Online lending startup AvantCredit has raised $20 million for its big data technology that assesses loans.
AvantCredit’s platform uses machine learning to determine lending risk, rather than relying solely on a credit score. The platform takes inputs from dozens of data sources while the customer is filling out an application. It applies a range of algorithms to find a customer’s “true” credit worthiness and and can approve and fund a loan of up to $10,000 in near real-time. Cofounder John Sun said this immediacy is something not even banks offer.
“We’re improving the borrowing experience for millions of “near-prime” customers,” he said to VentureBeat. “We’re also able to offer more competitive rates than sub-prime lenders because we’re able to do a better job assessing a customer’s credit worthiness. The goal was to build a product that’s clear, transparent, and easy to use for customers while still doing as much as possible behind the scenes to make sure that customer gets the right product for their needs.”
Near-prime borrowers are people with below average credit scores. Sun said that ever since the recession in 2008, credit availability has become increasingly tight. AvantCredit’s technology searches for patterns in thousands of data attributes. It gets better at predicting customer riskiness as time goes on and generates customized interest rates. This opens up loan opportunities to a wider range of people. The startup has also automated the process so securing a loan doesn’t have to involve multiple trips to the bank and tons of paperwork.
Sun and cofounder Paul Zhang participated in Y Combinator for a startup called Debteye that automated credit counseling. It analyzed people’s financial situation and made recommendations to help get them out of debt. While building this startup, he saw an even greater opportunity in the “huge product-gap” for near-prime customers. Along with CEO Al Goldstein, Sun and Zhang started AvantCredit in 2012.
“We wanted, from the beginning, to really revolutionize the way that people borrow money, by looking at all the things we hated about how people borrowed money today and doing it better,” Sun said.
AvantCredit is one of many startups that has emerged to bring Internet technology to the world of finance. The financial crisis made many people skeptical of banks and interested in alternative sources for managing their money. Lending Club is the most notable example of this. The company is an online community that connects people who need to borrow money with people who are willing to lend it. It is on track to do $2 billion in loans this year.
Lending Club investor Charles Moldow, a partner at Foundation Capital, said the uses of technology in the financial industry are “limitless.”
“We’ve never seen a market opportunity of this size and magnitude,” he said. “In the financial services industry, we are seeing a shift toward the transparency of information. There is a massive restructuring taking place. This is disrupting the traditional banking model as we know it.”
Chicago-based AvantCredit launched in July 2013. Four months ago it raised $9 million of equity and $25 million of debt. This second round of $20 million was led by August Capital and Victory Park Capital. Sun said its biggest competition is Springleaf Financial and OneMainFinancial, as well as large financial institutions like Capital One.