One of the early players in the fintech lending space is Best Egg, formerly known as Marlette Funding. At one stage they were the fastest-growing lender in the country. While their growth has slowed down they continue to be one of the largest online lenders by originations.
My next guest of the Fintech One-on-One podcast is Paul Ricci, the new CEO of Best Egg. He recently took over from the founding CEO, Jeffrey Meiler (see my interview with Jeffrey from 2019). This is Paul’s very first interview since becoming CEO in June and we cover a lot of territory. He is no newcomer to the industry having been Best Egg’s CFO since the very beginning.
In this podcast you will learn:
- His role at Best Egg before he became CEO.
- How the transition to CEO has gone.
- A profile of their target customer.
- The competitive dynamics of the personal loan market today.
- How they have adjusted their underwriting given the changing environment.
- Why they launched a credit card and how it is going.
- How their innovative home equity loan product works.
- Why they decided to acquire Till and the new product that became part of Best Egg.
- Why they are not looking to get their own banking license.
- How they know their products are having an impact on their customers’ financial health.
- The scale that Best Egg is at today.
- How fintech lending is doing as an industry.
Connect with Paul on LinkedIn
Connect with Best Egg on LinkedIn
Connect with Fintech One-on-One:
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- Find previous Fintech One-on-One episodes
Read the transcript of our conversation below.
Fintech One-on-One Episode 444: Paul Ricci of Best Egg
Peter Renton 0:01
Welcome to the Fintech One-on-One podcast. This is Peter Renton, Chairman and co-founder of Fintech Nexus. I’ve been doing this show since 2013, which makes this the longest running one-on-one interview show in all of fintech. Thank you for joining me on this journey. If you like this podcast, you should check out our sister shows The Fintech Blueprint with Lex Sokolin and Fintech Coffee Break with Isabelle Castro, or listen to everything we produce, by subscribing to the Fintech Nexus podcast channel.
Peter Renton 0:39
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Peter Renton 1:18
Today on the show, I am delighted to welcome Paul Ricci, he is the CEO of Best Egg, formerly known as Marlette Funding. Now Best Egg, one of the original, one of the early players in the fintech lending space. Been around for quite some time. And Paul has been with the company pretty much since the beginning. And he took over just last month from founding CEO Jeffrey Meiler. We’ve had Jeffrey on the show before. But this is Paul’s first interview since taking over as CEO. So wanted to really get him on talk about the transition to the CEO role, but really dig into what’s going on with Best Egg because they have got lots of innovative new products that we haven’t talked about on the show before. So I wanted to dig in to all of that. We talk about the bank partner model. We talk about the financial education and financial health. We talk about the fintech lending landscape overall, and much more. It was a fascinating discussion. Hope you enjoy the show.
Peter Renton 2:23
Welcome to the podcast, Paul.
Paul Ricci 2:25
Thank you, Peter. Happy to be here.
Peter Renton 2:27
Great to have you. So let’s kick it off by giving listeners a little bit of background about yourself. I know you’ve been in financial services for a while, but tell us some of the highlights of your career to date.
Paul Ricci 2:39
Prior to taking over the CEO role here at Best Egg. I served as our CFO and Chief Risk Officer. And I’ve been the CFO at Best Egg since its founding in late 2013. But for a couple year break that I took in the in 2018 and 2019, which we can talk about. But prior to that I’ve had the great fortune to be part of a few different startups and early stage companies, which has – it’s been a great experience for me, I really get a lot of energy and excitement around building businesses and building finance departments within businesses and having a hand in developing culture and strategy with companies at that stage.
Paul Ricci 2:41
So my first experience with that was back in 2000, towards the end of the dot-com bubble, I was part of a business, a startup business that was an online bank called Juniper Bank. And the company’s primary product was credit cards. Shortly after starting the business the dot-com bubble burst. And so we had a lot of great people that were trying to figure out both how to build a business as well as fund the business when the capital markets dried up at that time. So that was great experience. I remember saying to myself, I don’t know how long this is going to last. But however long it lasts, it’s the best experience that I could ask for at that point in my career. And that business was ultimately acquired by Barclays and became Barclays US card business, and is a very successful, profitable large card business at this point.
Paul Ricci 4:36
From there, one of the co-founders of Juniper, myself and a couple other colleagues from Barclays founded a company called Epic Research, which is a marketing consulting business taking the direct-to-consumer analytically driven marketing capabilities of a card business to other financial institutions and regional banks to help them acquire new customers. And that was great experience as well building that business but you know, I sort of found that I prefer being in an operating company versus a consulting company. So I moved from there to another startup that was – that was started by the other co-founder of Juniper, it was a retail energy business. So again, we were using these direct-to-consumer analytically driven marketing techniques to acquire customers and building long-term relationships and value with those customers. And that business was acquired by NRG Energy, myself, and I was there with our Best Egg’s, founding CEO Jeffrey Meiler, as well as a couple other folks who are here at Best Egg. So when Jeffrey left in 2013 to start Best Egg, I joined him here and again, I’ve enjoyed, enjoyed every moment of it so far.
Peter Renton 5:38
I’d love to touch on, you said you went away from Best Egg, and then you came back? What was the impetus to come back?
Paul Ricci 5:43
Yeah, so I did a little bit of a boomerang. Epic Research, the marketing consulting business that I mentioned, had grown and needed somebody to come in and just build out finance as well as marketing analytics and data science. So the marketing analytics and data science areas were obviously areas that I’ve worked with a lot in the past, but getting an opportunity to build those out from scratch was interesting and exciting to me. So I went back to Epic to do that. Had a lot of fun, I think I did a pretty good job building out those capabilities. But, you know, sometimes you have to relearn lessons that you learned before, which was I prefer to be in an operating company versus a consulting company, and had the good fortune for Jeffrey to approach me about coming back, and was excited to, excited to do that. But for the fact that he asked me in March of 2020. So the timing, there was a little odd. But anyway, very grateful to have the opportunity to come back.
Peter Renton 5:45
Right, right. Okay. And so and now you’re the CEO, you’ve been in the job just a few weeks. Tell us about your transition into the CEO role.
Paul Ricci 6:52
I’m excited to take the role. It’s a company that I’m…Best Egg’s something that I’m very passionate about – have spent a lot of time here. I’m grateful that the Board showed confidence in me, and then the management team chose to put me in this role versus looking externally, which they certainly could have done. But I think they, you know, they saw the strength of the management team, the fact that we had with Jeffery developed the strategy, the priorities, the culture that we wanted for the business. And all of those things are, are great and aligned both with management and with the board. And so they wanted to sort of continue that momentum and felt like I could do that. So, so yeah, because I’ve been part of it for so long and have had a role to play in developing strategy, priorities and culture, the transition has been, been pretty smooth. The management team is great. So I have great colleagues. The Board also appointed a new role, President role here, Bobby Ritterbeck, took that role. And he is in charge of the day-to-day business operations of the company. So I can focus on strategy, culture development, managing external parties and managing the Board, along with, you know, helping him manage the business, obviously. But that’s been very helpful as well to have a colleague like Bobby be able to assume that role, as well.
Peter Renton 8:16
Okay, so then maybe let’s take a step back before we go any further, and talk about Best Egg. How do you describe Best Egg today?
Paul Ricci 8:23
We’re a fintech, our target customer are people with limited savings. And our purpose is to help those people with limited savings, navigate their finances with confidence. At least when I think about confidence it’s really about the customer, knowing what to do, and having the tools to do it. So we’ve been very focused on that customer segment and designing and building products and services for them. We are in the process of a transformation. We started this business 10 years ago with an unsecured personal loan. And for the first eight years, seven years of our existence, that’s what we were. We were focused on that product and serving this consumer with that product.
Paul Ricci 9:06
Over the past two to three years, we’ve introduced a home secured flavor of the personal loan, an auto secured flavor of the personal loan, a credit card, a flexible rent payment product, and a suite of tools and knowledge base for financial health that we call Best Egg Financial Health. So it’s very exciting to see sort of that, you know, different parts of the business at different stages in their, you know, their lifecycle and what the unsecured personal loan business needs in terms of just innovating around the great business that we built versus what are effectively startups within this established company. It’s a pretty exciting time.
Peter Renton 9:46
So let’s just talk about personal loans first because that’s, that was, probably still is I imagine, your major product, it was your core product for your only product for many years, as you said so it’s becoming a mature product. Certainly many of the leading companies now have been in existence for 10 years or more. Can you talk about sort of the competitive dynamics of the personal loan market today? Has it become commoditized? How are you differentiating Best Egg from the others?
Paul Ricci 10:15
Some of the main dynamics of the industry first: When we started the business there were dozens, if not 100, businesses that were trying to break into the online marketplace lending space. That’s definitely consolidated. So you know, I think you would look across the industry and see that there are maybe a handful of companies that have achieved scale and are really doing the marketing the credit, the operations, either the investor management of this business well, and proud that we’re among them. I think you’ll also see the trend that almost without exception, I think each of us are trying to serve our customers with additional products. And so we have a relationship, how do we broaden that relationship with a customer through other products and other tools and services? I think that’s pretty common at this point across the industry.
Paul Ricci 11:17
So from a differentiation perspective, I think there’s there’s a few things. The first is, what customer are you designing for? And we’re not all serving, we are trying to design for the same customer. As I mentioned, our target customer are people with limited savings. And so as we’re thinking about the problems we’re trying to solve, we’re trying to understand their problems and design products for their problems. Now, these products may serve a broader group of people, but that’s who we’re focused on. That’s who we’re obsessing over when we’re designing products and solving solutions for them. And then I think just having the suite of products that we’ve developed is itself a differentiator, we have a different set of products than our, than the others in the personal loan space. So we’ll serve their needs in a different way. And again, our goal is to meet their credit needs across their lifecycle.
Peter Renton 12:11
Right, so let’s just talk about underwriting for a minute if we could, I’d love to kind of get your sense of how you’ve adjusted your underwriting, maybe adjusted the credit box even to adapt to the changing environment, we just we have higher interest rates than we’ve had, I just saw the Fed raised another quarter point. So that just happened just before we started recording here. How have you changed your underwriting, given the context of a very different economy than we had prepandemic?
Paul Ricci 12:44
Yeah, so if we take a longer run view of things, over time we’ve been trying to serve more customers and expand. So I think that’s, that’s been the trend. And that’s what we’re trying to do in the long term. To your point, over the past 18 months, we’ve been in an environment where inflation and higher interest rates have put pressure on consumers. And so through a combination of, you know, our we have, and I think this is true across the industry, very sophisticated credit models that do a good job of predicting loss outcomes. And, you know, our models have had to be calibrated to increase expected losses, given the environment that we’re in. And of course, we’ve had to increase pricing and interest rates to consumers, because we’re in a higher interest rate environment. So the combination of those two things has had a tightening effect, for sure.
Paul Ricci 13:41
But, again, I think it’s our job to try to do a great job at credit, and deliver great credit outcomes, but try to figure out ways to serve more customers over time. And so a good example of that is the auto secured product that I mentioned earlier. So that is a product that we launched over the past couple of months where consumers can use the equity that they have in their car as collateral against a personal loan. And because of that collateral, we’re able to expand who we can offer a personal loan to and provide them much better terms than they would otherwise be able to get in the market. So this is an example of how the new product innovation that we’re bringing to market will help us expand over time. And that’s particularly important, as you pointed out in the current environment where there’s just a lot of stress on the consumer.
Peter Renton 14:35
Right, right, for sure. So I want to talk about credit cards. I used to joke with Jeffrey that it was inevitable, it felt like to me, that you guys were going to launch a credit card because you had so many people from the Barclaycard days. So you had this management team full of experience of launching a credit card, managing a credit card, portfolio, all that sort of thing so, don’t have the exact timing, it was a couple of years ago that you launched the credit card, tell us a little about that product and how that has been going.
Paul Ricci 15:07
We launched card in Q2 of 2021. So we are right at the the two year anniversary of the launch of card. At this point we have a couple hundred thousand cards now that we’ve issued, and the portfolio’s at about $150 million. The first thing is, again, how’s this going to serve our customer? And for us I think that means, you know, how do we design a card, it’s not like people don’t have access to credit cards, obviously a product that is out there. So for us, the challenge is, you know, given where our customer is, how do we design a card that can grow with them, whether that’s improving rates over time, as they’re exhibiting positive behaviors from a credit management perspective, offering additional line over time as they’re exhibiting those behaviors.
Paul Ricci 15:55
So for us, it’s really around trying to connect the product with the, you know, the experience that our limited savings customer has, and their relationship with credit. Card is also a, you know, it’s one of the more complicated products that you could tackle. And so we’ve been focused on getting targeting segmentation, credit, operations, pricing, you know, what product to what segments within the customers that we’re serving, getting that right, and we’re at this point on sort of iteration two or three of each of those things, and really focused on those capabilities and scaling the business in a prudent way and make sure we get it right, given its complexity.
Peter Renton 16:36
Okay, so you mentioned your secured auto product, you also have a secured personal loan product tied to home equity, but it’s not really a home equity line of credit. So explain how that works. It’s quite an innovative product.
Paul Ricci 16:52
Yeah, so the collateral is actually fixtures in the home. So things like built in cabinets, shelves, bathroom vanities, light fixtures. We file a UCC to secure the collateral. And because it’s secured, we are able to offer a consumer, again, sort of more line, a better rate, really give them a better a better product, because of that collateral. And so we found that for certain customers that have a home and have that equity, that’s been a, an innovative and good product and provided us as a business, you know, lift from a conversion perspective. And we are excited to sort of serve that alongside the unsecured personal loan and make sure that we can deliver a better value prop to the consumer. Another example of us is trying to tailor our products to get the best outcome for consumers.
Peter Renton 16:52
How do you underwrite that? Because I mean, obviously, everyone knows how to underwrite a home equity product. What you’re doing is you’re looking at the value that’s inside the home, that’s often invisible to all the data sources that are out there. So how do you underwrite it?
Paul Ricci 18:05
Yeah, so a good point that you’re making is a traditional home equity loan takes a long time to close. It’s a long process. We’re still delivering this product along the timeframes of the unsecured personal loan, so people can get funded within two to three days, typically with this product. So really, it’s not necessarily about underwriting the fixtures themselves, it’s the same underwriting process that we would take with the unsecured personal loan, but through our observation of credit performance, we can see that the people who are opting for this product and willing to, you know, have a lien against the fixtures in their house and have to resolve that before they can sell the house, like those people, by virtue of them doing that are signaling that they have better credit performance. And so it’s really that observation of credit performance over time, that allows us to pass along those credit savings to the consumer.
Peter Renton 18:59
Right. And so obviously, if they don’t pay, you’re not going to go and take their take their kitchen cabinets and fridge away. The hook is they’re gonna have a lien on their house, right?
Paul Ricci 19:08
That’s exactly right.
Peter Renton 19:10
Right, gotcha, okay. I wanted to talk about this flexible rent product. You know I saw that, I think just earlier this year. What is it and how does it work?
Paul Ricci 19:20
It was a product of our first acquisition. So we acquired a company called Till in Q4 of last year, their product was this flexible rent product. So you know, many of the consumers within our limited savings target market are renters. And for many of them, one of the largest monthly expense is their rent. And of course, they typically have to pay that rent all at once on the first of the month. And that doesn’t necessarily line up with how their income is coming in. So they had this cashflow problem. So the concept of flexible rent is that we’ll pay the rent on the first of the month. And then the renter will pay us in installments over the course of the month.
Paul Ricci 19:20
So, you know, sort of think of it a little bit as buy now, pay later for, you know, for rent. You know, again, I think it’s a, when we saw the acquisition opportunity felt like it was a great product fit for what we were trying to do in terms of helping this target consumer. Flexibility is one of the other things that we view as a differentiator. And this fits squarely with that. And the team at Till was just a great team that fit well, from a cultural perspective. So it was an exciting acquisition for us for sure. The other interesting thing about this product is the way that we’re going to market is through partnerships with proptech companies. So we’re being, our solution is being embedded in the payment modules for partners like MRI, AppFolio, Zego. And we’re being presented as a payment option when consumers make their rent payments. So it’s, it’s also an embedded finance play for us, at least from a distribution perspective.
Peter Renton 21:10
Okay, interesting, interesting. I want to talk about banking licenses, because there’s obviously been a lot of the fintech lenders that started, you know, 10/15 years ago have gone on to obtain a banking license one way or another. Are you still happy with the partner bank model, and have you any plans to sort of move in the direction of some of your competitors?
Paul Ricci 21:33
We are happy with it, the bank partner model allows us and our bank partners to focus on our competencies, and together bring a better solution to consumers. And we’ve had a really great partnership across, we have multiple bank partners, but I will definitely give a shout out to Cross River Bank, who has just been a phenomenal partner for us over the past decade, and very innovative, you know, real solution-oriented in helping us and other businesses like us serve customers. I just think it’s hard to get the entire value chain right over time, and allowing us each to figure out the places where we can create the most value is, for us, at this point, the best operating model. I totally understand why others would look at, you know, sort of the regulatory complexity and challenges that have started to come up, as well as the, you know, funding environment and say – hey, having more control over that piece of the value chain makes sense. But again, for us for right now, this is a great model for us. And I think it delivers the best outcomes for customers.
Peter Renton 22:45
Okay, so I want to talk about financial health. And you mentioned briefly that there’s a, you know sort of a financial education component now. I’m curious about how you know that you’re having a positive impact on someone’s financial health because they could obviously take out a personal loan to pile on purchases on a credit card. And suddenly, they’re not in the same healthy position or as healthy position as they were before. So how do you know you’re having an impact?
Paul Ricci 23:17
Yeah, so we continue to add features to the financial health platform. We started off focusing on credit health, which again, all of everything we do is informed by interactions with customers and asking them what is important to them and what they need. So the first place to focus was on credit health. It goes beyond the score, although the score is the central feature there, but really helping them understand what’s impacting their score. How do they improve their score over time. We added to that budgeting capabilities, so they can connect to their different accounts and see their entire financial picture, developed budgets, we just introduced a debt manager feature which will help people see the entire picture of all of their debt, and help them build scenarios to pay that debt down over time and minimize interest, interest costs for them. So and then there’s a whole bunch of, a knowledge base and articles that we continue to serve up to help consumers. So in terms of how we know it’s helping folks. One, is by listening, as I said, you know, we’ve got a community of users that we’re asking how these features are helping them or what features they would like us to add. Next, we’re also measuring, how does this, how are people engaging with these products? And how is it improving engagement across an entire ecosystem, and setting goals and targets for that platform in terms of driving increased engagement over time with our customers.
Peter Renton 24:47
So are you using this as a lead gen tool primarily, or is this a tool for your existing customer base?
Paul Ricci 24:53
At this point, it’s for existing customers. So it really is about driving engagement, having a discussion and a conversation with consumers that goes beyond the credit relationship that we have with them. I think there’s the potential for it over time to be a lead gen platform, but the focus is getting engagement right at this point.
Peter Renton 25:14
Okay, before we close a couple more questions here, can you give us a sense of the scale you guys are at today?
Paul Ricci 25:21
We’ve accelerated quite a bit over the past three years or so. So we’re at $26 billion of unsecured personal loans originated over the history of the business a little shy of 2 million accounts over that time. The portfolio across both the personal loan products and the card product is about $10 billion at this point. Last year, we had a record year. So we did $7.5 billion of personal loan originations 1.3 million new accounts, over $500 million of revenue. So we’ve really had exciting growth over the past couple of years, you know, this year is a different environment, but we’re continuing to bring new products to market and focus on both growth and profitability for the business.
Peter Renton 26:07
Okay, so in closing, I want to talk about the, I’d love to get your perspective on the fintech lending landscape and many other companies are mature now, it’s been around for a long time. How do you think we’re doing? I mean, you’ve been around this space now for a long time as well. How do you think we’re doing as an industry? Do you think we’ve reached our potential, have we just scratched the surface? How, what’s your sense?
Paul Ricci 26:30
I think the best measure of this is seeing consumer adoption. So you look back over the past 10 years, and you know, from a product that wasn’t being served particularly well by the incumbent banks, to the growth that the industry has had over the past decade plus, I think the proof is how the consumers are taking this product and using this product and using this product to help them get better outcomes in terms of managing their credit. The industry continues to have growth, so I think those proof points are still there. But to your point, I think the principles that the industry has built itself on in terms of reducing friction, making the process easier, using data to have a more customized and tailored product experience for the customer. Those principles can be applied to other financial products. And so I mentioned all the products that we’re bringing to market, those same principles will enable us to grow those products and serve customers more comprehensively across their financial services relationships. And I think you see our competitors in the space bringing other products to their consumers based on what fits for the target consumer that they’re going after. So the things that we do well as an industry apply to a bunch of different financial products. And I’m excited to see where the industry goes. And I’m excited about where we’re going as well.
Peter Renton 28:03
All right, well, good place to leave it there. Thank you very much, Paul, really appreciate you coming on the show today and best of luck to you.
Paul Ricci 28:10
Thanks, Peter.
Peter Renton 28:12
Well, I hope you enjoyed the show. Thank you so much for listening. Please go ahead and give the show a review on the podcast platform of your choice and go tell your friends and colleagues about it. Anyway, on that note, I will sign off I very much appreciate you listening, and I’ll catch you next time. Bye.
