Your financial future is shaped by the decisions you make today, and understanding the hidden factors behind lending can be the key to unlocking your financial potential. Join us for an electrifying episode recorded live at FICO World 2023, where we dive deep into the world of credit, lending, and financial optimization. Our special guest, David Smith, Small Business Segment Leader at FICO, discusses financial intelligence and credit scoring, showing how you can change the way you manage your finances forever. He explores the landscape of creditworthiness, revealing how you can become fundable in the eyes of lenders. David also touches on financial secrets on how to secure better terms, qualify for bigger loans, and more. Tune in now to level up your financial game.

Watch the episode here


Listen to the podcast here


Live From FICO World 2023 With David Smith

David Smith, were back at FICO World. This is where I get to come and play. I always use this example that FICO World is the Mount Olympus of the credit and funding gods.

You’re giving us a little too much credit but I’ll take it.

Even though approvals themselves do not rely on the FICO score, the denial threshold of whether or not somebody is even considered is FICO scorebased.

We’re more than the FICO score. We’re very much into the decisioning. A lot of the organizations that you apply to are using our technologies. We’re involved in the background.

You are the background just as we have FICO World 23 in the background. You’re catching up with us. One of the things that we wanted to discuss was some of the highlights of our conversation, and more importantly, the trends of where we see things going over the next year. Were a full year into SBSS score, the Small Business Scoring Service, at 7.0. Everybody adopted it. We have some significant movement in the SBA. He’s likely not to mention this himself but David is the individual who leads the team that every year goes to the SBA and reviews their portfolio because they all use the SBSS for reporting how well the SBA lending portfolio is and gives it a grade. The SBA goes to Congress and says, “Here’s our grade.” This guy is the lead in that group.

Smarter people do the math. Sadly, I’m the pretty face.

I want all of you to know that they didn’t hand over some PR guy to us. This is the guy in the business space. You do the work. We were introduced in 2018.

First of all, the 7(a) Express program, which utilizes the SBSS score, is being upped from dollar value from $350,000 to $500,000.

That’s a 40% increase.

It’s not insignificant and a lot of study was done behind it. We talked about that a little bit before COVID hit, and they’re putting those changes in now. It’s good for everybody. There’s also a new DEI outreach. Start looking out for that.

Tell them what DEI is.

If you’re a minority-owned or a female-owned business, in an enterprise zone, or working with CDFI or Community Development Financial Institution, there’s going to be more money for you soon. If you qualify for that, please start asking around and looking.

Check-in on Get Fundable.

You’re going to get better terms for those loans. Here’s another trend, especially as interest rates are rising. Ask your institution whether you can get an SBA loan or if you’re eligible because those are longer-term loans at lower interest rates.

Even though the payout is over 10 years, the amortization is over 30.

It’s a huge savings if you can get it. Try to get an SBA-qualified loan. You’re going to benefit from it. It’s a little more paperwork but it’s well worth your time.

It’s ultimate in manual underwriting. That’s how our universe talks. Is it automatic underwriting or manual?

It’s more paperwork and manual underwriting but from an investment of time, it’s well worth time spent. There’s a CFPB chain that’s coming down the pike that will hit in about two years for most organizations. You will hear it called the 1071 rule or the 1071 report. In current mortgages, there’s a thing called HMDA or Home Mortgage Disclosure Act. What’s the profile of the borrower? They want to know their gender and age.

It’s identity information, financial information, and banking relationships.

The key thing to know about this before people get their feathers in a ruffle is there is a firewall between that data and the loan application itself. There’s no bias. This aspect of the bank is collecting this data, and it’s going into this section whereas the application goes into here. If the institutions can’t create that firewall electronically or manually, they have to notify you that the person underwriting your loan will see this information. You will know upfront whether a firewall exists.

You can choose the institution accordingly so that you can be a choice as to whether or not somebody sees your profile information versus your financial application information.

This isn’t a today thing. Banks have 18 to 24 months to put it into place. They’re going to start testing this in twelve months. You’re going to see the larger institutions test this on day one on tier 1s and tier 2s where your 3 and 4-tier banks are going to implement this probably at the last second that they can. It’s a lot of work and technology. There’s going to be a cost involved. All their technology partners are coming up with solutions. We’re all talking to the CFPB and our compliance folks but it’s an interesting rule, and we’re going to see how it shakes out.

What do you think is the intent behind it? I have my ideas because this is ubiquitous. Every financial institution has to ultimately implement it.

The intent is to find out, “Is there a disparate impact?” That’s the first thing. Are banks treating certain customers differently than other customers? You always want to find out, “Is everybody being treated equally?”

It’s the redlining and all the oldschool ways to create bias.

Have we hidden this in small businesses? Small business lending has been protected from that previously. It’s not consumer lending even though consumer data is being involved. That’s the position the CFPB is taking. You’re using consumer data. Therefore, we want to know what people you’re dealing with because you’re using people’s data, not companies’ data.

As I understand it, even though there’s a firewall, what they’re doing is aggregating the borrower profile data and the financial data. It’s designed to create a correlation in funding evenly across the board by financial criteria only, not profiled.

All should be treated equally. That’s a nice thing. I’m not saying it shouldn’t. I’m saying it’s hard to treat everybody equally when you don’t know. Orchestras did this test where they put a blanket in front of the person playing so they could choose the better musician. They’re not choosing based on gender, age, or color.

It’s whoever has the most talent and skill.

That’s what we’re trying to get to. That’s the perfect world here. Who’s credit-worthy and fundable as opposed to who’s the kind of person I want to fund? That’s not right.

It’s so disadvantageous because you’re excluding potentially very conscientious borrowers and highly fundable borrowers based on irrelevant decisioning like race, creed, location, or otherwise.

I can show you the SBA data with a FOIA request.

This PSA is brought to you by FICO.

The SBA’s charter is to go into lending areas that typically “aren’t profitable” but it turns out they’re very profitable.

I want to key off this. Keep this in mind. In our discussion, David made a critical point saying that it isn’t necessarily unbanked because unbanked means you don’t have a checking account, savings account, or otherwise. It’s underserved populations who pay cell phones, their utilities, and their rents as though their lives depend on it but FICO XD is barely starting to collect all this data. That data is payment mentality and borrower behavior. It almost doesn’t matter what you’re paying.

The FICO score is a psychology score, not a bank account score. It doesn’t say how much money I have in the bank. It’s how much are you willing to pay your bill. In some cases, I’m going to pay my debt because it’s a debt and I have to serve that debt before I do other things like go to the movies or buy new shoes because I owe this debt. I’m going to pay for it. It’s very much a psychology score.


FICO: A FICO score is a psychology score, not a bank account score.


I wanted to bring that up from our conversation. The intent to pay is a fundamental borrower experience rather than, “I want to live in my house.” People who are paying apartment rent want to live in their houses but pay their cars and cell phones.

The mortgage company will let you go 90 days before they tell you they’re going to kick you out. The apartment complex will put your stuff out on the street on day six.

They have three days to evict.

It’s gone. There’s more of an urgency to pay for that stuff, and that’s what I don’t get. The telephone company is going to shut you off. Your ISP is going to shut your internet down whereas the car company is not going to get your car until three months later. Why are we not looking at this data?

FICO XD is a whole different score that integrates that data. FICO not only helps lenders collect it and report it to the lenders for decisioning purposes but interestingly enough, that is the leadin to creating a credit system FICO score.

We’re moving to this ecosystem of data availability. The internet is a glorious thing. Data lakes and data are becoming ubiquitous. The telecom companies all keep a database because they associate together, and they have agreed to put this data in a system that they own. They’re like, “That might benefit others. Let’s go ahead and try to start sharing it.” We’re starting to see leakages out of those data lakes, which are going to feed tributaries into smaller ponds if you want to follow that analogy so that everybody gets to enjoy the waters.

The internet's a glorious thing; it's these data lakes and data becoming ubiquitous. It's trade information that shares databases. Click To Tweet

The new data streams that are available are going to help us in better decisioning. Therefore, the underserved stop being underserved because institutions will be able to track all of their things.

In the meantime, if you are in that underserved category, keep paying your bills. Don’t bounce checks. Pay stuff on time but also try to get some subprime credit card. Get a credit facility that is reported to the bureaus so you can start building that score. That’s usually younger people or people new to the country. I highly encourage it if you have it with the intent of treating it well. If you have it from a need perspective, don’t get it because you’re going to max it out and not pay for it.

If you are in that underserved category, keep paying your bills. Don't bounce checks. Click To Tweet

Interestingly enough, the strategy that we teach is rather than go for a lowertier credit card, we use the same money that would be used for secured purposes or otherwise, put it into a checking account, drive checking account traffic to build a relationship with that bank, get $500 with the bank, and then raise limits. We get to do tier 1 and tier 2. Some of these $350 rebates on Wells Fargo for opening up a checking account are aggressive.

There are also new deposit loans that are available to people. They would offer you an overdraft protection product. That’s being turned into a small-dollar loan product, which is helping abate the paycheck loan companies. You can always get away from that.

We want mainstream banks to use the paycheck loan but now you’re using it as a deposit, borrowing against it inside of your checking account, and building a banking relationship, which is critical. It’s the first step in building relationships toward everything that we want from a bank and how to partner with them.

Back to 1071, which led to all this, the purpose is to find out who these small business owners are, who is borrowing, and how are the banks treating these people. That term is called Disparate Impact. It is one group being impacted differently than another group. We’re going to see some positive outcomes of this and some negative outcomes of this but in the grand scheme of things, it’s all going to be positive. You’re going to start seeing organizations change their ways now knowing that the spotlight is coming. You want to put on your best outfit for that spotlight.


FICO: People are going to see organizations change their ways now, knowing that the spotlight is coming.


The good old banks have to evolve or they’re going to find that in that lack of firewall, everybody is going to say, “I don’t want to bank with you anymore.

I cannot name names. There’s also a new whistleblower ruling being put into effect with this by the CFPB, which says that if you’re a bank employee or somebody related to the bank in any way, and you turn the bank in for problematic actions, you can get a piece of the fine. There have been many meetings I’ve been in where I’m like, “I can make more money off the whistleblower than the deal I’m making with a bank here.”

That’s a new business opportunity employed by banks looking for bias.

I can’t name names but they’re there. People are people. People don’t change when they go to work.

That’s why we count on the next generation to be able to start optimizing bank behavior to be more open and inclusive.

When it’s more transparent, it’s better for everybody. The downstream effect of 1071 is you could be sitting on what you think is a small business credit card from one of the big banks. If you look at your Experian business report or your Dun & Bradstreet report, you’re not going to find it anywhere because that’s over on the retail side of the bank or the consumer side of the bank. It’s not being reported as a business loan.

When you get a business loan, you can say, “I’ve got this business credit card.” They’re like, “We don’t see you having a business card at all.” The bank is not going to lend to you because you’ve never had a product like that, meaning an active business loan. I’ve got on my prediction hat here. The 1071 is going to lead to a change in how banks report data to the bureaus. When it’s a small business loan, it must be reported to the bureau.

They’re going to update their process to report to business bureaus. There is no FCRA for business credit reporting.

There’s a crack in the dam. The crack in the dam is going to regulate small business reporting. When I submit that 1071 entry, I’m now saying, “I am a small business owner, and I have a small business product. Do you?”

It’s not showing.

A lot of banks are going to be going, “This isn’t a small business product. This is a product marketed to small business owners.”

That’s what we call an Imposter business credit card.

They’re going to weasel out of it tremendously. That bright light is going to be shown. Are you getting a small business loan? Are you getting a personal loan?

I will name names. Elan Financial is notorious. I don’t even know if Elan is a customer but Elan Financial underwrites gobs of credit union, tierthree banks, institutions, and community banks because they don’t have the in-house underwriting to do it. They name it but Elan reports everything to personal. We have to train our tribe to vet a bank to see who underwrites the card and do they report to personal.

It matters because it can end up killing your personal score if your utilization, exposure rate, and balance rate are high. It can kill it. That’s what’s happening.


FICO: If your utilization is high, if your exposure is high, and if your balance rates are high, it can kill your personal score.


1071 is on its way.

There’s some other stuff that I’m learning about but there are lots of changes going on in the space.

I’m loving it. One of the things that we talked about was FICO’s movement. I learned so much about the platform versus the independent software components. Will you speak to that evolution over the last couple of years and what it has become?

We used to sell products.­

Sixty-seven products.

I sold a product called Origination Manager, which was the product that certain companies use to originate consumer loans, small business loans, deposit accounts, and that sort of thing. You would go in, and as you’re feeding your information into their application, that application is feeding into our decisioning engine. That decision engine is being affected by a workflow engine, which is telling the data orchestration system to get bureau data, internal data, this, and that to complete your data profile, and then we churn that decision. Visually, it’s a big Plinko board from The Prices Is Right. You start here and end up somewhere on the bottom as an outcome.

We had one of those products for originations, collections, fraud, and customer management. Name the silo in the bank. We determined one day, “We’re good at making decisions. We don’t care what the decision is. When you ask us a question, we’re going to give you an answer. When you want us to get data, we’re going to get data.” Our FICO data orchestrator reaches out to 150-something different data systems across the globe. What do we have in Denmark? I can tell you. What do we have in Iceland? We have something for you.

This is the reach that we’re doing, and it’s all organic. Customers are going, “We need data from this system.” We will build you a connection because they’re making decisions about things that you wouldn’t think about. We have a video. If you go to FICO.com or the YouTube channel, you can watch a video on how we help companies detect fraud. One of the things we check is how quickly you tapped through the app or how quickly are you moving from page to page because that means panic or haste. That doesn’t mean thought. Sometimes it does. It’s like, “I’m doing this quickly for a reason. 9 times out of 10, that’s not good.”

Here’s the take-home message. Fill out your application deliberately and carefully.

I’m dead serious.

Theres a new intel or tutorial coming out.

That’s what your banks are measuring. It’s not just FICO. Our system can do it but other organizations with other platforms are doing this stuff. It’s where you’re doing it from. Are you doing it from Starbucks? Are you doing it from your house? Are you doing it from Nigeria? The IP address is important. It’s the system that you’re using. Are you using your phone? Are you using a laptop or a desktop? What ISP are you accessing?

Are you plugged in Ethernet or Wi-Fi?

Are you on a VPN or not? They know this stuff.

That is a big red flag.

We’re ingesting all of this to determine why we’re doing this and how we’re doing this. It tells them what to think of you as a customer. In a lot of cases, it’s more about how to protect you. Ultimately, it’s protecting the bank but it’s protecting the consumer so they maintain their reputation. I’m going to tell a personal story. My partner Lisa was in Chicago. I get this phone call, and she’s screaming at me, “Your system is doing this.” She had not told her credit card company that she was traveling that week, and it was throwing fraud flags everywhere. She’s at this hotel in Chicago. It’s a pretty pricey hotel outside of her norm. It’s not the average Marriott. It was The Drake or something like that.

They pinged her.

I’m getting screamed at because there’s security, and I’m like, “You’re the one who didn’t notify your bank.” That’s why you put in, “I’m going to be traveling to these cities or these countries.” It allows a little more freedom in that aspect.

You’re conscientiously using your credit. Our borrowing behaviors are not rote or automatic. They’re deliberate.

You have a profile at the bank. You have an action profile.

These are places commonly visited.

I got a text once, “Did you buy $300 worth of liquor in a New Jersey liquor store?” “Not New Jersey. That was at 3:00 in the afternoon. At 1:00, you knew I was at a Starbucks in Atlanta. Why did you think I flew to New Jersey to buy liquor?” It’s flagging this stuff and going, “This is out of the profile. Do you want to authorize this or not?” There’s a little bit of protecting them, a lot of protecting you, and a lot of protecting reputation in general because lost money creates more expensive stuff. The bank is going to charge you somehow for those lost $500.

Lost money creates more expensive stuff. Click To Tweet

Let’s save everybody the hassle. This is also a true story. I teach my girlfriend that there are certain applications, FinTech’s, and different platforms that look at how low your battery goes on your phone and that they measure under 20% or whatever it is. It says, “You’re now in credit risk territory because if you’re not attentive to such an important communication device, how are you going to do outofsight or outofmind things?” Every single time, I go, “What’s your charge?” She goes, “I have bad credit.” Every single time, if she’s under 20%, she answers, “I have bad credit.” I’m like, “Plug your phone in.”

We did a study years ago. This is telling you how far back we have been doing this or helping our customers do this analysis. A particular Canadian company could tell when you use their in-house gas card for gas. When you used it close to the 15th of the month and close to the 30th of the month, that means you ran out of money and that you didn’t have cash in your bank account because it’s close to payday. You’re using credit instead of cash. If you steadily use the credit card throughout the month, you’re probably transacting. You’re probably using it and then paying it off but if you only use it on the 14th and only use it on the 29th, you’re at credit risk because you have no money in your bank account.

See how cool this is. See how much intel that we can deliberately plan. The app we’re building is designed to account for and give reminders about how to use credit intelligently throughout the entire month so that we’re avoiding these red flags.

I was talking to a South African bank. American banks do this too, not just South African banks. He’s talking about how he looks at average checking accounts, DDA balance, average balance, current balance, minimum balance, maximum balance, and the ratios between those. He’s like, “We track time. What’s the distance timewise between average balance and minimum balance?”

Is it three days or three weeks?

There are some accounts where I’ll keep an average of $500. It’s $1,000 or $0 because I pay bills out of that account. I’ll put money for the bill, and then two days later, it’s gone. I’m a bad person on that one but my checking account stays within a range. It’s comfortable. Everybody anticipates it. Occasionally, you will get a big deposit. Occasionally, you will get a big ACH going out.

That’s why we do 1, 2, 4, and 7, the minimum balance through the month or whatever it is. We call it the new zero. We want the new zero to be $1,000, $2,000, $4,000, $7,000 or higher. That way, people can then play the zero game.

I’m telling my daughter, “It’s like when you tell a new driver, ‘Don’t let the gas tank get below a quarter tank.’ Catherine, don’t let your checking account get below $25.” She’s 21. She’s in college. $25 is a ton to ask for her to do but I’m like, “You need that special fund. You need $5 worth of gas to get home. You need $5 for an Uber. Keep the reserve. Consider $25 zero. Consider a quarter tank of gas zero.”

That’s the new zero.

I’ll start using your phrase, “New zero.”

We want it to be $25 but we want to start hitting the minimum daily balance or DDAs because of $100, $200, $400, and $700. Those traffic patterns mean something in the banks.

Cashflow is the new thing.

Update us on what’s coming down the pike.

What organizations have been doing is looking to see how effective cashflow is in helping predict not credit but repayment of loans. You have the initial credit discussion, “Is this person worthy? Are they fundable?” The second question to ask is, “Can they repay this? Do they have the actual means to repay this?”


FICO: What organizations have been doing is looking to see how effective cash flow is in helping predict credit or helping predict repayment—not really credit but repayment of loans.


It is always a cashflow issue, not a credit issue.

What you don’t want is to use credit to pay for credit. You want cash to pay for credit.

That’s the bottommost pit.

Here’s another thing I’ve learned. I’m going to sidetrack here. As a company, we track the percentage of minimum payment and then the percent of payment compared to balance and max. Those numbers are creeping up these days.

They’re tracking how many times you make a minimum payment because that’s another statement of lack of funds.

If your minimum payment is $35, pay $38. You’re still not going to be high but pay $1 over the minimum so you’re not minimum payment marked. There’s another mark. Another code for that above is paying more than the minimum, and that matters.

It almost doesn’t matter how much other than the percentage of the balance.

There’s another value or characteristic that will measure that but at least on this aspect, you’re going to be scored higher than paying the minimum. Try to be $40 or higher than that. More people these days are using credit cards for cash replacement. You’re starting to see more people put utilities on credit cards. They’re paying their gas bill, electric bill, and water bill using credit instead of cash. Have any of you gone to a grocery store lately? You can’t buy a dozen eggs for less than $3 these days. That used to be the cheapest meal out there. No more. I grew up on eggs on Friday because we didn’t have any money. It’s the cheapest meal.

Two things can exist at the same time. You could pay your utilities on a credit card if, at the end of the week or biweekly, you’re paying it off. We’re paying it to 1%. We’re paying it to zero because we want the points and the traffic. We don’t want them lowering our limits because of lack of activity. We charge up everything we can but if you hold balances and you’re paying utilities, you’re only painting half of the picture. We need to show the pay-downs on a regular basis.

I’m not saying don’t pay your utilities with your credit card.

It’s an indicator and red flag if you do not have the corresponding payments as well.

You should immediately pay your water bill with your credit card to get the miles, points, or cashback but then the next browser tab you open is your credit card company. I can’t tell you how many times I do that but if you’re not going to take step 1 and step 2, do not do step 1. Skip straight to step two and pay your water bill with your cash. Cashflows and velocity matter. Let’s talk about a single DDA or Demand Deposit Account. Nobody uses checks anymore. The kids are like, “What’s a check? You write things down on paper.”

“That went out with the ‘80s, Dad.” It’s where we come from and where we’re going.

DDA accounts have one singular DDA account at one bank that everything goes into. I understand there are certain times they’re partnerships but you can funnel everything through one account.

Move your expenses or otherwise after that.

I have one account where all my money goes into personally. I’ve got my bills account. I’ve got my daughter’s college fund account. I move money.

After it’s deposited into a singular account is what we teach. Choose an account to be your main account because that’s where all of the traffic indicators and the internal performance data are going to be tracked. We want to maximize those.

The systems out there are called Plaid and Yodlee. MX is another one. You give them your login for the bank, and they go in and interrogate that account. If you’re putting some of your money here and some of your money there, the bank that’s looking to fund you doesn’t have a complete picture of your cashflow.

You heard it here.

Merrill has been saying this for how long. It makes sense. That’s what these systems do, and that’s what the banks are doing. They will count, “You had $10,000 go out of this account via ACH. We’re not tracking where it went. We’re not tracking what it is,” but they can see, “Every 14th and 29th, 28th, or whatever the end of the month is, I see ACH is going out. That’s payroll.” Maybe you pay yourself, or you’re paying your employees. They deduce this via the data.

Yodlee, Plaid, and MX will tag it as payroll going out to another account. They will track how you’re spending and what you’re spending out of that account. If you’re swiping a debit card at Starbucks, they’re going to know, “Out of this business account, they’re spending $75 a month at food places.” They’re tracking to the nth degree and creating all kinds of ratios and calculations.

If they’re tracking it, we can manipulate it to our benefit. #Fundability.

It is that simple.

The funny thing is we have been doing this actively. I’ve been studying it and implementing it in my boutique business for 30 years but in the last few years is when we have built the horsepower and got the data to support it. We’re now building the app. The fascinating thing is we’re still the only game in town that does any of this for borrowers. It makes the biggest difference in the world.

If you know the tricks and what the banks are doing, you can play the game again. If you’re scamming them, they’re going to figure that out quickly. I’m not saying you’re scamming them. You’re playing the game, “I’m smart. I’m going to show them all my cashflow. That’s the answer. I’m not going to spend half my cashflow. David wrote down on the application that you’ve got $22,000 worth of cashflow a month. We only see $7,000. Where is it?”

If you're scamming banks, they're going to figure it out. Click To Tweet

That question takes you to manual review instead of automatic underwriting.

You don’t want to go to manual review. Nobody survives manual review. Here’s the thing. Think about it this way. I talk about the culture of automated decisioning to regional and community banks. The tiers 1 and 2 have taken care of it but if the regional banks and the tiers 3 and 4, when something hits an underwriter’s desk, especially if it’s less than $100,000, if they lose a $100,000 loan, life goes on. They also have this $1.5 million commercial real estate loan on their desk. They also have this $2 million strip mall loan that’s weighing more heavily on them.

It’s more profitable. It takes the same amount of time to underwrite $2 million as it does $100,000. You’re going to be so low priority.

You’re low priority or I’m going to quickly say no to this to get back to this $2 million that I’m being screamed at because this has C-level attention or branch manager attention. Your loan at $100,000 doesn’t. I may kick it out with some bad terms that are acceptable to the bank because higher terms and worse terms are always acceptable to the bank. Better terms maybe not. I’m not saying underwriters do this a ton but there’s that psychology, “I shouldn’t be doing this. I shouldn’t be looking at this $100,000 loan because I’ve got this other stuff to deal with.” I talk about automated scoring to remove those loans from that person. This underwriter is getting paid very good money to make hard decisions about expensive loans.

Why waste time, energy, and resources on this?

If you can work with Merrill and stay within the guardrails of an automated decision, you’re going to get more yeses than noes. I guarantee it. Once it hits underwriting, anything can happen at that point. You went from objective review to subjective review even though you have the most unbiased professional team of underwriters. If you put five loans in front of five underwriters, they’re going to approve three out of the five loans but when you ask them why they approved the three or why they declined the two, you’re going to get different answers. That’s human nature, “I have a bias toward DTI. I have a bias toward this and that.”

Their portfolio performs better given X, and they focus on X.

They laser focus on it. That doesn’t mean that if you put those same five applications through an automated system, you’re going to get a different outcome. You could. Three will be approved. Two will be declined. Is it going to be the same three and the same two? I don’t know, but one of them will be different.

This reminds me of the panel that you invited me to at FICO 18.

Was that pre-COVID? I don’t remember anything pre-COVID.

It was pre-COVID. He was leading this panel of underwriters and VPs of banks. I won’t name names or banks but it went off a little bit. It was a very narrow group of people who were in there. There were seventeen of us. I remember that they were talking to each other about what they do to avoid underwriting $50,000 and $100,000. They were like, “Give us your card.” They’re the decision-makers. They’re like, “I will have the decision-maker give you a call.” In front of my eyeballs, they would say that they would trashcan the information because it wasn’t worth their time in manual underwriting. It’s very much worth their time in automatic underwriting.

Credit Union Magazine ran a study that showed that profitability for a small business loan starts at $32,000. If you’re manually underwriting a $32,000 loan, you’re not making any money. For five years, you’re making a dime. $50,000 was making $300. You can only make these small loans profitable if you automate them, and the bank underwriters know it. They know this is a favor. You’re doing them a solid to even look at it.


FICO: Profitability for a small business loan starts at $32,000. If you’re manually underwriting a $32,000 loan, you’re not making any money.


Think about it. If you knew in your business that a transaction is going to break even, you’re not making a dime of how excited you are for it. If you’re making a batch of friendship baguettes, and you’re like, “I’m going to spend the next hour making these baguettes. It’s going to cost me $30 to make. I’m going to sell ten baguettes for $3 apiece and break even,” you’re not doing it. That’s a waste of time. Are you going to sell them for $2 and lose $10? No.

What’s funny is we send our people to banks to start a relationship. They will start an application process and fill out the checking account information, and because they’re highly fundable, they’re starting the relationship. We want this to happen after 90 days. We think we’re doing well. Many times, they will go into tier one. They will go in and be like, “This says you qualified no inquiry for a $20,000 credit card.” They’re like, “Let’s do it.”

They fill out the application for the credit card. There are all the fundability triggers, and then they’re like, “It says you qualify up to $100,000 on a business line but we have to do an inquiry. Do you want that? It gets a 50 and a 20 and walks out the door with a brand new banking relationship because you had the data when you were filling out the checking account information.

They’re doing a lot. There are opt-in boxes that you check on that DDA application. They’re doing a lot in the background. They’re hunting for you in the background.

They’re looking for whether or not they can trust you already with money with a brand new relationship.

B of A has this. Huntington has this. They’re instantly looking to see if they can fund you up to $10,000 walking in the door and looking at a checking account instantly because it’s the former overdraft product that has been poo-pooed on by the regulators that they’re now turning into loans. Do you want a line of credit for $10,000?

Once we have approval, our traffic patterns will incite higher approvals.

The first one is free. Let’s give them a small loan and see how they deal with it, to your point. If you’re successful with that, you’re successful with the next thing. Pretty soon, you’re sitting where you want to be.

David, I don’t want to keep you all day even though I would because I’m a greedy bastard. Thank you again so much. You helped my tribe. I showed him the scope document for our application. We have so many positive things happening. Your intel, the NDAs, and all of it have helped me build something that is going to be so valuable to not only the ones here. Millions of people are going to be able to become fundable on their phones and do the things they need to do to make these intelligent decisions.

We have also connected him to some of our FICO score brain trusts.

More on this later. It was serendipitous.

Sometimes you’re like, “This is meant to be.” He started asking questions. I’m like, “Here’s the man that can answer those questions.” He walked right in.

It happened to be a guy that I saw doing a presentation at CreditCon. He and I had a conversation over the heads of 200 people, and we kept this conversation going. He walks in and says, “I’ll be your FICO score guy.

He’s like, “You think I know a lot of stuff. These guys see the soup being made.” It’s fascinating. I’ve had a good time.

It’s always magic. Guys, I love you. We’re bringing this from FICO World 23.

I’m going to give a shout-out to Jessica and Sarah, members of his team. They’re magnificent.

When we’re on Fundability Hackers, Sarah is one of the advisors who’s usually there attending.

Sarah knows her stuff.

She’s sharp. We brought her back here to help us in our data analytics and be able to create a broader and more powerful base for our decisioning inside of our application. We keep moving forward. Thank you so much, David. It’s always a blast. Be well. We will see you next time.


Important Links