Building consumers’ financial health over time.

There exist a large and widening gap in financial inclusion and economic equality in America, according to OppFi. On average, the median U.S. consumer is employed, has a bank account, earns median wages, but has little to no savings or investments. Some have experienced a hardship or emergency; others are struggling to make ends meet; others have unplanned expenses.

Overall, the state of the American middle class is precarious. Among other things,

• 150 million Americans have less than $1,000 in savings,
• 115 million live from paycheck to paycheck, and
• 60 million Americans lack access to traditional credit.

The median FICO score in the U.S. is 711. Borrowers with a score of below 620 are considered to be subprime, a group that represents a third of people with credit histories.

Americans with subprime credit struggle to cover a $400 emergency. Although many consumers in this category are unemployed or under-employed, Experian found that the average income for a subprime borrower (pre-pandemic) was $65,000 annually. These consumers may have income fluctuations, but they are generally members of the middle class.

Surveys have found that when these consumers face an unexpected bill, such as a medical bill, car or house repair that someone with a high credit score would simply put on a credit card, they have very few options: their family and friends are often in the same situation, and any credit cards are maxed out. They generally have nowhere to turn.

Borrowers with low credit scores are not naïve. Research on the sector has found that while these consumers may face desperate financial situations, they also understand the consequences of borrowing at high interest rates. They make the determination that taking out a high-cost loan is better than losing access to their doctor, being unable to get to work, or living without a working oven.

Source: OppFi

OppFi has designed a FinTech platform around the subprime customer with the ability to facilitate credit access that is simple and accessible. OppFi focuses on providing access to credit as well as building financial health through financial education and resources.

FICO score alone is not the only measure of a potential customer’s ability and willingness to repay a loan. According to OppFi, there is a way to operate profitably providing loans to this underserved population without gouging them with high interest rates. This addressable market has expanded because of artificial intelligence and alternative data that make has made it easier to model risk without relying solely on FICO scores

Empower everyday consumers to rebuild financial health.

OppFi is an online installment lender that has facilitated over 1.5 million loans with a total origination volume of over $2.3 billion, which works out as an average loan size of around $1,500.

OppFi began life as a direct lender with multiple state lending licenses. They moved to a bank partnership model a couple of years ago and are now fully committed to that model. They have multiple bank partners today and will continue with this model as they release new products.

OppFi is focused on building a financial ecosystem to help the tens of millions of Americans whose only alternatives are predatory lending options, like payday or title loans. OppFi meets its mission—Empower Everyday Consumers to Rebuild Financial Health— by helping consumers gain access to transitional financial products with transparent pricing and affordable payment schedules, help rebuild their credit and financial health, and graduate them back into mainstream credit.

OppFi meets the demand for non-bank lending products in a way that empowers customers to not only meet their short-term financial needs, but also build credit for their long-term financial future. The loans we service are designed for:

• Access: Loans we facilitate are for people who do not qualify for prime loans. Non-traditional credit quality standards are used to help more people have access to loans to meet short-term, small-dollar emergency needs.
• Affordability: Loans through our platform are underwritten to ensure that a consumer has the ability to pay off their loans, with amortizing payments, longer pay-off periods, and lower monthly payments. While rates through our platform
• Transparency: We provide terms that are simple and transparent to customers. There are no fees: no origination fees, late or NSF fees, or prepayment penalties. We don’t want borrowers to have surprises. That makes things easier for us and for them.
• Graduation: We report positive payments and payment history to the three major credit bureaus, and when a customer pays off their loan, we work to facilitate access to lower cost credit. This helps our borrowers’ credit scores improve so that they will not need us if they have another financial shortfall.

References:

1. https://www.oppfi.com/wp-content/uploads/OppFi-2020-Social-Impact-Report.pdf
2. https://www.experian.com/blogs/ask-experian/what-is-the-average-credit-score-in-the-u-s/, accessed 7/2/2021
3. Elkins, Kathleen. “Here’s how much money Americans have in their savings accounts.” CNBC.com, Sept 13, 2017
4. Bureau of Labor Statistics U.S. Full and Part Time Workers; Friedman, Zack. “78 percent Of Workers Live Paycheck to Paycheck.” Forbes.com, January 11, 2019
5. https://www.oppfi.com/media/credit-access-whitepaper.pdf