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GoldBooks is accounting software used by Small and Medium Businesses (SMBs) around the globe. It is offered as a Software as a Service (SaaS) offering with an ARPC of $1K and is used by 15 million subscribers. Beyond the core accounting software, SMBs also have the option to buy other services for their additional business needs – including Payroll, which lets SMBs run payroll for their employees, Payments for money movement services, and Lending to provide access to capital. With access to its customers’ connected bank data and credit bureau data, Goldbooks can predict risk better than other fintech and banks offering lending products to SMBs and can offer better-priced lending products to its customers.
Of the 15 million GoldBooks subscribers, lending products are available to about 40% of subscribers (called the Eligible base), who are targeted mainly via emails and within the GoldBooks product experiences. There are three different lending offerings: the most mature is GoldBooks Loans, a term loan product launched 9 years ago and currently originating at a monthly run-rate of over $300M. This offering comes with terms of 12, 24 and 36 months (average term of 20 months), risk-adjusted pricing ranging from 18% to 40% (average APR 26% with the rate fixed at the time of origination), loan sizes up to $500K (average loan size $80K). Growth has accelerated in the last 2 years, driven by an increased Eligible base, improved in-product targeting, and testing of pre-approval campaigns. The penetration of the total customer base is still very low, repeat usage is under 10%, and the loss rates are about 8%.
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Another lending offering is Get Paid Fast, an invoice financing product launched less than a year ago. The product has initially shown strong promise but needs to be tested and scaled completely. The third product is a lending marketplace in which GoldBooks customers looking for a loan are connected to the lending partners on the marketplace. The partners originate loans, and GoldBooks is paid 4% referral fees. The marketplace run-rate of loans is about $15M per month, but there haven’t been many investments and not much improvement and growth in the offering in the last couple of years.
On the Capital markets front, loans are funded via two warehouse facilities plus the cash infusion via equity. Only profitable loans can be pledged to warehouse facilities for funding. Currently, there is a material %mix of loans originating from newer products or from newer segments, and these originations are still to be proven for profitability. The cost of funding from warehouse facilities is at a floating rate.
You need to partner with the GM of the lending business, helping her to build a multi-year strategy and operational plan for the business. Please put your thoughts together in a 5-8 slide presentation working through the following:
- Beyond the data provided above, make any suitable assumptions on product/customer/external markets to present the current state of the business, summarizing acquisition funnel metrics, portfolio health, and the P&L. We are not looking for too many details on the slides. However, we still would like to see the assumptions you are making and also would like to understand your approach. Please also have a backup of your work/analysis handy.
- The GM’s goal is to make lending a material part of the overall company top-line in the next 3 years. Help define multi-year targets for this business, along with ideas on how to accelerate growth across different.
- Given the changing macro environment where interest rates have been continually increasing and delinquencies also going up, how should we think about pricing changes along with building resiliency in the portfolio and protecting margin erosions? Please also add details on the following:
- What different teams would you partner with?
- What tests would you recommend? What are the key metrics to track?
- How do you plan to enable decision-making?
Build recommendations for the future of capital markets. How do you maximize returns/ROE for the capital deployed over multiple years and minimize exposure on the Balance Sheet?
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