Voiceover:

Welcome to the Experts Only Podcast, sponsored by CleanCapital, where we explore the intersection of energy, innovation, and finance. Our host is CleanCapital’s co-founder and former federal chief sustainability officer, Jon Powers. Learn how CleanCapital is revolutionizing, clean energy finance, and find more episodes at cleancapital.com, iTunes, or wherever you get your podcasts. If you like what you hear, be sure to subscribe, and leave us a five-star review.

Thom Byrne:

Welcome to this week’s episode of CleanCapital’s Expert Only Podcast. I’m Thom Byrne, co-founder of CleanCapital guest hosting this week. In this episode, we’re thrilled to bring Ron Suber, a true legend in fintech and a pioneer as the President Emeritus of Prosper Marketplace. We go into deep detail about the history of fintech marketplace lending and how technology is transforming finance as well as discuss Ron’s travels around the world and some of the lessons he’s learned from the growth of fintech globally. Ron Suber, welcome to Experts Only.

Ron Suber:

Good morning. Great to hear from you. I’m back from a 30-day trip around the world, talking about the golden era in fintech and entrepreneurship and happy to share some of the lessons and observations from those travels with the group today.

Thom Byrne:

Your travels, as you mentioned, you’ve had some long travels in the fintech space alone, but in those last 30 days, you’ve been all over the world. Interested to get a sense of what you learned about fintech, but not just fintech, about the rest of the world on your travels.

Ron Suber:

What’s amazing, no matter where I go, whether it’s middle east or Europe, Latin America, North America, Asia, Australia, is that there is this collision of the banking industry, the equivalent of Silicon Valley, the equivalent of incumbents, incumbent tech, incumbent insurance, incumbent telecom companies, all trying to figure out this next generation, the Gen X, Gen Y, Gen Z, and what we call the “I Generation,” who’ve always had an iPhone and access to the internet. They’re trying to figure out, not just in lending for consumer loans, or student loans, or mortgages, or business loans, but for everything. This next generation doesn’t do anything the way we did it. They don’t listen to music, they don’t watch movies, they don’t travel, they don’t move their money, save their money. In fact, they have no cash in their wallets. That’s the opportunity. In particular, we see in Southeast Asia, in Singapore, in Hong Kong, in Shanghai, and throughout Australia a very robust desire among the investors, the asset managers, the superannuation funds, and the traditional hedge fund community trying to find ways to invest in fintech companies.

Thom Byrne:

It brings up, it invites the term “leapfrog.” I mean, you often hear many different places are leapfrogging in one way or the other, either they’re leaping past the landline and straight to an iPhone, or they’re in clean energy, which is what CleanCapital does, they’re leapfrogging from utility power to distributed power in Africa, right? They’re just bypassing it altogether. I wonder if those are some of the trends that you’re seeing as you’ve been traveling?

Ron Suber:

Absolutely. We see lots of leapfrogging happening in fintech and in this new opportunity. What we saw early on let’s call it in the late 1990s, was E*TRADE and Eloan and then PayPal bring trading and mortgages and the movements of money in a different way. It was actually very different. It wasn’t just improving on an old way, it was something brand new. Then you saw LendingClub and Prosper in 2006 do online lending in a different way. These companies brought people to the internet to borrow and lend and move money, kind of like AOL and eBay brought people to the internet in the early days to buy and sell and share, and so we see lots of leapfrogging. Now, you see new companies like Klarna and Affirm and other companies and I will throw CleanCapital in there as well of doing things in a very different way with very big opportunities in the years ahead. It’s very exciting. I said before what resonates the most is depending on where you sit in this world, it’s either the most exciting time or the scariest time of your life.

Thom Byrne:

Where do you sit? Is it the most terrifying or is it the best opportunity right now?

Ron Suber:

For me, I’ve never been more excited to meet young entrepreneurs like yourselves and others who are set up for the golden era the next 10 years where the winners, the true winners will be established, and we’ll look back 10 years from now and wonder how we did energy the old way, and how we did so many other things the old way.

Thom Byrne:

Yeah, things like this only seem obvious in hindsight, right?

Ron Suber:

Absolutely. There’s so much clarity in hindsight. We could talk about why we all, didn’t put a little money in Ripple and Abra and Ether and Bitcoin just a year or two ago. Those people who had conviction and left their money in and didn’t sell or did invest and close their eyes and held their nose look brilliant today with great hindsight.

Thom Byrne:

You’ve personally invested in a number of startups, so I wonder what it takes to have the stomach for that in the early stages of an investment.

Ron Suber:

For me, the due diligence starts with the people. Do they have a combination of IQ, EQ, AQ? That’s intelligence, emotional, and adversity quotient. Are they very smart? Do they learn quickly? Do they have a big processor in their brain? EQ is that ability to understand and hear and smell and feel nonverbal communication, what’s happening and tie it all together. As important, if not more important is a big dose, a big splash of AQ, which is adversity quotient, which is resilience and fire and a little paranoia. It was written up beautifully in a book called Supernormal that was just profiled and highlighted in The Wall Street Journal and on the 10 Best Books to Read by Bloomberg in 2017.

Ron Suber:

I look at IQ, EQ, AQ, and then the total addressable market. Is this a big business? Is this a billion-dollar opportunity? Can the team execute? Is this a group that can take it all the way and pivot along the way? That’s what a lot of entrepreneurs need to understand. Their first idea will change, their business will pivot, and many entrepreneurs miss the pivot, missed the turn, the curve, or the change, and so I like to be involved in advising companies to help them execute, scale, stay focused, not get into the shiny objects that derail lots of companies, and guide them through the pivot. It’s very challenging, but a fascinating process.

Thom Byrne:

If you look back at when LendingClub and Prosper were in their early stages, each of them have had many ups and downs and many pivots along the way, I’m interested to remind ourselves what the original concept was in the early days of those marketplace lending leaders.

Ron Suber:

Yeah, that’s a great question. In the early days, these were apps inside Facebook. These were places where borrowers came and put their picture on the internet and wrote a story about their car and their dog and their religion and their life to try to ask people for money and the investors were peer-to-peer, so it was all people, and the people could negotiate against each other as investors on the rate and talk offline and talk to the borrowers offline. It was a very efficient peer-to-peer marketplace.

Thom Byrne:

Yeah, how does whether somebody owns a dog indicative of their willingness to repay a loan?

Ron Suber:

That’s a great question. If there was a typo, or if someone talked about their Subaru, or if someone was a particular religion, people built credit models around these things. For example, perhaps if you owned a Subaru, you would default less than others.

Thom Byrne:

That’s fascinating.

Ron Suber:

If you had no misspellings, you defaulted less than the people who had a misspelling, and so these were, I’ll call it “the early adopter credit models.”

Ron Suber:

To your question, the pivot started in 2013 where we took off the words, we built really good, efficient pricing, credit risk, and underwriting models, and we institutionalized the business and we brought institutional money, securitization, and other things to the industry to help it establish and get to escape velocity where it really could go from 10 million a month in loans to 400 million a month, where it was ubiquitous, it was everywhere, and it benefits so many borrowers and so many retail and institutional investors, but that was a tough pivot because some companies really resisted to securitization, or really just wanted to be peer-to-peer. Those who missed the pivot don’t exist and didn’t thrive in this last couple years.

Thom Byrne:

For the listeners who may not be on this podcast who may not be experts in peer-to-peer lending, perhaps just 30 seconds on what a Prosper loan looks like and how it ultimately flows up, like you’re saying, into the capital markets or the institutional investor base.

Ron Suber:

Absolutely. Think about Uber. It’s a passenger and a driver who can now meet each other in a new way with a great experience online where everybody’s happy. That’s what Prosper is. It’s an online marketplace for personal credit, where a borrower and a lender can meet instead of using an incumbent bank or a credit card or some other lender, so borrowers with average FICO scores of 715 who can tell their story, where Prosper can validate and verify their identity, income employment, are finding investors who will lend money to people to pay off their credit card, or do a large purchase like home improvement or medical expenses or jewelry or vacations. The winners are the borrowers and they tell their story at My Prosper Story on Facebook. The winners are the investors who now have a place to put their money, get their money back, and get a return on their money.

Thom Byrne:

Previously, this sort of consumer loan was either your local bank or a credit card and the terms tended to be, especially in the instance of the credit card more onerous than what Prosper’s offering, so that’s why they’re effectively getting access to more institutional capital and terms through Prosper. Is that accurate?

Ron Suber:

That’s right. I think that credit cards are a great tool, right, a great device to buy something, but truly a terrible place to borrow money. The average rate is 19%, but you see many rates in the high 20s once you include fees. Then there’s this death spiral with a credit card, how do you get out of debt? These online lenders have, in many cases, helped people A, get out of that credit card death spiral, high-rate loan, into a loan where they can pay it off, can improve their FICO score, and really improve their life and save money along the way. It’s been a benefit to many, many borrowers, and Prosper’s passed the $10 billion mark in loans to people and the stories are terrific to hear how Prosper has helped so many borrowers.

Thom Byrne:

The model, though, while it started in consumer lending and consumer borrowing, has expanded the core concept of utilizing a technology platform to deliver capital to assets that you guys pioneered at Prosper, LendingClub, and a few others, has expanded to real estate, small businesses with CleanCapital, clean energy. Did you expect this when you were first getting involved? What are your thoughts on it?

Ron Suber:

I think in every category, you will see online lending take out those inefficient high-rate middlemen and women. Look at real estate, for example. In the fix-and-flip industry, if you wanted to improve a house, there was a person at your church, or synagogue, or country club, or at the courthouse steps who would lend you money at 25% to do a fix-and-flip real estate. That’s all gone now, so you can now go online. There’s 10 companies in America like LendingHome and PeerStreet and Patch Lend and Lending One and others who help people who want to do a fix-and-flip borrow money for a year for less than those other people. You also see it in commercial real estate with Money 360. You see it in student loans and mortgages and business loans. I think that’s right, what you’re doing at CleanCapital is the same. You’re now financing in a more efficient, more online, better experience, things that were done poorly in the past. That’s what’s so exciting to me and the opportunity as big as it’s ever been.

Thom Byrne:

Absolutely. What would you say are the principles that embody fintech or marketplace lending that is driving into all these other verticals?

Ron Suber:

I think it starts with something we call “E, A, and U,” which is education, awareness, and understanding. We have to make sure that both sides of the marketplace, the product, the borrower, and the capital knows of each other. We have to establish trust and transparency. Without trust and transparency, we won’t have people come to us and give us the information we need to do our jobs to find them the credit and the deals that they’re looking for. I think we need to have innovation and agility as markets change, as interest rates change and political climates and business, we need to be agile as online marketplaces and technology companies. I think as long as we do the right thing, obey the laws, have trust and transparency, get the word out, we’ll see people come to us looking to invest and people bringing us clean energy projects and the request to borrow money even more than we have in the past.

Thom Byrne:

Fintech encompasses much more than just marketplace lending or online investing, now it includes wealth management payments, and a whole host of other things. Some of which I know you’re actively involved in. What inspires you? What excites you about this space right now?

Ron Suber:

Oh, absolutely. I am so inspired about financial inclusion and how fintech can help. There are one billion people on the planet today who have no identity. They have no social identity, no financial identity, no access to credit. These people are now getting a smartphone, a smart device, and some access to the internet. There are financial inclusion companies like Juvo, J-U-V-O dot com, that are helping these people working with the telecom incumbents so that these people can now have an identity, have 30 days of internet access, not 10, and can borrow minutes, borrow data, borrow money, and become part of the developed world. I think fintech is helping in financial inclusion in a big, big way.

Thom Byrne:

That’s great. Evolution that I’ve started to see more and more of is that the marketplace lending platforms, the online investing platforms are talking about terms like machine learning, artificial intelligence, blockchain. What is the current impact of these advances? Are you seeing it day-to-day at some of the platforms that you work with? How are they using it?

Ron Suber:

Well, the only other word you forgot to mention was big data. That’s always in there as well.

Thom Byrne:

Sure.

Ron Suber:

Absolutely, we don’t have mainframes, we don’t have green screens. We have this unbelievable amount of traditional data and other alternative data. What we’re able to do is take these very young people who are big data experts and these new machines we can spin up in the AWS cloud over a weekend and really learn from the habits and the tendencies and make better decisions, better decisions for credit, better decisions for new business, and new products, improvements to so much of what we do in the verification customer service, removing paper from the process, making it a better experience for the borrower.

Ron Suber:

That’s really what I think Uber and Airbnb, and some of these big companies like Square and PayPal, they’ve made it such a better experience. That’s our opportunity is to use dig data and machine learning and some of the Ethereum digital contract and blockchain to make what we do even better so that this next generation continues to use the services that we’re providing, whether it’s CleanCapital or traditional capital for consumer loans or student loans or business loans or mortgages. That’s our opportunity is to continue to be agile and to continue to innovate using all of those things you mentioned.

Thom Byrne:

How have you seen institutions, incumbent institutions, pension funds, big banks respond to terms like machine learning, artificial intelligence, blockchain? I would think there’s a little bit of anxiety when they hear terms like that? Do you see that anxiety or has it become so normalized that’s an expectation of a capital provider?

Ron Suber:

Let me start with, I work with many, many of the big banks around the country, around the world. I recently just met with the CEO of a top-three US bank recently and his leadership team telling the truth, talking about, yes, they have more data than anybody, they have the consumers, they have a low cost of capital, they have more lawyers than all of us, but what they’re missing is our ability and our speed to innovate and be agile, and so these banks have worrying divisions amongst them, four or five different banks they’ve bought, different technology systems, different political issues within the bank, and they’re unable to, in many, many cases, do what we do in fintech as entrepreneurs. I believe we can help them. They know they need to do something.

Ron Suber:

I’ll just give you one quick example. Look at what Goldman Sachs has done in creating a new bank called Marcus and spending two years and 250 million and hiring 200 people to create a terrific online lending experience called Marcus for consumers. Then they went and bought Genesis, which is in the real estate online lending space, and so they have shown these big banks that these big banks better create these new divisions or partner or buy other fintech companies or they will be lost and left behind. There’s a bank consortium that created this money payment transfer system called Zelle, Z-E-L-L-E. It’s a failure. Nobody uses it. Nobody talks about it. It’s embedded in the website, in the app of the banks, but they missed it, and so they’re realizing that they really do need to work with and talk to some of the fintech companies and entrepreneurs to get this right. The banks have 10 years, call it five to 10 years to really get this right before this next generation bypasses the banks for what they’re going to do in their financial lives.

Thom Byrne:

Did you ever think when you were first getting involved with Prosper that the approach to lending would be embraced ultimately by the likes of Goldman Sachs basically trying to replicate the business model?

Ron Suber:

I’ll be honest, my last company, I had a business with my business partners there Steve backed by Sequoia. We sold that business to Wells Fargo, and we got to work inside a bank and see what one of the biggest banks are like. They’re powerful and amazing and all over the place, but there was something missing.

Ron Suber:

To answer your question, absolutely. When we, Aaron, Steve and I and Sequoia got involved with Prosper in January of ’13, we went right to BlackRock, right to Citigroup, right to the BDCs and the Wall Street community to get them involved because we knew to escape the peer-to-peer only and get to escape velocity where we could really grow, we were going to need some of the muscle of the big banks, the big asset managers in Wall Street. That helped us a lot as Prosper did securitize deals and other creative deals to bring this industry and this company to a leadership position.

Thom Byrne:

Where are we then? You have the incumbents getting into the space in droves. I don’t think we’re at the beginning of fintech anymore. That was 2007 to probably 2012. Where are we in the life cycle and where are we headed? Beginning, middle end? What’s next?

Ron Suber:

We are in the golden era of fintech. I gave 30 speeches in 2017 around the world about the golden era. There is a presentation we can link to the podcast where people can find on Twitter and LinkedIn. We’re in that middle 10 years. Every innovation cycle takes 50 years and we’re literally in the middle 10 years of the innovation cycle of financial services and financial technology. It is this next 10 years where we’ll find out, did Amazon win? Did Alibaba win? Did a bank win? Did PayPal, Square, or others win? We’re not quite sure. The key to winning in the golden era is truly understanding where you are and where you sit ’cause if you don’t know where you are, you’ll never get there. I think that’s the realization. Think about the pressure in the boardrooms of the leading brokerage companies, the leading banks, and some of the incumbent insurance companies and telecom companies, the pressure is on them to figure this out. To me, that’s encouraging as they come to us looking for ways to partner and understand the golden era that we’re in.

Thom Byrne:

When we first met, I recollect you saying you don’t play golf, and your kids are grown, so you’re obsessed with this space. You’re now President Emeritus at Prosper. I’m just curious what you’re going to be up to for the next couple years.

Ron Suber:

I just published a piece viewed by 30,000 people. It went live two weeks ago explaining Ron’s rewirement, not retirement. I listed the top 10 things I learned in the rewirement. Many people saw I am the chairman of a company that went public on the Australian Stock Exchange yesterday. I do have 20 private investments. I’m advising 10 of them officially and chairman of the board of this one public entity as of yesterday. I have a few more things that I’m leaning into. I’m really trying to give back and be a teacher and a mentor to these young entrepreneurs. As you know, entrepreneurship is very challenging and lonely at times. I’m trying to be that old guy in the industry that’s helping others and paying much of this forward.

Thom Byrne:

That’s great. Your contributions to date have been vast, both at CleanCapital and many others in the fintech space. The last question that as we wind down here, my co-founder, Jon Powers, often asks people on this podcast, given the wealth of experience, if you could sit down with yourself coming out of high school or college, what kind of advice would you give to your future self?

Ron Suber:

I would say more self-awareness. Understanding me better would have been beneficial if I’d gotten my arms around my strengths, my weaknesses, my insecurities, and my fears. Many people don’t know, but I chickened out of the Prosper deal two or three days before we were supposed to wire in the money.

Thom Byrne:

Wow.

Ron Suber:

I received an email from Sequoia and some encouragement from my partners and family to go for it, so the answer to the question is have more self-awareness and have less fear.

Thom Byrne:

Those are great words to end with. Ron Suber, we at CleanCapital appreciate your support of our venture, and I know the fintech community appreciates the support you’ve given to many, many ventures throughout this space. Thanks for taking some time with us today on the Experts Only Podcast.

Ron Suber:

It’s my pleasure. Thank you very much.

Thom Byrne:

Thank you, Ron Suber of Prosper, for joining the experts Only Podcast. I also want to thank Lauren Glickman and Emily Connor, our producers. Please visit cleancapital.com for more information on CleanCapital, and of course, go to iTunes and give the Experts Only Podcast a five-star review.