New Market Growth Discusses Affiliate Marketplaces, Lender Strategies, and Emerging Opportunities

Rich Alterman  00:04

You're syncing up and tuning in to the Lending Link Podcast, powered by GDS link, where the modern-day lender can dive deeper into the future of data decisioning and Credit Risk Solutions Welcome to the show everyone. I'm your host Rich Alterman and today we're syncing up with Carlos Carlo. Carlos is a co-founder of New Market Growth, which he started with his business partner and co-founder Robert Saizo. In February 2024. New market Growth helps lenders build and optimize marketing programs on affiliate marketplaces such as lending tree experience and Credit Karma. Prior to starting new market growth, Carlos’s career includes time with caribou, a company focused on the auto refinance market as their senior vice president of customer acquisition, Vice President of the credit card unit of Credit Karma, and a senior business manager of marketing and analysis at Capital One as well as roles at several other organizations. Carlos has a bachelor's degree from Columbia University in applied math, and a Master's Degree in Applied Economics from John Hopkins University. Carlos has a post education career that includes time as a poker player in the World Series of Poker, where he leveraged his math and analytical skills to earn money to do extensive travel in the US and abroad. In this episode, Carlos and I will be discussing his new firm, new market growth, learning about the affiliate marketplace business and sharing some helpful criteria lenders can use to evaluate their affiliate partners. Before we dive into the interview, please head over to our LinkedIn and Twitter pages at GDS link, that's G D S L I N K and hit those like and follow buttons. If you have not done so already, please subscribe to our podcast on Apple podcast, Spotify or wherever you prefer to listen to your podcast. All right now let's get synced with GDS link. Welcome Carlos. Hope you have had a great week so far. Where are you joining us from today?

Carlos Caro 01:58

Outside DC and Arlington, Virginia. Rich, good to see you.

Rich Alterman  02:02

Good to see you too. And thank you for being my guest today on our podcast and sharing some of your expertise related to the affiliate marketplace lending landscape. But before we dive into business, let's get a bit personal. As I shared in my introduction, she spent time as a semiprofessional poker player. Can you share how you got into that and perhaps share an interesting story related to one of the tournaments you played in?

Carlos Caro 02:22

Yeah, yeah. So, I got caught up in the whole moneymaker. Boom. If you're familiar with poker, you know what that means. It was back in 2003. There was an accountant who won an entry to the biggest event in poker, the World Series, main event. And he turned $40 into 2.5 million. It was televised by ESPN, and it was like this epic display. But like it was just running on ESPN nonstop. It was like the funniest poke, and you can still go onto YouTube and find it that caught my attention on the game. And as a math kid, I always just was into games and strategy and stuff like that. So, I got sucked into that really quickly. I started reading all the books and looking at all the web forms. As far as fun stories, I think a couple standout one was around, like 2012. So maybe like 12 years ago, that was in the World Series. I was battling in an event, young kid, maybe 21 years old. We're in like the first few hours of the event. But just playing wild, reckless, he and I were battling, he ended up knocking me out of the event. And I remember thinking of leaving and there's like 24,000 people at this event. Wow. And I remember thinking this kid just has no chance. Like he just doesn't have bad fundamentals. He has no idea what he's doing. And I was actually on my way off to Hawaii with my wife. So, we left Vegas, and we got to Hawaii three days later. I'm like, I wonder who won that event I was in because it was a four-day event. And I see the kids’ picture on the main page of the World Series of Poker champion, you know, once he wants $600,000 on a 500 entry. Wow. And it was just like the lesson for me is like never underestimate someone. You know, like I made like a really quick impression based on a couple hours’ worth of play. I mean, the other lesson for me is like you never win unless you're in there. battleline Yeah, like a 24,000-entrant field feels almost hopeless to win an event but this kid pulled it off. So that continues to be like inspiration for me in big fields like that. The other one was an event where I played with Phil Ivey, considered one of the greatest of all time, and poker. There were 1000 players left after day one, he and I were both in the top 20 Wow. So just seeing my name on the same page as him like, published on the Internet was incredible. And I ended up way outlasting him in that event. So, it just felt good. It was probably all luck at that time. But those are just a couple of stories from the poker days.

Rich Alterman  04:49

Cool. So, as I mentioned, with your winnings, my understand that you traveled extensively in the US, Europe and Canada. If you could only take one more trip in your lifetime. What city would you return to and why?

Carlos Caro 04:59

Yeah, I thought it would be totally mood dependent for me to have that was like wanting action, I would probably go to Madrid, Spain or Madrid, London or Paris. If I just needed to re-energize, I would 100% Just go to St. John and the US Virgin Islands, the best beaches in the world. National Park, very few people. It's like the chillest place ever. And like, my family and I have gotten there at least three, four times already.

Rich Alterman  05:27

I know you have a second child on the way. So, I suspect you won't be doing much traveling for a while.

Carlos Caro 05:32

Yeah, well, it's on my checklist for next year to get out there. So, then I think it's, it's a really great family spot.

Carlos Caro 05:38

Right? Well, thanks for sharing that. So, let's get down to business. So, let's start by learning more about your Roberts company’s new market growth. How about you provide us with a, you know, high level elevator pitch? Share some background on how you and Robert came together? And what was the turning point in deciding to break out on your own and start the company?

Carlos Caro 05:54

Yeah so, the elevator pitch is we're a performance marketing agency, based on affiliate. And I like to give an analogy, it just makes people grasp it really quick. So, there's probably 1000s or 10s of 1000s of like some paid search marketing agencies who will go into Google and find your keywords and figure out the bidding. And there's just there's a fair amount of nuance and complexity. And the reason people don't do that on their own is because it's spent very specialized, specific knowledge. So, your alternative is kind of hire an expert, and like to recruit them into your company and hope it works out. Or you can just go external and find an agency that does this for a living and pays them based on performance. We're the same thing for credit-based affiliates, right? And the reason we exist is the landscape has changed so much in the last call it five to seven years, the affiliate, the affiliate agencies out there, haven't kept up with the technology aren't familiar with the new tools just haven't lived it for the last five to seven years, my business partner and I have. So that's what makes it so well suited to do it. The story behind the founding of the company was actually connected to some of the writing I've been doing on LinkedIn. I noticed nobody was writing about that category. I started writing probably a post or two a week on it. And I just started noticing people would contact me and say, hey, that was that article was great. Can you tell me more? Can we chat? Can you meet me? And before I knew it, I had a sales pipeline for an agency, I just didn't have a business. I didn't have a product or a service. I didn't have anything. But I definitely had a pipeline. Having been in BD for like a good chunk of my career, you know, a sales pipeline when you when you have a, and I knew I had. So, I called Robert, who had recently left Credit Karma. And I was so full time at caribou at the time, asked him if he'd be willing to take some clients. And he told me funny you say that because I plan to do a little moonlighting as a consultant. So, if you have clients lined up, absolutely send them my way, let's get rolling. So that's where the practice got started. And as soon as I noticed it had a bit more momentum than I thought it might, I quit my job and been in it full time for the bulk of that year.

Carlos Caro 08:10

Good fact, the way I came across you was from your LinkedIn posting. And so, I certainly encourage people to follow Carlos on LinkedIn, there's a lot of good content that he puts out there that you can get for free. Let's not assume everybody on the phone today really understands the affiliate marketplace, especially focused on the consumer lending industry. So why don't you provide some details on you know, how they got started? And you know, what's the value that they deliver not only to the lenders that we you in our interface with, but also to the consumers?

Carlos Caro 08:39

Yeah, so let's start with the value. And then we'll go to the origin stories because I think they're all different. So, on the value, and we'll start for the consumer value is I need a lending product. I'm not sure if I should go to chase or Capital One or Wells Fargo, there's so many options. Furthermore, I've had some bad luck in the past where I've applied to products, and I've gotten declined. And that's reduced my credit score, making it harder for me to get approved for that second and third attempt. Right. So that's a problem many, many people face. So, these affiliate marketplaces, their angle oftentimes is, let me help you sort through all this stuff, right, there's 100 products 150 possible credit cards. Let me take something I know about you. Give me your name, your address. And I'll run the models like I'll actually run the lenders approval models behind the scenes so that when you apply you can be confident that you're going to get the product. And furthermore, I'll give you reviews and ratings and content so you can pick among the products that you are approved for. That's the consumer value on the lender value. It's really about just originating new customers and you want to do that efficiently. That you challenge Many lenders have in channels like paid search or paid social or radio advertising, TV advertising, things of that nature is that it's, it's not targeted based on credit data. So there's, there's, there's too much of a risk that a marketer spends a bunch of money to get someone to apply to their product who ultimately gets declined, and it's just wasted money, right, it's a bad experience for the customer now that have declined their credit card, credit score goes down. And for the lender, it's just a waste of marketing budget. And the affiliates solve that problem. Because they often they often ask lenders to pay for results only when they look at a customer. So, it's, they're kind of creating this marketplace for, for lending products. So, your question about the origin story, I'll give you an example like NerdWallet, for example. They're a prominent one. They started out by writing blog posts for travelers, like, hey, how can you make the most of the United points, your Marriott points, that sort of thing. And then once they had the consumers’ attention, they'd say, hey, maybe you should consider this product for your dining room or this product for your gas or whatever. So, they started out in content and blogging. A site like Credit Karma, for example, started by disrupting the credit scoring model, the Bureau was used to charge like 1520 $30 a month to give people access to their score. And karma said no, forget that we're going to do it for free. And to monetize, we're going to use what we know about the customer's credit too, to bring relevant products and offers. So, each of the affiliates has a little bit of a different origin story, but they all connect back to helping the consumer make smart decisions.

Rich Alterman  11:36

So you mentioned NerdWallet, obviously, you came from we talked about you came from Credit Karma, you know, who are some of the other big players in the marketplace, and, you know, have there been any new entrants over the last 12 to 18 months?

Carlos Caro 11:49

It's a really dynamic marketplace. I've seen a lot of new entrants, and I'll give you an example of a couple. But you know, the big ones are the ones you've mentioned, you know, experience lending tree karma bank rate, these organizations have been around for a while they've built brands, customers trust them, to have long standing relationships with the lenders. So those are all great sites for consumers to do kind of comparison shopping. What I've seen emerge recently, is what I would call a hybrid affiliate and lender. So, they're, you know, for like, mostly in the FinTech category, and they come out and they say, hey, I'm going to help you build your credit. But once I've helped you build your credit, I actually want you to get into my lending product, I don't want to send you out to a partner, I want to send you out to chase or discover I want to actually serve you directly, right. And a friend of mine actually runs one of those businesses, his company's called Eva financial. And his sweet spot is like the lowest credit score, like lowest credit score segments, sometimes called Deep subprime in the industry, but you know, folks with like 505 50 type credit scores, he'll help those users get to 606 50. And then he'll get them on lending products that that they're developing firsthand.

Rich Alterman  13:07

Obviously, membership is free now for companies like Credit Karma, and the consumers signing up, get copies of credit reports and whatnot. So, you know, what are the and I think it touched on a little bit, but what are the real selling points that an affiliate needs to put forward to a potential partner to convince them? Hey, come on our platform versus one of our competitors’ platforms?

Carlos Caro 13:27

Yeah, I mean, the primary ones are, do you have enough scale? Like, so how big is your member base? Can you really get me like meaningful volume that moves the needle for my business, so that lenders are always looking for scale, they're looking for quality right after that. So don't just send me applicants, send me highly qualified applicants that meet my criteria, so that my approval rate is really high. And furthermore, when they think about quality, they're really looking at loss rates, right? They're saying, like, are you sending me the kind of user that pays me back on time that it's profitable for me to invest in long term, and that I can grow with my franchise, right. So, like, give them a credit card issuer, for example. I may want to look for evidence that I can upsell that person into an auto loan or mortgage or checking product, etc. So, these banks are thinking kind of long-term lifetime value when they're acquiring so the higher quality the audience the affiliate brings, the better. And then they're looking at the unit economics on the back end. So, like how much does it actually costing me per new customer? And the more attractive the affiliate can make that to the bank, the more business they want, they're going to want to do together.

Rich Alterman  14:37

So, let's, when I'm a consumer, and I decide to onboard myself to Experian or credit, sesame Credit Karma, am I giving up front consent to have my credit polled? Or is that more when I actually raise my hand and apply for or say I'm interested in a particular product?

Carlos Caro 14:55

So, the users coming in saying, hey marketplaces and I want you pro-actively monitoring my credit. So, here's my consent, go check it out as often as you need to. And the reason they're doing is they wanted to be proactively alerted when something changes, someone applied under your name for a new account was that really you, your score went down 50 points, you should check that out, it may impact the next time you apply for a loan, that sort of thing. So that's why the customers give their consent. And then the, the affiliate marketplaces on the back end are taking that data. And sometimes they're notifying the customer of changes. And sometimes what they're doing is running predictive models against their network of lenders, and they're saying, hey, you know, what, Rich, I noticed that you have the following rewards card, and we think you probably should be using this better rewards card, it'll get you better yield on your spend, etc. And then they'll proactively notify you of that. But what makes that notification really special, if that is that they can tell you, you're going to get approved for this thing with a high with a really high, they can't ever guarantee it, because there's always reasons you might get declined beat up, but they're getting into the 70s 80s 90s on approval rate based on these models. So that starts becoming a really good customer experience, not just from the monitoring standpoint, but from like, the curation of products.

Rich Alterman  16:18

You mentioned the offers, and certainly consumers will get multiple offers. Okay, how does how do the affiliates kind of rank order those offers to put what they think is the best? And where's that balance? If they're working with competitors, to lenders, and one's offering what they consider a slightly better product? And they move that up in the hierarchy? You know, how do they kind of deal with that potential issue from, you know, the different lenders are working with?

Carlos Caro 16:49

Yeah, that's a really good question. Almost all other marketplaces I talked to struggle philosophically with that question. They've tried it a bunch of different ways. I'm not convinced anyone's quite perfected it yet rich, but I'll tell you some of the models I see that are common. So, some, though the way of just like straight up consumer relevance. So, they're like, okay, I'm just going to rank these products based on what I think my consumers want to see. Right? So, they'll look at like, click through rates, and click through rates as a proxy of like, well, how much demand is there for that product? And then they'll start to look at like application rate, another proxy for demand, another look at approval rates, and they'll say, Okay, well, how many of these applicants are actually getting through, they'll generally want to rank higher, like, the higher the click through rate, the higher the application rate, the higher the approval rate, the higher up that product tends to go. But they also need to think about what just like what's the, what's the raw value of the product, right? So, they're going to study the terms and say, okay, well, are there annual fees here? Are there sneaky fees that the consumer may not notice? So, there's all sorts of thing that reviews for example, like, is this issuer having consistently low ratings in their call centers? Are they not? You know, are they not providing good service to their customers, that sort of thing? So, there's a bunch of customer-oriented metrics you could use. And then you could go the other way. And you can say, No, but it's really all about monetization. The funny thing, there's like, there's a high overlap with what I just described, if you're if you're optimizing for monetization, you're going to put the highest product in the number one slot based on revenue per impression. Right? Revenue per impression is just the multiplication of click rate of application rate approval rate and the payout. It's that payout that gets introduced in the end. That kind of changes the equation a little bit, right? And by the way, the CFPB is starting to look at this. So, this may change. But there's a there's a good number of affiliates out there that say, okay, two funnels are comparable, similar products, similar click through rates, approval rates, but Bank A is paying me more than Bank B bank as the number one slot. So, in that in that setup, it's kind of more of a pay to play, but you can be an underperformer and win by increasing your bounty. Right, right. Like if your click through rates five times lower and your application rate is five times lower, you're not going to show up with a $30,000 bounty for a card user. It just doesn't make any economic sense. So, within reason you can pay to play but I always say affiliates are a meritocracy.

Rich Alterman  19:24

Right. Right. And why do you say that?

Carlos Caro 19:27

I mean, so like I just think about the Super Bowl is like the way I always think about like to understand what a meritocracy is. Let's first unpack what is not a meritocracy. The Super Bowl is not a meritocracy, anybody can show up that's willing to pay the 3 million for 32nd spot. The broadcast network does not care how many people take action based on that ad transact. They could care less they just want their money up front. And as long as you're meeting their brand guidelines and aren't doing anything too crazy, you know, and put Blink media, they're going to sell you that media. If you look at the affiliate marketplaces in lending, they're actually pretty card hardcore about their diligence when they're onboarding a partner. They're asking a lot of questions like, what's your track record in lending? How many loans have you done? Who's your credit facility? Who were your equity backers? Like? They're asking a million questions like, do you have any regulatory action against you, they are diligent in your hardcore. So, you don't even get into the, you don't even get into play the game. Unless you already have an established business. And then once you're in, it comes back to the funnel performance, right? If you're not competing on click through rate, application rate approval rate, it doesn't matter what you bid, because you're not going to see the light of day and so like, you have to have a fundamentally good product and experience in order to even consider getting in there and winning.

Rich Alterman  20:53

So um, you know, we mentioned with the corners of the world and credit sesame's, I'm permissioning, myself up front, for that credit poll, are all are all affiliates doing the same thing? Are there? Is it more likely that it's more a function of I might add an affiliate site? I see that I want an offer. And then I'm saying, yeah, now go pull, do soft pull on me.

Carlos Caro 21:13

But yeah, it's actually the latter is the more common, actually. So, we talked about Sesame and karma earlier, where they have the data up funnel, and they have the consumer consent, so they can run the models before you even see the ad. But the majority of the landscapes is what you described is I see a content piece on my personal finances. Let's say it's on forbes.com. I'm scrolling my feet like my Google feed, I see the article, I read it. And then at the bottom of the article, there's a, there's a little banner that says, click here to find out which products you qualify for. You click through in the last few really basic info, your name, address, phone number, email, maybe last for your social, and then they'll run a soft inquiry on the spot. So, they'll run all the models in real time for any bank that's in that in that funnel, and then they'll tell you, they'll tell you the results. But those funnels usually take, you know, in practice 510 seconds to run. But 510 seconds sometimes is enough for the customer to disappear, because they're not patient enough to wait for the result. Because just like the level of impatience in 2024 Internet is like insane, you know, it's what TikTok has done to us. But that that's actually the most common model. And my hunch is we're going to start seeing more and more players that do this upfront, run the models upfront, tell the customer without asking for information that you're qualified, just because there's a lot less friction, and you end up with the capacity to book a lot more customers that way.

Rich Alterman  22:45

So, you mentioned that the typical pricing model is like a per funded loan. So, it's more successful based from closing a loop perspective, then clearly, the lenders got to notify back to the affiliate that they actually funded that loan. And of course, there could be times where I prove somebody but for some reason, they don't get funded they disappear. Another curiosity, are there other data elements that the lender needs to report back to the affiliate, besides just approval denial, and that they were funded?

Carlos Caro 23:15

The bare minimum tends to be approved to climb. Because if the affiliates getting paid on the approved, they need, obviously, that they need that accounted for, but it's getting way more sophisticated these days. And a lot of affiliates are now asking to see like declined reasons, for example. And what they're doing with that is they're saying, okay, well, I sent you, let's say our decline rates are 30%. And they're saying, Great, my goal is to get you to 90%. Tell me the reasons you decline these people. So that if there's anything I know about the customer up front, I can run that cut, before I even send them your way. And the affiliates are doing it for two reasons. One, it's actually three reasons they want the bank to have the highest approval rate possible, because the clients cost the bank money, right, they're running credit, they don't get the customer to it's a better customer experience, the higher the approval rate, and three, they just monetize better, because if they know upfront Bank A is going to decline. They can send that customer to bank B and monetize it. Right. So, the decline reason is kind of the biggest trend. I've been seeing a marketplace that has the consumer consent up front. They're getting more sophisticated. And they're asking partners to just tell me what your targeting strategy is, from the beginning. Forget about the client reasons on the back end, tell me up front. Give me your logistic regression model, give me your machine learning model coded into my architecture, so I can actually run it up front. And that starts enabling these 90 Plus type percent approval rates.

Rich Alterman  24:51

Great, great. Thinking more about the consumer experience. I understand there's different degrees of integration. I've heard the term Click out versus full integration. Maybe if you can share, what are some of the differences in the way that the affiliates are interacting with the partners from the consumer side perspective? And what are the benefits or drawbacks of the different strategies for integration?

Carlos Caro 25:16

So, I guess let's get some terminology down. It's a good question. There's a lot of jargon in this space. A click out is like I went to, we talked about the NerdWallet example earlier, where I saw the content piece around Marriott Rewards. And I saw a different rewards product that I want to, I want to get, click out just means I clicked on that ad, I showed up on chases application page, and now I'm filling it out cold. I'm just clicking out from NerdWallet, the chase, and there's no personalization, there's none of my personal information there, I'm just a random stranger on the internet that showed up, that's obviously going to get you the lowest possible conversion, because the customer has to do a lot of work. The marketplaces have that they have typically the customer log in, when they're showing the ad. At the same time, they have to respect the privacy of that user, they can't just go share that information with all the banks without the consumer’s consent. So, they do this really clever thing where they say, hey, customer, I'm about to send you over to an axe or chase or whoever. Would you like that, like nicely prefilled and done for you? Or would you like to fill it out from scratch? What do you think most people say? Please do it. Yeah, they say please do it for me, and then check the box. But the box has like a bunch of disclosures, like your personal information is being shared with this lender, they may use it to contact you, et cetera, et cetera. But it creates this really clean, easy, high transaction rate experience. And then the next level up from there is like the fully hosted application, Credit Karma, you can get this public information, you can go into Credit Karma and see examples where you actually never leave the karma app. The application is completely hosted by karma. Not only is it prefilled, but you actually never went to the bank at all. So, they say, okay, click here, and you're applying. And you're actually checking the box that you read the disclosures. They kick the consumers information to the bank, the bank runs their underwriting model, and karma in their app tells you if you were approved or declined. That's like a really clean, contained experience. And then, as you can imagine the application rates, they're off the charts, they're really, really good. And you said pros and cons for the banks. Like it's a lot of work to do these integrations. So, it really depends on, like, the level of technical sophistication at the institution. So, they can go fast, they can go slow, but there's real work. They're an engineering product, and that needs to happen. That's kind of the cost side. The other cost to the lender is they're losing control over their flow. Many lenders approve you and then say, okay, well, would you like to add an authorized user? And would you like to transfer a balance? And would you like to enroll in the special promotion, etc. When a marketplace hosts the application, they lose some of that control. But with a tradeoff, it's a really high application rate, which in turn gets the more and more distribution through that channel. Right, so they're trading off this, like, higher distribution for control, essentially. And there's obviously the upfront investment.

Rich Alterman  28:19

So, you know, when it comes to credit cards, you know, there's probably less back-end verification steps that might take place. But when we think about, you know, $50,000, unsecured personal loan, that lender may want to do some income verification, employment verification. So, when a karma or sesame is hosting that app, and they're fully integrated, but the lender comes back and says, I'm conditionally approving rich, but I want to do some backend verification. So, what's that flow there? What happened to my application?

Carlos Caro 28:51

Yeah, let's talk through the case of like that large unsecured loan, or we could talk about an auto refi, which has the same dynamics, I'm more familiar without a refi. So maybe we will go with that one. So, the marketplace is generally going to hand off to the auto refi player at the pre-qual approval in the marketplace, say, Hey, you're pre for this auto refi. Great, we're going to hand it off to the refi player. And then the refi player, their situation is basically like, hey, I know this consumer qualifies based on credit. Karma can see credit. But there's a lot of stuff I need to be diligent, like you said income, like is the income that they told Carl, is that legitimate? Can I verify it with a W two or a pay stub? So now they're asking how they're engaging with the customer? Generally, these interactions are over text or email or phone call. Does the customer actually own that vehicle? Can they prove it to me? Can they send me registration? Can is the vehicle insured? Can you prove that to me with a document so there's all these like checks? There's it's a high friction process today for most of those providers, but that's, that's on the providers. I guess that's the provider’s responsibility. like to get that on the marketplaces, they play the same game that they play with cards, which is, the higher you convert, the more leads I'm going to send you. That's the incentive model. So, everyone in that space is trying to reduce the friction required to do that income, the verification, right? So, like the migration you're seeing in the industry is a world that used to be highly analog, like literally sales reps calling people saying, email me the PDF, or mail me the title or whatever, like, highly analog, much of the industry still works that way. And the tech companies are saying, how do I do APIs on all of this, right? How do I get your income and identity vehicle ownership all through API, and then the opportunity back to the affiliate marketplaces is, can I get that for the auto lender, ahead of the customer even applying, knowing all the API's that they're going to need? Can I build those rails up funnel? Right? So, by the time the customer hits the lender, it is done. The marketplace has already passed all the information. And, you know, they can rock and roll and do the transaction. So that I think that's where the space is heading is just pure automation. But man, is there a lot of stuff, you're dealing with DMVs government organizations like that categories got a lot of work to do. But um, the payoff is huge, because it's such a big market.

Rich Alterman  31:22

Yeah. And certainly, at GDS, you know, we're integrated now with over 100/3 party data bureaus. And you know, that helps address all the things that you're talking about, but there's always as, you know, the difficult ones to get your hands on, like DMV, and things like that. But definitely that migration of how do I automate, automate, automate? So, okay, cool. Well, what I want to do now, and it's going to be something a little bit repetitive, but I think it'd be cool to do a little roleplay. So, let's pretend I'm a lender, I listen to this podcast. Sure, you know, reaching out to you and Robert, and, you know, kind of walked me through just like, just as you talked about how the affiliates, you know, really do a pretty strong vetting of the lending partners that they want to work with, you know, I understand that you as well, we really want to make sure you can deliver value to the, to these opportunities that are in your pipeline. So, kind of walk me through how you'll go about evaluating me, as a lender to really decide Can you help me?

Carlos Caro 32:23

Yeah, that's a good one, this will be fun. So, the first thing I'll ask you is just like walk me through your, your marketing program? Like, where are your leads coming from? How does it work? What are the economics you're seeing on those channels? Like I'm trying to really get a feel for like their familiarity with affiliate, or they already invested in the category, it was just a brand-new category? And then I'll get a feel for the product. Tell me what user you're looking for? What's the value prop? In those early parts of the conversation? I'm really just trying to get a feel of can I imagine this product and shopping experience competing in these affiliate marketplaces that are highly meritocratic, right? Because like, if you don't have a good DNA and bone structure, you can hire Robert and I, and we can we know all the tricks and tools and techniques to make it work and affiliate. But if you don't have the right foundation is going to be really hard. Right? So, we're like, we're looking, we're looking for those foundations first. And it really comes down to product shopping experience, and underwriting. The next thing we'll ask is like, well, what bureau? Like what credit bureau do you use? On the back end? Some will say I use to you, or Experian or just one, some will tell us I use all three. Some will tell us I use one port, but I have some alternative data sources. The answer is always different. And what we're looking for there is like, what's the chemistry between their back end and their front-end model? This ends up being like a pretty obvious thing for most lenders. Could you think about experience, sesame, karma, there's all these different. There's these API based marketplaces, they all work with different bureaus, the Bureau’s, all give them different, like slightly different versions of their data. And what we're, what we're testing for is like, are we going to have to reconstruct your backend in order to make it compatible with the front-end models? Or are you just ready to go out of the gate, because your back end already syncs with, for example, experience as a good example, right? If a lender shows up and say, says that you experienced premier attributes, we know Experian has that data in their affiliate marketplace. And when that lender loads their model over there, it's going to be a really good fit, the approval rate is going to be really high. It's going to be to be straightforward. Initiative versus if somebody told us Yeah, us to you on the back end, but I want to distribute your experience, then we're going to say, okay, well, you might have to translate that model, from to your experience. There's going to be some real work there. So that helps us kind of scope out some of the things we might have to do. What else? I mean, the other big question One will, will ask them is just what are them? What's their ambition? Like, how many? How many accounts per month? Are they doing right now? How many would they like to do? And that just helps us get really concrete around. Okay, well, you want to go from 1000 to 100,000 a month. Cool. How patient? Are you? Are you willing to do that over three years, four years? Or do you want it next quarter? Right? And just understanding how realistic the objective is helps us ground. Like, are we the right partners for them? Or is this? Does this feel unachievable? So, we'll always ask that question. Like, depending on what we hear it goes from there. But those are, those are the places we start. Yeah,

Rich Alterman  35:38

So, let's touch on that. I don't want to I don't want to give too much of your secret sauce, because then then people wouldn't have to hire you. But you know what, let's take a lender who says, well, right now I'm doing 5000. You know, realistically, could you take them from 5000 to 25,000? Or 30,000? And if the answer is yes, you know, once again, without giving too much up? Yeah. What would be some of those real key things? Could it even ultimately result in a redesign of our product?

Carlos Caro 36:06

The answer’s yes. The other thing I'll say is that the 25, is like the 5k to 30k. Or actually, I have that conversation often with lenders and like, that's usually in the ballpark of what we're talking about. They have an existing program; it works all right. But they want to supercharge it.

Rich Alterman  36:24

Answers are always case dependent. I mean, here's, you mentioned secret sauce, let's go there for a second.

Carlos Caro 36:33

There's not a lot of secret sauce Rich in our, in our business, it's conceptually very simple. Here's one of the things we do, I think extremely well. And Robert takes the lead here and, on our side, because he has the modeling and stat background. But I talked earlier about how well your back-end model matches the front-end model. That is really, really important for a lender to get right. There is often a disconnect with lenders there. They think, okay, I have a, I have a complex problem, GBM model, gradient boost base model, but it's sophisticated, it's complicated. I'm not going to go load that GBM model in the affiliate. That's my secret sauce. That's my IP, like, it's too much information. Let me just do a proxy, five, five variable model, let me load it up there. I'm going to win; it's going to be good enough. That's the mistake. These marketplaces are so competitive today. You actually have to load the GBM all you got to do it, right? And then there's all these weeds. Well, what attributes did you use in that model? When did you pull the data? When did the affiliate pull the data? Do you have any custom attributes in your model? Did you code those custom attributes on the lender side? Is your alternative data taken care of taking care of, oh, maybe the affiliate partner doesn't use that alternative data, let's create a custom model just for that affiliate that pulls out. There's a lot of weeds and details that are rich, and like, I'm very open with my clients, like, this is what we're going to go do for you. My guess is about a quarter of the folks I talked to listen to the playbook and go try to do it. I'm fine with that. Because if they're if they have the teams and the resources to go do it, you know, we're not like Robert and I aren't going to add a lot of value. The truth is like having been inside these lending organizations, teams get distracted, there's always a lack of resources. And the people doing the work haven't seen it 50 times over, like Robert and I have, so what might take them a year might take us two months. Right? So, what you're buying with us is you're buying certainty, you're buying speed. And that's worth a lot of money to some organizations. So, it's less around. Like when you said secret sauce, like conceptually, like, well, we're just very open with what we're about to do. It's the actually doing it part that's hard. And I kind of relate it back to like, everyone knows what it takes to get in shape. You eat well, and you go to the gym, and you work your ass off, right? Everybody knows that conceptually. But few people do it because they don't have a person beside them. That personal trainer that forces the issue for them to get it done. Like we're the personal trainer. We're the folks that come in and say, okay, we know you know it, but you're not doing it. Right. So, let's force the issue and get it done. So, we play that role for some of our clients.

Rich Alterman  39:27

Great. So, let's go back to the good policy challenge. So, you know, I would suspect and we've seen this, we've heard this, I think at GDS a little bit where, you know, there's a trust factor, right, I'm turning over my credit policy, intellectual property and kind of have it installed that one of these affiliates. So maybe, as you said, there's a tendency, well, maybe they just kind of like loosen things up a little bit right on the front end where the policy is installed at the affiliate, which is going to let more people through, right, so I'm having more apps flow through it then on the back end. I'm putting them through more stringent policies. So, my declination rate goes up, which I assume essentially then ends up hurting me with that affiliate in my kind of ranking, because they're coming back and saying, you know, you're declining 60% of the applications, and that's just not accepted to us. Is that really kind of a, that's the trap that these lenders can fall into, if they're not having that level of confidence that their, their secret sauce, credit policy is really locked down.

Carlos Caro 40:29

That pretty much sums it up. I mean, sharing your underwriting is like, you think about trust falling, with a partner like that. That's the biggest one you can probably imagine, as a lender. I mean, you're developing this credit policy over years, decades, and you are losing a lot of money to develop that policy, right? Like, the only way to develop a good credit policy is to lend money to people you shouldn't have. So that your models recognize who they are, and like exclude them, right, like, that's the only way to train a model is to just lend a bunch of money and lose money. I don't think there's any other way to do it. And that's why they're concerned. That's why they're held so close to the vest. Here's the challenge, though. Like if you're a big lender, you've been you've been in the game for a long time, the fintech’s are showing up saying, oh, I see how the game is played with affiliate, okay. And the game with affiliate is I need to, I need to show up day one, sharing my credit policy. And those fintech’s start getting 90 95% approval rates. They start gaining market share and these affiliate marketplaces. And the incumbents look at it and they see their share slowly eroding. And then they're like, okay, well, this philosophical thing around sharing my IP. Early days, it was just, it was just like a thought experiment, right? Should I share it? Should I not? It's not a thought experiment anymore. I'm actually losing share, because I am not sharing my IP, then it's just a business trade off of like, okay, what is the risk of sharing my app to put $1 number not next to that? That's a hard exercise, because you have to evaluate the risk of like, what happens if that IP gets breached? Can I like, what will happen on the other side of that, what's the odds that happens? Do you really do need to quantify it, because what you're giving up is now known and quantifiable. But the reasons you're deciding not to move forward are kind of this vague, fuzzy, I'm worried about the IP thing. And to make the challenge harder on lenders that have been reluctant. These affiliates are getting really sophisticated around how they do this, right? Like, they're creating environments where they can't even read the IP, the lender puts it in, but it's encrypted. Their staff can't even go in and read the IP. And like, you know, these, like these big companies, probably like Google and Amazon, that do stuff like AWS for a living are getting really smarter on how to protect that information. So, I think each year that goes by the risk goes down, because the technology just gets better on how you protect the information, right? And then the opportunity cost is just going to keep growing because the fintech’s would much rather play the affiliate marketing game, than try to reinvent direct mail or build a brand that takes decades. So, it's a really fascinating thing to watch as the fintech’s kind of make it hard on the incumbents to stand around and just say I'm not going to show the model.

Rich Alterman  43:37

Right. Well, thanks for that. That's great. You know, when I look at some of these affiliate sites, I see a lot of well-known lending partners and brands that most people are going to recognize. So thinking about your and Roberts business, you know, are you able to help like credit unions and small to midsize banks that, you know, really have a challenge, I guess, both from a budget perspective, you know, how do they really get into an affiliate and compete with the chases the in the cities of the world?

Carlos Caro 44:05

Yeah, I'm glad you mentioned that rich. I think it's one of the biggest opportunities out there. If you're a regional bank, your credit union, your FinTech and you are not playing the affiliate marketing game. You are missing out just flat full stop, you are missing out. The reasons connected wedge discussed earlier are a lot of the incumbents are reluctant to go all in for the reasons we discussed having been inside an organization like karma, like I've seen some of those smaller organizations lean into the channel and make it work. But here's the big obstacle. A lot of these regional banks and credit unions call it 10 years ago, before the sophistication and targeting was out there have tried the affiliate game and they've gotten killed. Because their brand was never recognizable enough. The product was never competitive. Have enough with the incumbent big banks. And their approval rates are just never strong enough. Because they often are regional, or they have a little segment that they serve and not much else. There are a lot of war stories, when I talk to clients that are potential clients in that category, I hear yeah, I've tried all that stuff, I get negative select, the loss rates are terrible, I don't want to get burned again, you know, like my chief risk officer would scream at me if I tried it again. And my rebuttal to that is, I get it, if you tried to execute that same playbook you executed 10 years ago, you would lose again. So, like your kind of first have to just lean in and agree with Yeah, that is absolutely true, that hasn't changed the differences, now you can come in and just load your audience into an affiliate and say, only serve my ads here. And then you can go and just clean up that funnel so that your application page is really tight, your approval rate is high. And you're often going to have to consider a product adjustment, right? Like, regional banks are often trying to directly compete with, you know, the top 10. But if you're going to be in an affiliate marketplace, you just got to know, your rewards rates got to be competitive, your annual fees got to be competitive, you're going to lose if you're not willing to take that chance. I imagine in the next five years, some regionals are going to come in, figure out how to play the game, and then actually turn into a national brand. That's my prediction, because the technology is all there. And there are still some of these folks from the incumbent side that are cautious around leaning in 100%. So wouldn't be surprised to see it.

Rich Alterman  46:39

Right. Thanks. So, I know we're, we're coming up on time here. And I know I have a lot of other questions on my plate. But I'm going to take this opportunity to touch on another post that I saw this morning on LinkedIn, that you had put out, that talked about the rise of some unknown credit card players seeing the future. So, as we put on our crystal ball for a second, why don't you talk a little bit about that piece that you published?

Carlos Caro 47:09

I originally published this piece last year, okay? It ended up getting like 140,000 views on LinkedIn. So, it went kind of nuts the first time. And look, it was intentionally provocative. If anyone reads it, kind of literally, like, ah, this guy is a Yahoo, what's he thinking? But I think the essence of the post is what I was trying to convey, I was a little spicy, and how I communicated it. But let's just start with the headline, what I said is, I think there's going to be five card issuers you've never heard of in your life, that might not even exist today, that are going to show up with five FTEs, five employees, and become worth 250 million plus an enterprise value with one of them being a billion dollars. I don't know if it's five FTEs or 10. Rich, I don't know. But like, here are the trends here. If you think about distributing a credit card through a branch that requires an army, right, you need an art, like you need a bunch of capital, you need a foot like it just you're never going to do that with five people. But if you think about what we just described, distributing products through credit affiliates, you need an underwriting model. So, you need an analyst that can build a model. And those same analysts can go load that model in the affiliate space, to view find a segment that's underserved, for example. And there are there are many of these segments in the subprime space, you find a segment that's underserved, you find a competitive product, you're distributing quietly through these affiliate market, nobody even notices you're doing it. Because you would have to be a consumer, let's say a 550-credit score logged into one of these marketplaces to see the brand. You're never going to see it on Google, you're never going to see it on Facebook, it's going to have a really low profile. And if they're just if they're just out hustling everyone in that little segment, now they can start growing gradually, gradually into other underserved segments. And before you know it now, they're a nice target for a bigger bank to say, oh, you figured out how to lend to this underserved space. You've done it through friction removal and through tight alignment with affiliate, I want to buy that distribution. And boom, you have a $250 million transaction. I do think it can be done with five people, especially with agencies like us, right that are specialists in this stuff like you can, you can start to farm out a lot of the pieces of the product and find out distribution to us farm out customer service to like an AI shop that can do it online, farm out transaction processing to a specialist that has built fraud detection models with a I like I just the big undercurrent here in my post is AI and what it can do with the see with this thesis of like, the core of this business is smart underwriting and pricing. And you don't need armies of analysts now. I think one, one or two or three sharp minds that have done it for those who want, who are, you know, who can hustle and figure out how to distribute through these channels is going to make it big. I'd love to help one of those folks that's there. So, part of the reason I posted that is I want the people with that in their brain to call me when they're ready to ship it. But I really do believe in that trend. And look, we'll see if I'm right or wrong in five years, we'll see. But I expect people from the banking industry like legacy bank to be like, this guy is just a lunatic. How could you possibly build this with five people? But look, five years is a little long time with the rate AI is developing.

Rich Alterman  50:46

So, we'll see. Well, time to time to wrap things up here. This is Rich author and we've been syncing up with Carlos Cairo, co-founder of new market growth your personal trainer in the affiliate marketplace industry. I want to thank Carlos for spending time with me this morning to share more about the mechanics of affiliate marketplaces, and providing some tips on how lenders can maximize the value affiliate relationships can bring to their business. I wish you and Robert much success in your new business, new market growth. And congratulations on the upcoming birth of your second child.

Carlos Caro 51:14

Thank you, Richard. It's great to be here.

Rich Alterman  51:17

Thanks for listening. If you've enjoyed today's episode, please be sure to subscribe on Apple, Spotify, Google, or wherever you listen to your podcasts. And be sure to leave us a review. Follow us on LinkedIn and connect with us on Twitter at GDS link that's at GDSL I NK have a question for the show or have a specific topic you want us to cover. Hit the link in the description to drop us a note. Thank you for lending us part of your day. Make it a great one.