Fintech

What it’s like to launch a credit fintech during an economic crisis

Curve's Paul Harrald describes how the current climate checks his appetite for risk and criticizes the "unedifying" behavior of other lenders.

Curve

Curve plans to launch a merchant-agnostic pay-later product.

Image: Curve / Protocol

A recession might not be the best time to be in the lending business, but Paul Harrald thinks it might be a great time to get into the lending business. As the head of Curve Credit, a new lending product from British fintech company Curve, Harrald is preparing to launch an alternative to the pay-for-it-later products offered by startups such as Klarna and Affirm. But he wants to go about it a different way.

While Klarna and Affirm both partner with merchants to be featured at their checkouts, Curve plans to build Credit directly into its existing app, which currently aggregates all your credit cards into one card. That means Curve Credit is designed to be merchant agnostic. "Immediately after making the transaction, or subsequently, [users] can translate those transactions into short-term installment loans," Harrald explained. "I don't need to integrate with merchants, and frankly my customers have point-of-sale credit no matter who they're shopping with."

But what about the timing, exactly? "We're lucky in the sense I don't have a great big revolving portfolio of credit card receivables [that I'm] sweating," he explained. "I get to launch into the environment … I get to be conservative, careful, thoughtful, when I launch these products — far more conservative and careful than I would otherwise have been under normal economic circumstances."

Harrald hopes that Curve Credit's differentiation and timing could yet help it compete with the big players. In a conversation with Protocol, he discussed the ethical concerns around pay-later products, how Credit fits into Curve's overall plan, and why he's not interested in late fees.

This interview has been edited for clarity and length.

What's Curve Credit's business model?

The primary source of income for Curve Credit is interest income. [But] we will use interest-free loans to get people accustomed to the UX, and it will be available, for example, to higher-tier customers, perhaps — we will make interest-free loans available to them as part of their subscription.

I will just make one point, though. We are approached, already, by very large OEMs with a view to us financing the purchase of their products, for example consumer electronics, on Curve Credit's balance sheet in exchange for a fee. There are some very interesting business models where we partner with a large OEM, either on their .com or just via the [Curve] app. If I can identify the purchase as an eligible product, then I can offer discounted terms, and of course some of these corporates are willing to fund the loans, they have cash on [their] balance sheet. They have units that are devoted to the promotion of the products by using the cash on [their] balance sheet. There's a very interesting business model where the liquidity is provided by an OEM, for example, the lending and point of sale capability is provided by Curve, and then we decide who takes the credit risk. The entity that takes the credit risk earns the interest income, otherwise they earn a fee.

Other pay-later products, particularly Klarna, have received a lot of criticism for encouraging young people to get into debt — even though for a good chunk of their customers they don't charge interest. How are you feeling about the business model's criticism?

My response to it is I'm not going to tell people whether they should be borrowing or not. That strikes me as patronizing. I am going to be a responsible lender: I'm going to use every item of information available to me, to ensure that my customers can clearly afford to repay the loans. I'm going to do my part.

The other thing I think it's incumbent on me to do is to ensure that there's responsible borrowing, not just responsible lending. And the way you make sure that customers can borrow responsibly is to give them in the clearest possible terms, before they make the borrowing decision, the consequences of the borrowing decision. You have to lay it out clearly: the amounts that you will be asking on what dates in every month, ensure that they've read it, and ensure that they consciously say "I've read that, I'm OK to borrow this amount of money."

I don't buy the criticism that people are being lured into borrowing. People are smarter than that, for the most part. If you behave responsibly, they're smarter than that.

The only other thing I would say is that not granting credit because you're worried about this is just as much a cause of anxiety for some people as granting credit, particularly right now. People need a breather, and credit provides them with a cash flow smoothing breather.

On that point about people needing a breather: Obviously, yes they do, but what we also don't want is people getting that breather to then end up with a bigger problem because of high interest rates. How much will Curve charge for loans?

Our product, frankly, wouldn't make sense if we charged anything remotely like credit card interest rates: You could mimic my product on a credit card and save money if you do that. Nor do I need to charge credit card interest rates, because my onboarding cost … will be as low as it could possibly be, because a lot of my customers come through the Curve OS system. They've been KYC'd, all of that stuff has happened before they get to me. I just then need to check creditworthiness and affordability, vulnerability, make an offer, once. The customer then gets a credit line, [and] they can transact within that credit line unless I get adverse information. It's a very, very efficient system I've got.

What's left is I need to cover my funding cost, my credit costs, I need to provide a suitable return to my investors. I expect my loans to sit either side of 10% [annually], in quite a sweet spot.

It's likely that bankruptcies will spike soon, given the economic environment, so it seems like an interesting time to be launching a credit product. How are you dealing with that risk?

The one thing that's happened and will happen is the interpretation of credit referencing data will be turned on its head. For example, in the U.K. and elsewhere it is mandatory for issuers to give people payment holidays. What that means is there are a whole group of latent defaults that simply won't appear in the data. These are people who could not have paid but were not asked for a repayment. [And] these payment holidays cannot affect credit scores. So the first technical response then is to completely reinterpret credit referencing data and to place a heavier reliance on other leading indicators of financial difficulty.

There will be a material increase in the insolvency type arrangements that are available to consumers. Of course, we're lucky in the sense I don't have a great big revolving portfolio of credit card receivables [that I'm] sweating. I get to launch into the environment. I get to be conservative, careful, thoughtful, when I launch these products — far more conservative and careful than I would otherwise have been under normal economic circumstances.

I just want to come back to another point, though. When somebody gets into payment difficulties, if you look at the process that typically ensues, it's highly formal, it's legalistic. It's borderline inhuman, in my view. The collections of consumer debt neglects the psychological state of the borrower, who is in a very anxious state. They're in distress. It's my view that it both makes economic sense and makes me feel more human, if I offer far, far more forbearance to these people than would typically be the case.

If somebody gets into payment difficulties with Curve, then my instinct is to say, take a breather. Just miss the payment. No late fees — I'm not going to make money on late fees, I just hate that practice. There will be penalties if you repudiate your contract with us, but if you're in genuine financial difficulty, I can look at your credit reference, I can tell you're in trouble.

What normally happens is a race to get the little bit of money that's left. I think you have to have a much longer-term view of the collections process. It's not about the short-term land grab for the few dollars that the person has. It's about maintaining a communicative relationship with this customer, so that when they eventually get back into the gig economy, when they eventually get their job back, you still have a working relationship with them and you're able to rehabilitate their credit and recoup the money that was lost. We will take a much longer relationship-based view of the collections process when it will inevitably happen to us.

The sight of 10 lenders constantly phoning and sending letters to get money that might otherwise be used for food is unedifying at minimum, and I'm not going to participate in that land grab.

When Curve Credit was announced earlier this year, it was suggested that Curve planned to build a marketplace model with multiple lenders on offer. Is that still the case?

My plans are six-month plans, not six-year plans. I want to generate revenues [by] lending, but it would be absurd of me to think I'm the only lender that Shachar [Bialick, Curve CEO] and the Curve team would ever do business with. Surely not.

In fact, it would be absurd of Curve to only have Curve Credit as its lender, it seems to me. I cannot occupy the world of lending; it's too big. I can get really big: Curve Credit will be a standalone unicorn in three years, I suspect. But that's just a speck in the ocean of lending.

From a lending point of view, I would happily sit next to a global panel of lenders, all of whom are vying to give the best terms possible to the customers of Curve should they wish to finance a purchase.

Enterprise

Why it’s time to ban algorithmic recommendations for children

How do we encourage the good that ML and AI can provide while restraining potential harms?

Algorithms often harm the very users they are supposed to serve.

Photo: Alfonso Di Vincenzo/KONTROLAB/LightRocket via Getty Images

Tom Siegel is the CEO and co-founder of Trust Lab.

In the era of social media, AI algorithms have the power to decide everything from our playlists to the videos we watch, the news we consume and what special shopping deals we’re offered, and which are withheld. For all the good machine-learning technologies and algorithms do to improve and personalize the online experience for all of us, they also present one of the biggest threats for online safety, with real-world negative implications for the health and well-being of all internet users.

Keep Reading Show less
Tom Siegel
Tom Siegel is the CEO and Co-Founder of Trust Lab. Previously the VP of Trust & Safety at Google for 14 years, Tom built its global team through all stages of growth into an industry-leading user protection and abuse fighting organization with thousands of team members globally.

Sustainability. It can be a charged word in the context of blockchain and crypto – whether from outsiders with a limited view of the technology or from insiders using it for competitive advantage. But as a CEO in the industry, I don’t think either of those approaches helps us move forward. We should all be able to agree that using less energy to get a task done is a good thing and that there is room for improvement in the amount of energy that is consumed to power different blockchain technologies.

So, what if we put the enormous industry talent and minds that have created and developed blockchain to the task of building in a more energy-efficient manner? Can we not just solve the issues but also set the standard for other industries to develop technology in a future-proof way?

Keep Reading Show less
Denelle Dixon, CEO of SDF

Denelle Dixon is CEO and Executive Director of the Stellar Development Foundation, a non-profit using blockchain to unlock economic potential by making money more fluid, markets more open, and people more empowered. Previously, Dixon served as COO of Mozilla. Leading the business, revenue and policy teams, she fought for Net Neutrality and consumer privacy protections and was responsible for commercial partnerships. Denelle also served as general counsel and legal advisor in private equity and technology.

Policy

Google is wooing a coalition of civil rights allies. It’s working.

The tech giant is adept at winning friends even when it’s not trying to immediately influence people.

A map display of Washington lines the floor next to the elevators at the Google office in Washington, D.C.

Photo: Andrew Harrer/Bloomberg via Getty Images

As Google has faced intensifying pressure from policymakers in recent years, it’s founded trade associations, hired a roster of former top government officials and sometimes spent more than $20 million annually on federal lobbying.

But the company has also become famous in Washington for nurturing less clearly mercenary ties. It has long funded the work of laissez-faire economists who now defend it against antitrust charges, for instance. It’s making inroads with traditional business associations that once pummeled it on policy, and also supports think tanks and advocacy groups.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Workplace

Everything you need to know about tech layoffs and hiring slowdowns

Will tech companies and startups continue to have layoffs?

It’s not just early-stage startups that are feeling the burn.

Photo: Kirsty O'Connor/PA Images via Getty Images

What goes up must come down.

High-flying startups with record valuations, huge hiring goals and ambitious expansion plans are now announcing hiring slowdowns, freezes and in some cases widespread layoffs. It’s the dot-com bust all over again — this time, without the cute sock puppet and in the midst of a global pandemic we just can’t seem to shake.

Keep Reading Show less
Nat Rubio-Licht

Nat Rubio-Licht is a Los Angeles-based news writer at Protocol. They graduated from Syracuse University with a degree in newspaper and online journalism in May 2020. Prior to joining the team, they worked at the Los Angeles Business Journal as a technology and aerospace reporter.

Entertainment

Sink into ‘Love, Death & Robots’ and more weekend recs

Don’t know what to do this weekend? We’ve got you covered.

Our favorite picks for your weekend pleasure.

Image: A24; 11 bit studios; Getty Images

We could all use a bit of a break. This weekend we’re diving into Netflix’s beautifully animated sci-fi “Love, Death & Robots,” losing ourselves in surreal “Men” and loving Zelda-like Moonlighter.

Keep Reading Show less
Nick Statt

Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Latest Stories
Bulletins