities, support a household, and generally lack a credit score because other traditional lenders cannot help them. We are proud to have been certified by the U.S. Treasury Department as a Community Development Financial Institution (CDFI) for over 10 years, and we do not discriminate.
Q: Are you profitable?
A: Yes. Pre-COVID, on a GAAP and non-GAAP basis, we had a strong track record of profitability. As the crisis recedes, we fully expect to return to profitability and feel confident that we have the liquidity necessary to weather the current situation, where we are proud to report that we have not laid off or furloughed any employees.
Q: The theme for today is stabilizing communities. Can you talk a bit about how you measure Oportun’s impact on the communities you operate in, not just individuals?
A: As of March 31, 2020, Oportun has cumulatively provided low-and-moderate-income communities the following:
- $8.9 billion disbursed
- $1.7 billion saved in interest and fees
- 850,000 people who came to us without a FICO® score and started to establish a credit history
- 7 million customers served
- 8 million loans
- 777,000 active customers
Q: What is Oportun’s delinquency rate? How does Oportun interact with borrowers that become delinquent, all the way through charge off? Does Oportun ever sell delinquent debt?
A: In our quarterly investor presentation on page 10, we detail our delinquency and charge off rates.
We have, in a single instance, sold a portion of our long charged off loans to a well-respected and fully vetted legal collections agency.
Q: What states do you operate in?
A: In our investor presentation on page 5 we have a map showing the detail of services we offer across the 19 different states we serve. We operate retail stores in 12 states and offer our credit cards in an additional seven states.