Why CommonBond's CEO Says Fintech Charter Could Be a Game Changer
March 19, 2017
For the founder of an online lending startup, David Klein, CEO of CommonBond, talks like a sage.
The bearded entrepreneur notes approvingly that the conversations in his industry are becoming “more grounded and mature, rather than all about going to chase the shiny object,” and that company valuations are “catching up to reality.”
Since co-founding the student loan refinance company in 2011, the 36-year-old Klein has emerged as one of the online lending industry’s more vocal players. He†occasionally blogs, hosts meetups at the company’s headquarters in Manhattan and speaks frequently on the ever-expanding fintech conference circuit.
I caught up with Klein over kale juice — he says it makes nights where he slept five hours feel like he slept seven — at his SoHo office on Friday. He shared his thoughts on the fintech charter in development by the Office of the Comptroller of the Currency, the maturation of the online lending space, the difficulties of valuing a fintech company and the expansion of CommonBond’s business. The following is an edited transcript of that 30-minute conversation.
What’s new at CommonBond?†
DAVID KLEIN: One of the things we are most excited about is what we call the 401(k) for student loans. This is†SaaS-based technology that enables employers to contribute to their employees’ student loan repayment every month. A lot of companies are clamoring for this. There is a war for talent and the top talent tends to hold student loans. They are thinking about their student loans more than they are thinking about retirement. Companies are looking for ways to captivate their employee base or potential employee base.
It is very early days,†so only about 4% of companies†have a student-loan-related benefit. That number is expected to be over 20% in two years.
There is bipartisan legislation in Congress right now that would provide tax benefit to the employer and employees for these payments, much akin to tuition reimbursement. To the extent that tax reform is passed this year or early next, folks say this is poised to be part of that package.
Finally, there are stats that the workforce is now over a third millennials. Over 70% of millennials have student loan debt. Over 50% are thinking about student loans are thinking about them more than retirement and†about 80% of them would choose a company†to work for if they had this benefit.
What sent you down this path? The hunt for scale?†
In 2015, our own employees started talking about this. It made sense to us because we are a student loan company to contribute to their student loans every month. We offer $100 a month to any employee of CommonBond as long as they have student debt and are employed. PwC and maybe one other company had announced such benefits at that point.
At the same time, we started our corporate partnerships team. The goal was to get companies to tell their employees about our student loan refinancing platform because our borrowers save on average about $24,000 over the life of their loan. So, we are going to all these companies and they started asking us to figure out how they could contribute.†
So we turned it into a product and now it is a major part of our business.
The demand was there, but the scale you could gain had to be attractive, too.†
Absolutely. It represents an interesting distribution channel.
In some of your talks over the last year or so, you’ve hypothesized that the number of marketplace lenders would soon shrink. Has it happened the way you thought it would? Have many hung on longer than you thought?†
We believe — we have believed — that the wheat will separate from the chaff. For online lending, 2016 was a year where the strong got stronger and the weak got weaker. There were a few shops that closed up and there were some players that became better known and entered 2017 stronger than ever. I think that continues in 2017 and 2018, regardless of geopolitical or macroeconomic picture, because if you study the emergence of industry, that’s what tends to happen. There is a burst of energy in a short period of time. Then there is a journey of a group of companies that have to mature. On the other side of that, you have an industry that is maturing or is matured where capital and talent and customers concentrate.
The macroeconomic picture is also very different in 2017 than what it was in 2016. Heading into last year, the credit markets dried up a little bit and the industry hit some turbulence. In 2017, the macro environment is quite strong. You’ve seen some folks raise some capital on the equity and debt sides.