GreenSky Credit Services Disrupting the Market

Being a disruptor in an elementary school classroom is likely to land you in detention. However, in the real world, business owners might just wear the disruptor label as a badge of honor. The term refers to businesses that take risks to change an industry. GreenSky’s credit and lending services certainly fit that definition.

CNBC listed GreenSky as one of their top 50 disruptor companies in 2017 because of its innovative approach to consumer lending and credit services. Already, the company has attracted plenty of attention for its quick lending, lower‐than‐average expenses, and high profits. GreenSky isn’t a lender, but it is more than a middle‐man. The GreenSky credit program takes what most people think they know about getting a loan and flips it on its head.

Justin Basini, co‐founder and CEO of ClearScore, told Marketing Week that “a disruptive brand goes in and sees a new proposition in the market that can either deliver distinctive value or do something that’s already being done, but do it so much better.”

There are dozens of online lenders that offer “quick” turnaround times, but GreenSky improved on the system by making it easier for responsible borrowers to finance expensive projects very quickly (as in seconds, not hours or days). Its “disruption” of the system is obviously working, with estimates putting the company’s value north of $4.5 billion.

Other companies on the 2017 list included Airbnb, Lyft, 23andMe, Uber, Pinterest, and SoFi. GreenSky ranked number 17 just below Survey Monkey and Ezetap.

The Magic Formula

GreenSky is unique from other online financial companies primarily because it’s not a lender, nor does it act as a host for lenders. Consumers who utilize GreenSky’s credit program have access to nearly instant lending decisions. Loans are issued at the site of the merchant after a quick application on the GreenSky mobile app, website, or by phone. GreenSky does not offer credit but acts as a middleman between lenders (who are already on board) and clients with a healthy credit score.

This formula has proven successful. In 2017, the completed $3.77 billion in transactions. Even more impressive, the company more than doubled the number of active merchant partnerships.

The company profits from setting up relationships between customers and lenders while minimizing its risk by keeping very few of the actual loans in its own books. Instead of profiting from interest rates (and risking defaulted loans), the company profits from two other areas: transaction fees and a recurring service fee. Also, GreenSky charges a servicing fee for the duration of a loan.

• GreenSky credit terms are simple:
• Customers have six months to spend their approved funds.
• They don’t have to spend all the money.
• Once the spending time has elapsed, the line of credit closes.
• Borrowers continue making payments until the balance is paid off.

Narrow Customer Base

Unlike other companies with a wide range of lending markets (like Lending Club), GreenSky focuses on very narrow markets. While this may seem counterintuitive in an industry where a bigger customer pool should equal more money, the company has narrowed its focus specifically to home improvement, retail/E‐commerce, and healthcare. By “disrupting” the industry by straying from a traditional format, the company targets customers who are more likely to get approved for loans and who are likely spending more money than the average borrower.

To further narrow its customer pool, GreenSky only offers credit to customers with super‐prime credit scores. By contrast, Lending Club’s consumers have an average credit score of 700, and Quicken Loans offers loans to borrowers with scores as low as 580.

Lenders appreciate the steady flow of reliable borrowers, and merchants and consumers appreciate the quick turnaround on financing. In a world where convenience is king, GreenSky offers a quick way to fill the needs of the consumer, merchant, and lender.

The CEO Knows His Business

GreenSky largely owes its success to co‐founder and CEO David Zalik. Zalik is the walking definition of the American dream. His family immigrated to the United States when he was four, and he started attending college at age 14. He started his own business while in college, dropped out of college, and then started two more successful businesses before launching GreenSky.

Zalik understands what’s important to consumers and lenders, and he’s found a way to corner the market. In a world of instant access, GreenSky uses the same convenience to fund medical procedures and home improvement projects for consumers who don’t want to spend time waiting for decisions when they could be moving forward with their plans.

GreenSky went public on May 24 with an opening price of $25 per share. At publication, it closed at $21.15 per share. It was one of 60 new IPOs this quarter, including Everquote, EVO Payments, Domo, and BrightView Holdings. Of the last 20 IPOs this quarter, GreenSky has the second highest opening offer price (just one dollar less than Avalara, which opened at $24).

To date, the company has served more than 1.7 million customers, funded more than $12 billion in loans, and attracted more than 12,000 merchants.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes