The Case for A16Z, CMFG, Curql and Credit Unions
I moved to San Francisco in 2011. The starter package for international students strongly recommended: 'open a Stanford Federal Credit Union account, they'll even give you a credit card.'
At Business School, I met Chris Coleman, the resident car enthusiast in our class. Chris stood out because he put all his savings into a wrecked DeLorean, which he rebuilt with his dad at age 16.
None of the above seemed even remotely connected until - eight years after graduating - Chris and I started Clutch: on a mission to put the $37 Billion Americans are overpaying for their car loans back into the consumers' pockets, we turn Credit Unions into FinTechs.
Auto loan rates are all over the map because people don't shop for loans, they shop for cars. Even if a Credit Union pre-approves a Member for a car loan, dealers will flip consumers into loans with higher rates. In fact, more and more consumer debt is originated at the point of sale and at higher rates.
Our goal is to reverse this trend. We are on a mission to help 130 Million Americans save billions on their monthly interest charges across all types of consumer loans.
Thanks for Being a Loyal Member
Chris and I sold our previous business to Carvana.com in 2017. When reconnecting with Credit Unions in 2020, we learned that the average Credit Union Member has most of his/her debt elsewhere:
At first, we found this observation puzzling! Tax-exempt, non-profit Credit Unions have the lowest rates. Why do loyal Members have 78% of their auto debt and 88% of their unsecured loans elsewhere at higher rates?
Diving deeper, we discovered that more and more loan volume is originated at the point of sale and direct-to-consumer FinTech lenders are fighting tooth and nail for borrowers. Since commerce has majorly shifted online, Credit Unions are faced with more challenges to offer competitive solutions. And, although Credit Union have the best lending products, direct-to-consumer FinTech lenders currently have a leg up due to their technology.
If Credit Unions successfully recaptured all of the over-priced debt Members have elsewhere, we would see north of $500 Billion in balance sheet move from banks and speciality finance companies to the non-profit. Auto loan share of wallet could be as high as 66% and unsecured share of wallet as high as 41%:
The best part: when recapturing debt borrowers have elsewhere, Credit Unions can reduce new origination risk and end up funding higher-performing and therefore more profitable loans.
Moreover, more of the loans will be auto-approved, which allows us to support our Credit Union clients with a truly end-to-end digital application process:
We regularly see applicants apply for several loans online and sign the loan documents within less than 4 minutes and without any loan officer involvement. The technological renaissance for Credit Unions has begun.
Auto loans, unsecured debt and transfer balance cards are the Credit Union's bread and butter. However, the biggest opportunity ahead of us is to grow the market through tapping into incremental demand via technology and through widening the offering.
Credit Unions have yet to leverage technology-driven demand platforms to acquire new Members much like direct-to-consumer FinTech lenders. Moreover, Credit Unions have yet to monetize demand for credit outside of their buy-box.
As we speak, some of our clients are turning down millions of dollars in loan applications that other clients would happily lend to. We haven't even scratched the surface!
Investment from A16Z, CMFG and Curql
Credit Unions are a highly self-referencing group of institutions, who share similar challenges. Chris and I never ran a Credit Union and are grateful that we could lean on our early clients to educate us and our product.
True to Clutch's core values, "we're here to build a monument", "collectively we thrive" and "responsiveness trumps everything", Chris and I are committed to helping Credit Unions dominate consumer lending
In less than 12 months after launching our SaaS offering, Clutch processes $1.8 Billion in loan applications across several loan categories:
Highly converting, digital experiences are becoming table stakes. As a result of aggregating unstructured data and automating manual processes, 81% of loans originated through us book, up from previously 46%. In a tight labor market, it is paramount to find efficiency gains. We reduce the time to fund a secured loan from 7 to 1.5 days.
Software is eating the world and ten years after my first encounter with Stanford Federal, I feel honored to be working with Credit Unions to embrace technology. None of what we do would be possible without the support we are receiving from our investors Andreessen Horowitz (Anish Acharya), CMFG Ventures (Sam Das) and Curql Collective (Nick Evens).
Collectively We Thrive
We consider our Credit Union clients part of our team. Our goal is to build long-lasting, trust-based relationships and feel honored to be serving the movement as a Credit Union Service Organization:
Thank you to all of our Credit Union clients for your vote of confidence and for trusting us. It means the world to us!
We have a lot do, let's get back to work.
Nicholas (Nicky) Hinrichsen
CEO & Co-Founder, proud to be serving the Credit Union movement.
PS: we couldn't do any of this without the tireless support from our 55 angels including Andy Rachleff, Gokul Rajaram, Manik Gupta, Rahul Vohra, Lenny Rachitsky, Sriram Krishnan, Brian Reed, Danny Shader, Parker Treacy, Aadik Shekar, Florian Hagenbuch, Mate Pencz, Andres Andrade, Fernando Gadotti, Marcos Salama, Jake Miller, Peter Livingston, Jim Ellis and Kevin Taweel.