This month, Applied Data Finance, LLC (ADF) announced a milestone – more than $1 billion in loans originated or facilitated by its AI-powered analytics platform.
The ADF platform was designed to open access to credit for “underestimated” consumers – people who are unable to borrow from traditional banks and are often forced into using payday loans. ADF’s lending platform analyzes data from over 30,000 predictive variables to match customers with loans they can afford to repay at risk-appropriate rates.
“Unlike traditional lenders, ADF offers a unique approach to analyzing credit data using next-generation underwriting,” said ADF CEO Krishna Gopinathan. “Our innovative platform offers a superior alternative to many of the other types of non-prime loans available to underestimated consumers.”
The San Diego-based fintech lender has now served over 250,000 customers since its inception in 2014, and last year alone originated nearly $280 million in loans.
A Problem in Plain Sight
Gopinathan said he started ADF to find a better way to serve the 100 million people in the U.S. who cannot access credit at prime or mainstream rates.
“This is a problem that was hiding in plain sight,” he said, and pointed out that 39% of people in the U.S. are unable to cover an emergency expense of $400 without assistance. “And these are people like nurses and teachers – they’re our neighbors. So the problem we identified was that these people don’t have prime credit profiles, so they can’t get the kinds of loans that we look at and say, ‘Yeah that’s what we’d expect a fair price to be.’ So they end up in payday loan land. They have to consider taking out these payday loans with APRs of 200, 300, over 300 percent sometimes – extreme levels of interest rates and that starts trapping them in a cycle of debt.”
To address the problem, ADF decided to redefine it. Instead of looking at people as too risky to lend to, ADF would see the issue as one of limited data. Financial institutions were using old-fashioned ways of analyzing customer data and not recognizing those who are “underestimated” by traditional FICO score.
“Our guiding principle was that people are walking through life emitting data packets in all directions and the more of those data packets we could capture and harness and use for our decision making, the stronger our ability to serve our customers would be. And that turned out to be true,” Gopinathan said.
‘Concepts and Principles’
Although ADF does not reveal its methodology in determining the lendability of a person, Gopinathan said the company looks at over 200 sources of data to determine which ones add value to the “concepts and principles” that guide the AI in sorting the data.
“One of those principles is the principle of frugality,” he said. “If someone lives within their means, that’s kind of an innate character quality of a person and that’s something that can be seen in certain kinds of data.”
The platform also looks at if a person has a track record of stability.
“Resilience would be another concept. Things often go bad for various people – it happens to all of us but is there an inherent financial resilience or do they fall apart financially,” Gopinathan said, adding that ADF’s credit models have been refined to the point where they now have 2.5 times the predictive power of the standard FICO score.
In addition to facilitating loans to underestimated borrowers, ADF, though its customer facing brand Personify Financial, also helps them “climb the credit ladder.”
“When you look at other types of loans, especially payday loans, they are not built on this idea of mutual success, that the customer succeeds and therefore we succeed with them. Our belief is that we only succeed if the customer’s do,” Gopinathan said.
ADF loans are designed with no prepayment penalties, no balloon payments and the loan rate is automatically reduced for every six consecutive months of on-time payments.
“I think that’s pretty unique. I haven’t heard of anyone else doing that,” Gopinathan said.
The approach has netted big results. 80% of ADF customers who had FICO scores below 620 when they first borrowed money using the platform were able to improve their credit scores after 18 months of being in good standing.
ADF also gives borrowers access to free online financial education tools “so they can create lasting improvements in their financial health,” he added.
A typical ADF loan is between $1,000 and $10,000 with an average between $3,000 and $4,000. The loans are often used for unexpected emergencies like car repairs or paying a deductible on a medical expense, Gopinathan said. “Sometimes it is consolidating higher interest debt like payday loans.”
However, the basic platform is not specific to one kind of loan or one kind of customer base, he said, adding that in the future ADF anticipates the platform will be adopted for multiple types of loans in multiple jurisdictions and countries.
“The idea of harvesting all this data and using it to predict who is an underestimated customer is a principle that applies in many different areas,” Gopinathan said. “I see us over the long term being able to apply this platform in multiple ways over time. We’ll be expanding quite significantly over the next few years.”
To facilitate the expansion, the company recently enlisted Jeff Andrews as chief growth officer, who will be taking his experience running strategic partnerships for Pagaya and LendingClub to identify and leverage new opportunities for ADF.
“ADF’s end-to-end lending capability offers us a unique platform from which to explore product expansion for our customers and new revenue streams for ADF. We have an installed customer base of more than a quarter-million ‘Main Street’ Americans who have taken an ADF loan during a time of need,” Andrews said. “I’m excited to explore further products and technologies that will benefit our existing and future customers as they continue their journey, offering them new and exciting ways to stay on a path to financial freedom.”
Applied Data Finance, LLC
CEO: Krishna Gopinathan
Headquarters: San Diego
Business: AI-powered lending platform
Notable: Applied Data Finance has facilitated loans for over 250,000 people.