Zebit: the Lender That Doesn’t Make Money From Fees Interest and Penalties

  • 22 November 2017
  • Disruptor Daily

This post is part of our Future of Finance series where we interview the leading founders and executives on the front lines of their industry to get a better understanding of what problems the industry is facing, what trends are taking place, and what the future looks like.

The following is an interview we recently had with Michael Thiemann, Zebit Co-founder & Executive Chairman.

What’s the history of Zebit? Where and how did you begin?

Zebit began in 2010 when Marc Schneider, former COO of Zulily, and I, CEO of Global Analytics Holdings (“GAH”), formed new business unit named Zebit. We wanted to introduce a consumer-friendly version of the lending products that we had launched in the UK to the US market. The goals were simple—enable anyone in need with access to credit without the predatory high interest and cycle-of-debt features typical in products at that time. Marc investigated a number of different product/market instantiations, nearly all of them successful as pilots. However, none exhibited the right combination of unique features, low cost, and consumer-friendliness—until the current Zebit. We were so excited about finally “cracking the code” that in June 2015 we spun the unit out as an independent Zebit, Inc.

What specific problem does Zebit solve? Who are you solving it for? 

Zebit relieves consumers from the predatory practices of typical online/offline cash loans. The Zebit team had discovered, through market research, that 80% of cash loans were originated to enable a needed or highly-desired product purchase. The light-bulb moment came when we realized that the cash loan could be disintermediated and Zebit, as the merchant, could provide the product directly. Buyers could pay over time without fees, interest, or penalties. All profit would be made on the retail margin—the difference between the wholesale cost paid by Zebit and the retail price paid by the consumer. Zebit’s eCommerce value proposition would be “Buy now, pay over time, 0% always.” Since other merchants compete using discounts and promotions,  Zebit’s positioning is unique.

With nearly 150,000 members today, Zebit appeals to a broad range of consumers. The “no credit check” aspect of Zebit attracts individuals with limited or damaged credit histories. But the no-cost financing is attractive well into the prime segment. Even consumers who use credit cards and pay their statements in-full each month can make larger purchases and spread the payments over time, interest-free. Zebit’s explosive growth only 1-year after launch proves the value.

How is Zebit different from other lending companies? 

Lenders make money from fees, interest, and penalties. Zebit does not. Although Zebit is a credit provider subject to state and federal regulations, Zebit is not a cash lender. Zebit is a merchant that provides store credit to shop in a members-only online marketplace. Zebit eliminates the cash loan element present in nearly every other form of purchase finance.

What's broken in the lending industry? 

In small-dollar lending—everything! The combination of cash-lending regulation, risky credit cohorts, and fixed operating costs creates an intractable dilemma. In order to maintain a profitable business model, small-dollar cash lenders must charge predatory rates to those consumers that need them most—individuals who lack access to more traditional credit facilities. And if an individual consumer can access traditional credit cards, they are likely to revolve the balance and expose themselves to ever-growing interest and late fees. Zebit solves this problem by providing what the consumer really wants—the product—without charging one penny more that the product amount. Zebit members can never pay more than the checkout total.

What technology trends are you seeing in the industry?

  1. More product options. In addition to Zebit there are other fintech solutions that offer closed-end financing, product-specific financing, and products for the “credit invisible” population. This trend will only grow as banks continue to lose market share to more nimble competitors with access to the latest technology.
  2. The use of non-traditional data sources for underwriting. Zebit uses employment data, payment data, and Level-3 browsing/purchase data—but never pulls a credit report. Other fintech providers are also looking for unique ways to underwrite segmented populations.
  3. Machine learning. The technology trend is to create a limited number of machine-learning data science drivers rather than to build and maintain a growing stable of individual models for credit, marketing, and optimization for each target cohort.

What's the future of lending?

The future of lending is bright indeed! Technology is driving a number of product/market trends that offer options to traditional banking relationships.

  1. Non-predatory solutions for small-dollar lending needs. Companies like Zebit, PayActiv, and PayJoy illustrate this trend.
  2. Non-bank credit card solutions that appeal to a broad range of consumers—companies like Current, Deserve, and Zero.
  3. Term-loan options for managing larger credit needs—companies like Avant, Kabbage, and SoFi.
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