Few financial services executives are as well positioned to discuss the industry's digital transformation as Susan Ehrlich.
Before joining the fintech lender Earnest in July as its CEO, Ehrlich spent two years at the online-only bank Simple as its chief financial officer, and 17 months as the general manager for Amazon’s global consumer credit programs.
At both companies, what intrigued her most was the role digital features played in helping to improve products. She said she firmly believes a better product helps decrease marketing costs.
“Digital is what really caught my attention and how can you take all of the things that we were doing to really try to lower marketing costs, and then look at other parts of the product that could be improved,” Ehrlich said.
Ehrlich has brought that attitude to Earnest.
Her wealth of experience also includes several roles at traditional banking institutions, including Citibank, Providian, Washington Mutual and JPMorgan Chase as well as stints at H&R Block and Sears.
Ehrlich spoke recently with American Banker about taking a mobile, digital-first approach and the importance of aligning a company's interests with its clients. The following conversation with her was edited for length and clarity.
We often read about how financial services can provide better digital experiences like Amazon and Uber. Having been at Amazon and then Simple, what have you taken from your time at those companies and brought to Earnest?
SUSAN EHRLICH: Fundamentally for me, it’s the role that product management plays, the business model that you’re following and how you think about marketing. I would say those are three areas I see that really separate what I think traditional banks have had, the role they played, and kind of what things look like in the new world order of digital business models.
The business model component I think is really important. Simple and Earnest operate under a tenet in that you don't profit from customer mistakes. We have lots of conversations internally about the notion of good profits and bad profits. And it's very easy given how sticky bank products can be, to get sort of hooked on the drug of bad profits, which is profiting off of customers’ inertia, profiting off of customers’ lack of understanding, profiting off of lack of transparency as a way to continue to grow revenue over time.
Digital business models fundamentally don't do that. So you've aligned your interests with your clients. I think that's fundamental to Amazon and fundamental to Simple. We had a tenet: We don't profit from customer mistakes. We follow the same viewpoint at Earnest.
What exactly does that look like at Earnest?
Our incentives and interests are entirely aligned with the clients. That then leads to the question of how you focus on product development. Your interests are aligned and you're focused on things that help remove friction and take costs out of the experience. That helps you build a product that naturally sells itself because it's solving real problems, delivering information that really helps the client make the decision to use your product.
That naturally leads to, what’s the role of marketing? I learned a lot and had some great discussions internally at Simple when I arrived as the chief financial officer. I wanted to see us investing more in marketing. We had a head of marketing whose response to me was: absolutely not. The success of the marketing department will be us needing to spend less and less and to grow more and more. If I have to invest in marketing, it means I'm needing to overcome something that's wrong with the product. If the product is good, it should sell itself.
That's an interesting way to put it, especially when you look at the Earnest website to see how the company markets the personal loan product. Earnest has engagement ring loans, wedding loans, moving loans and vacation loans. What’s the idea behind marketing personal loans in that way?
It’s about what people are trying to achieve and attain with the funds. As Earnest became a part of Navient, we had to rethink who we were and what we stood for. We went through an exercise about vision, mission and values repositioning.
The statement that we came to is, Earnest empowers people with the financial capital they need to live better lives. And so we're focused on the "live better lives" piece of that. I think people don't want to take out a loan. That's an enabler of something. So let's focus them on what they’re trying to achieve and help them do that.
As far as what Earnest offers compared with companies like SoFi and CommonBond, what makes you different compared to those companies and others?
We think we have the highest level of automated decisioning of any player who's in the student refinancing space. And the benefit there is, clients can get that eligibility and check quickly, which everybody has. But once they start an application with us, over half the clients who apply are going to get an instant decision on their underwriting approval.
So, they're not waiting days to have this experience settle out. We're always curious to read reviews for SoFi and see people say they’re really thrilled that the whole program wrapped up in seven days or the whole thing wrapped up in 10 days. We're trying to get it instantly. Ten days to us feels like a staggering amount of time.
We’ve had applicants call customer service because they found it so simple and they thought they were doing something wrong. That made me feel good that we've been focused on removing friction and making it easy to get through the process that were clearly having some affect there.
I think another area is, we've got a feature that we promote called precision pricing, which is again, an element of the offering that's differentiated in student loan refinance and was an innovation that Earnest brought to the market in general. This allows clients to start with the monthly payment and finalize their loan by choosing the monthly payment that works for them and then use that to sort of back into the rate and the term that is optimal for the client.
When you talk about student refinancing, that brings up what we’re seeing today with the student loan debt crisis. What role does Earnest and others play in helping to alleviate some of that problem?
There are two sides to that we can talk about: consolidation and refinance.
Most of the time when students graduate debt, it's not in the form of one loan. It's usually several different loans with different balances, different interest rates and different due dates. Consolidation alone creates the opportunity to simplify the management of that and consolidating and refinancing is where you're grabbing that better rate. There's huge savings there.
That’s fundamentally and primarily where we see Earnest helping. We're also this year wading into in-school student lending. Jack Remondi, the CEO of Navient, talked about that on an earnings call in the first quarter, and it will be out later this year. And with it, we’re taking a mobile, digital-first approach.
