One of the earliest AI FinTech unicorns to cross $1 billion valuation in 2015, Avant is primarily a personal lending startup that uses advanced algorithms and ML to evaluate online loan applications.
Avant was founded in 2012 as AvantCredit by serial entrepreneur Al Goldstein, Paul Zhang, and John Sun. They wanted to leverage Big Data analytics through algorithms and machine learning for creating an online-only financial solution for consumers that would lower borrowers’ cost of borrowing.
Avant has used machine learning to create its own credit scoring system, an alternative to the industry standard of FICO scores. Its advanced algorithms use over 10,000 variables to evaluate a loan application, which allows it to identify and serve customers from the “subprime” FICO pool that otherwise exhibit “prime” behavior. Customers can apply online or through a mobile app for loans ranging from $2000 to $35,000 that can be approved within a day with minimum human interaction. Loan interest rates range from 9.95% to 35.99%. Since inception in 2012, Avant has lent over $4 billion to 600,000 customers.
Since Avant focuses on sub-prime borrowers, it sees a higher default rate than its competitors. In 2016, its loans exhibited 14.5% net losses, significantly higher than the 10.6% projected loss rate. Since then, Avant has slowed down lending and focused on tightening its credit standards. In 2017, it narrowed it losses from $176 million in 2016 to $15.7 million. Avant was expected to be profitable in 2018.
Meanwhile competition is heating up for Last year, announced Amount, its bank partnership platform that provides custom technology solutions for financial institutions. Initially created as a scalable digital personal loan product for banks to better serve new and existing customers, the expanded Amount platform allows for customized configurations and offers end-to-end lending products, individual tools such as fraud prevention and account verification, decisioning engines and white label servicing to enhance its partners’ existing digital products.
Amount also provides partners with consultative analytical services to enhance performance including risk assessment and modeling, underwriting, digital performance marketing and customer acquisition. Financial institutions, including Regions Bank and Eloan, Banco Popular’s national lending platform use the Amount platform to provide customers with digital lending products.
Avant has been venture funded so far with $1.73 billion in debt and venture funding investments from August Capital, Balyasny Asset Management, DFJ Growth, General Atlantic, JP Morgan Chase & Co., KKR, Mark Friedgan, Peter Thiel, QED Investors, RRE Ventures, Tiger Global Management, Jeffries Group, and Victory Park Capital. Its last funding round was held in September 2015 when it raised $325 million at a valuation of nearly $2 billion.
But this was at a time when the online lending sector was in its prime and before the sector came under heavy legal scrutiny. Today, the FinTech lending sector has a lot more players such as SALT Lending, Tala, Opploans, OnDeck, Bond Street, Braviant Holdings, Credifi, PeerIQ, Prosper, FundBox, Earnest, and Affirm. It would be interesting to watch how Avant navigates regulations and the tougher competition while maintaining profitability.