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Derisking the Online Lending Model

Thrive and banks

According to an article in Harvard Business Review, online lenders lent an estimated $10 billion in 2016 to small and medium businesses (SMB) as compared to $300 billion by U.S. banks. A report by Morgan Stanley predicts fintech lenders will garner almost 20% of the market by 2020. The major issue facing banks is the cost to process a loan is the same for a $100,000 note and an application for $1 million. Thus, banks have no incentive to focus on smaller loans. This led to their exodus and online lenders swarmed into the market.

Thrive understands the risk-reward ratio is better in helping banks to recapture the market by getting them on the digital-first bandwagon as compared to launching a marketplace lender and struggling with credit and customer acquisition risks. Thrive describes itself as a financial technology company building a modern lending infrastructure focused on digital experiences, intelligent automation, workflow efficiencies, and real-time risk management capabilities.


Founder and CEO Kunal Sehgal got his first taste of fintech when he joined Venmo (now part of PayPal), a mobile payment service in 2011. Kunal was able to understand the technological side of finance at Venmo, how it was thriving because it had married tech and user experience to make the process of transferring money frictionless. Before Venmo, Kunal worked at Rothschild in their London and New York offices as an associate in Tech M&A and debt restructuring.

Considering his entire career has revolved around amalgamating finance with technology, it was inevitable that he would launch a fintech company. Kunal joined forces with Ke Zhu, co-founder and CTO, to launch Thrive in 2015. Ke Zhu has vast experience in developing and implementing tech systems that are both maintainable and extendable. Prior to Thrive, he worked at Prosper as senior software engineer and lead developer.

The Platform

Initially, the company aimed to enter direct lending but decided against it after looking at the market where many startups were struggling to stay afloat because of high default rates, regulatory crack down, etc. Thrive pivoted and developed a platform whose main focus was to make the origination process quicker and hassle-free along with enhancing the user experience. Their first rollout focused on SMB lending and, eventually, the company will target other markets, as well. The goal is to help reduce underwriting and approval times, which will automatically slash costs associated with SMB loans, the original pain point of banks.

The Problem For Alternative Lenders

Most alternative lenders are struggling because of the high cost of capital, lack of stable flow of investment funds, and difficulty in acquiring customers. The original choice for a fintech startups used to be between becoming a balance sheet or marketplace lender. But the future is in redefining and reshaping the lending and borrowing experience. The focus has shifted to infrastructure, and fintechs partnering with banks are leveraging specialization for a win-win. The fintech focuses on borrower experience and reducing costs while the bank focuses on credit risk and customer acquisition. JP Morgan’s deal with OnDeck is a case in point.

Thrive’s First Client

Thrive was recently able to secure its first multi-year technology licensing agreement with Horizon Community Bank (HCB). Thrive will provide the bank’s cloud-based lending technology to help fast-track and complete its end-to-end small business lending process. This will cover digital applications, automated credit, ID verification, automated loan offers, and more. The bank will be able to bring down the loan processing time from weeks to days. The partnership will also open the door to acquiring customers through new digital customer acquisition channels.

This first partnership proved to be more fruitful than expected for Thrive as HCB also decided to come on board as an investor in the young startup.

Revenue Model and USP

Thrive’s first client going live is a huge validation, and the company wants to originate $5-$10 million in loans in the first year. They charge a percentage for every loan origination.

Most startups in the industry originate loans using their own platforms leaving them exposed to market vulnerabilities and risk. Thrive’s nearest competitor is Akouba, which provides SaaS solutions for community and regional banks, but the underlying difference is Akouba stops at the origination phase whereas Thrive provides the complete package right from the origination process to providing loan servicing. Servicing is integrated into the platform making it a seamless solution, and it removes the hassle of coordinating with multiple vendors. LendKey has a similar model but is focused only on student and home loans.


Thrive has hit upon a business and revenue model that is asset light and holds no customer acquisition or capital risk. They leverage banks’ balance sheets and use existing customer relationships for driving business. Thrive will target banks with an average size of $10-$15 billion for future growth. Mid-tier banks would find it difficult to invest resources in building a complete technology infrastructure; the only choice would be partnering with someone like Thrive to capture their SMB customer base.


Written by Heena Dhir.


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