#274 Fintech Innovations in Digital Lending with Andres Klaric

0:00:02 - Mehmet
Hello, I will come back to a new episode of the CTO show with Mehmet Today. I'm very pleased joining me from New York. Andres, thank you very much for making the time to be with me on this episode today. The way I love to do it is I keep it to my guests to introduce themselves and what they are doing. So the floor is yours. 

0:00:19 - Andres
Absolutely Well, good morning or good afternoon from your end. I'm Andres Klaric here. I was born in the US, but I was raised my entire life in Bolivia. I come from a family that has been in the auto space forever, so my grandpa was a race car driver. My dad has worked in auto finance for a good chunk of his career and my first job at a high school was selling cars. I paid for college selling cars and then after college I went into Wall Street. I worked at investment banks and then switched into the buy side, working in private equity and hedge funds, and along the way I went to business school and went to Harvard. For that I met Michael Founder during grad school there and a little bit over two years ago we decided to join forces to build the first stage of what today is used. 

Originally, the business was a direct-to-consumer brand offering auto loans, so we were working with top-to-bank, top-to-credit unions and finance companies here in the US and those companies approached us at some point and they were like guys, we love what you're doing in terms of originating loans for us, but we were frankly interested in, perplexed by how good the technology that you guys have has to be for you to originate loans at the speed and with precision that you're doing it. 

So, out of curiosity, what type of technology are you using for your architecture? Because I imagine it has to be like a vendor, right, because you've launched so fast? And our answer was no. Well, guess, we actually have built that internally, to which they kind of pretty much in unitone told us, guys, we're actually far more, we're interested in your technology, and then you guys are selling us loans because we have far more volume than we want to handle and perhaps the solution you built internally is something that we can utilize for the broad lending operations of our organizations. So we switch from direct-to-consumer to B2B and that's kind of how Fuse was born. We raised millions of dollars of capital ever since that, working mostly in the US, today in North America as a whole, and that's kind of like the quick story on Fuse. 

0:02:28 - Mehmet
That's great, anders, to know. And this show, although it's called the CTO show, but we discuss a lot about startups, entrepreneurs. So the question that I'm always curious to ask every single founder I interview is what was the moment that you felt, ok, there is a need for this. So what was the trigger for you and your co-founders to say, hey, there is a problem, it needs to have a solution? 

0:02:57 - Andres
So if you can explain that to us, yeah, I think that first there were two problems that we tried to solve. The original one was automating certain processes that take place during the lending or origination. So up until the point in which we kind of interrupted into the B2C space, there were a lot of pen and paper, a lot of processes that require what it's called like what signatures here in the US and we were like, hey, there is an opportunity for a lot of this very prone to error processes to actually be automated in the same way that has been done in the travel world, the insurance world, that just tackle it within the confines of the lending world. But we didn't know that what felt like a direct-to-consumer kind of speed bump was much larger when it came to processes within the lending organization. So if anything like what we are today, the loan origination system space that we entered, I don't think we would have ever found this niche had we not started direct-to-consumer, because it's such a it's kind of like hidden between the architecture of all the bills and the POSs and the point of sales and like all the other pieces of software that you don't, that you think about way before you think about a loan origination system that I am very grateful that we actually walked into it, because I don't think had we not gone the journey, had we not taken the journey that we took, I don't think we would have been able to, or at least it would have not been as easy to find such an interesting niche. 

It's a massive market, like tens of billions of dollars that you get spent on the piece of architecture that we build, stages that you probably have never heard about it. 

0:04:47 - Mehmet
That's good and great to know, andres, about that, and I love innovation in general, and the fintech industry is quite an exciting one, and once we think we're done, there's nothing to innovate, and always you find the ideas there, so one I was preparing for the episode, so one of the things is that you had a role of low-code platform so and building on APIs, so how these technologies are evolving actually in the finance sector, like in the fintech, and what do you think their impact might be on the traditional banking systems as we know that? 

0:05:35 - Andres
Yeah, I mean, the work for talent is not going to stop, right, With the advent of AI and all of this. The financial sector is going to continue to compete with Silicon Valley for talent. So that forces us to kind of like, really make a choice right, and a choice that doesn't really necessarily compromise, but a choice that needs to be made. As far as, like, what do we do with all the non-technical talent that usually needs to wait for engineering teams to make changes, right? So we decided to give them the tools to do a lot of the work that today needs to be left for engineering and engineering teams, and this is, in general, like more tactical work, right Stuff that, like I would say, the average engineer will consider busy work that like removes them from their strategic work, that, like business teams sometimes need them immediately, right, that like it's a quick, hot fix, perhaps from an engineering standpoint, but it's a distraction from, like the more strategic thinking that they're doing. So, like from the local no-code standpoint. It's like, for example, workflows, really updating rate sheets, one of these things like really enable for the non-technical teams and the technical teams to coordinate better or like, if anything, not have to coordinate for certain tasks that I would consider more mundane, so to speak, as far as like kind of inspiration that we draw on for modern industries. 

As far as local no-code usage, right, like when you think about the UX that you see on an error table, right Like. So you see all these interfaces and everything like that and you're like hey, there has to be an opportunity to bring some of this solution, so drag and drop that you see on whenever you're adding documents into your email, things like that that exists already in many other applications. Or like the speed of like ordering through a door dash or an Uber, like why can't we just bring that into? Like the V2V experience, right? So that is kind of where our insight was Noticing that there was a collection of experiences that like were already happening across other verticals and we brought it into the financial industry and that's something that, like our user base also appreciates, right, because they're familiar with utilizing this technology elsewhere. They just had never seen it in the context of Vintec. 

0:07:57 - Mehmet
That's great. By the way, anders, I'm fan of anything low code, no code, automation. So when I see a startup that has been built on top of that, I really like it, because it's proved my point that you can do a lot of things facilitating the reach of technology. So it's kind of the world is correct, maybe democratizing the use of technology for even normal users, so you don't need to be a tech savvy, for example, to use the platform, which is amazing. Now, because the topic of loan applications and this one I covered a couple of times, but from different perspective, and I want to hear European about some other integrations. So, for example, in one of my episodes, so we were discussing this integration to us with Bruno, we were discussing about the blockchain with the loan applications and, for example, I just it was released. I know this is going to be after two weeks, but I know today I released an episode about open banking. So how do you see your solution integrating with other niche or, let's say, edge technology that are out in the market today. 

0:09:13 - Andres
I think, as long as, from regulatory standpoint, our customers feel comfortable, we should be able to provide them all those integrations. The way our product has three verticals that are fundamental. First and foremost, it's access to as many integrations as possible or self-serve tools that enable you to build those APIs yourself and not whoever have to rely on my team of engineers. You are self-reliant because you have the best tool in the market from an API connectivity standpoint. Second is the local, local tools that you mentioned, and the third is workflows. So, as you think about blockchain and other point solutions, you think providing that connectivity and ease of integration for customers is fundamental for us to differentiate ourselves. The use cases are plentiful, of course. Blockchain, despite all the noise, I think finally we're seeing very good use cases in the marketplace and what we want is our customers to have access to that ability to integrate those if they saw fit, to actually bring them into the realm of their product. 

0:10:26 - Mehmet
That's 100%. I agree with you on this One thing also how Because I always try to read between the lines and I can see you are up to something much bigger so how do you think views would contribute to a more financial inclusion, especially because we know and I'm based in Dubai, I cover a lot about the startup scenes in Middle East Africa, in the region and even some part of APAC. So how do you see the contribution of views in the inclusion of sometimes underbanked? So there are some people even they don't have bank accounts and even maybe some underserved markets. 

0:11:14 - Andres
Yeah, I see it in multiple ways, but like to just give you two specific examples. I always think that like, bringing efficiency to the lending process allows you to two things right. You can go to the Milton Friedman approach that like it allows you to capture more profits, and definitely like, you can give higher dividends to your shareholders, but at the same time, it allows you to grow more. And if you grow more, that also means that the marginal borrower is going to get a loan right. 

Because even if, by virtue of like being able to be more efficient, that means you have that extra dollar of money that you can reinvest into growing your loan portfolio right, so that in itself that marginal borrower or getting that extra loan translates into like better, that person that is able to buy a house, is able to buy a car to go to work, is able to like get a student loan to go to university, and like the wonderful multiplier effect that like credit gives to the market right, so that, from an access standpoint, is huge. 

And second, if I had to think more macro speaking and instead of like just the micro specific example, I think like that yet to this day there's no like a specific operating system of the banking world. Right, like the blockchain, it's kind of when you think about moving money, but as far as like a platform in which, like, a lot of applications can be built and like this fabric in which orchestration, the orchestration layer in which everything happens, is something that like I think longterm is a vision that like pretty appetizing to us and kind of enable financial institutions to kind of adopt new technology in a way that today they cannot do it because they're, like they have multiple systems that do not intercommunicate with each other. 

0:12:49 - Mehmet
That's great to hear, actually, andres, and knowing that you have this vision. Before I finish from the finance perspective and ask a couple of other questions. So how do you see the future of digital lending evolving and how do you see the role of Fuse playing in that future? 

0:13:13 - Andres
Yeah, I think that you alluded to another question and I think I didn't touch much on it. 

It's like open banking is going to it's always, you know, depending on how rapid the adoption is by geography but open banking will allow you to better on the right customers, right Like pre-visibility, and, as a customer itself, to be able to like share with the lenders information that today, like it's hard to port over from one place to another, right, so that in itself is going to help to have much more curated set of loan offers. 

I do think that there is a massive opportunity also in the recapture space. 

So, for example, people that are having a distributed kind of approach to how they bank, meaning they have a auto loan with a captive auto lender and they have a student loan with a different organization. 

So being able to surround that customer with a plethora of different products and kind of get them to bank with you, it's something that it's pretty interesting in the long term and as far as like created opportunity, I think there's going to be more opportunity to customization, of course within the boundaries of regulation, by being able to like actually get multi-offers, get to have a shop around for credit in a way that doesn't affect your credit score. Within the context of the US, I think all of that is things that we're already seeing, but I think we're going to see it in a much larger, much higher kind of impact, so to speak, in the coming years. I'm pretty excited about what the world of credit kind of has to bring, because it is kind of leverage, enables so many things and being able to do it in a much more precise and without sometimes all the issues that over-levering could bring to the table. 

0:15:08 - Mehmet
That's great, also insights from you, andres. I said that the final thing related to that, but you know there is no episode I record without asking about AI, and you know the role of AI in the whole. You know the FinTech industry in general and maybe in the landing space which you are in, so how do you think AI will also change the landscape there? 

0:15:37 - Andres
I think there's especially. 

There's the fear, of course, of mistakes, right, but like, if you're choosing not to use AI, you're also like subject accepting to make other mistakes, right. 

So there's a trade-off that practitioners will have to make as kind of the technology gets even more precise in humans, right so. 

But as it pertains to like specific applications that I see in the very short term or midterm, it's a doc creation, right, like, for example, as it pertains to like commercial lending it's very common to see in those categories of memos being built in order for their investment committees to make a decision. 

So imagine a world in which a lot of those memos, if not all the memo, gets done by AI. Right, like you feed them information, the model is built by the AI tools. The model is then kind of reviewed by an analyst or a junior person that kind of is in general in charge of those, and any changes to that model automatically get reflected on that memo, right, and that memo in itself can have flexibility and change the based on whatever commentaries are gathered during that investment committee session. Same applies for, like document creation, document absorption and that being reflected in the context of loan docs. That's kind of like a preamble of many other things that we will see right Like that's not even getting into underwriting, and other things that are obviously going to have see the effect of AI over the next couple of years. 

0:17:07 - Mehmet
Yeah, great. And you know, I think for you, because you're already leveraging, you know, some of the other things that we just mentioned the low code, no code and automation. And I'm seeing across and you're very I would say very right on this one If you're not using AI to do this kind of manual thing that usually we used to do, so, yeah, you would be losing customer experience, you would be losing on, you know, even on the overall product attractiveness. Now, shifting gear a little bit about you know from the entrepreneurial perspective, andres. So, like you mentioned to me before, about you know having your co-founders with you, how much is it important to have this. You know spirit of the team when, especially in the early days, and how do you combine. You know the. You know the skill sets and experience to complement each other and especially how this helps you also when building views. 

0:18:15 - Andres
Yeah, first and foremost, like, the decision to have a co-founder is an important decision, right. Like it's you're going to split equity in most instances and very close to parity ways, depending on, like, how early every each one joins the journey. But I think the entrepreneurial journey is pretty lonely, right. So having someone along the ride in itself is a phenomenal kind of advantage, and from my perspective, there's like the statistics out there too, and kind of like total returns for solo founders and non solo founders. I imagine folks can actually Google that, but I would say for me it was also a function of increasing the odds of success, right, and I'd rather be owner of a lower percentage of something that is worth a lot than something that I own 100% and it's board zero, right. So it's all about increasing also success, and I think co-founding this with Mark, my co-founder, was an excellent choice. 

As it comes to, like, specific complementary skills, I think it's very important that otherwise, the ability to kind of create equity value for the business could actually be hampered, right, because if you try identical people like you're both going to want to do the same thing and the division of labor is going to be hard, right. 

So if, given the fact that we have distinct level of skills, we can actually we can cast a wider net and definitely do more things right and do things that we both enjoy doing, and then we have complete ownership over and responsibility and accountability over. So I do think that, to the extent possible, it's very important that, like those Venn diagrams don't overly overlap. There are certain values and things that like they need to overlap on, but as it comes to talent, I think that it's better if, like, each one can cover other things. I mean, if you were building a distinct type of business I don't know if you're both building a private equity franchise or credit franchise or things like that I think it's good to you could actually have repeatable talents, because you need kind of like that ying, to that yang. I think we're trying to build technology. It's important to have a wide ranging set of capabilities to be able to, like, contribute to the value of the business. 

0:20:45 - Mehmet
Yeah, that's great insight. Another thing which also you touched on you know when you did your introduction pivoting, you know like you decided to go from D2C to B2B Now, and sometimes you know founders, they face this reality that or maybe it's not like really multiple situations where you need to change the strategy, you need to change even the target audience and so on. So how much challenging it was for you to take this decision and can you elaborate why sometimes you need to take these hard decisions if they are hard actually for the benefit of the company and, you know, to be successful. 

0:21:34 - Andres
Yeah, I think, like the last question is, it's a relatively easy answer and it's like we get paid to make thoughtful decisions right. So a pivot is not different in the great scheme of things. Right Like people and investors and the folks that have backed us have chosen us and also our customers, because they trust our ability to make choices right. So the decision to pivot is not different from that. I think that, as it comes to actually making that decision, you need to. It's not something that is slight, right. You need to first gain conviction that whatever you were doing before it's not necessarily as far as like from a utilitarian curve. If you want to just see it through the lens of that, it's not going to be like the best outcome for the business, Even if it's a good outcome and, adjusted for the risk, to pivot for us, like pivot in this direction was the best outcome we could pursue. Of course we needed to sign contracts, so we signed multiple contracts before we decided to pivot. Of course we needed to understand that the new market that we were going to was a market in which we were going to win and have a good chance of being much larger than whatever business we were building. Before we had to rebuild the team right or, like, at least free wire a lot of roles in such a way that from a talent standpoint, we were not going to be at that disadvantage. So every single vertical the business needed to be reevaluated from the perspective of what is going to actually make it into the other version of the business. 

And that decision making takes time and it's not something that you just like should from the head type of thing right. So you need to make all the decisions before the grand decision. You need to kind of do business decisions. You need to make smaller decisions along the way in order to kind of decide that yes, no. And then, of course, you need to convince all stakeholders your co-founders, the co-founders need to agree. The employees need to be aligned, investors need to be aligned. You need to make sure that, like, no client is heavily affected by this type of change and that whoever is going to be your course stakeholders in the next iteration of the business is super aligned with the change. So once all those things are aligned, that, I think you can confidently go make the recommendation to your board. There's still the risk that they say no, but at least you kind of show, an entire process that has been thoughtful and it's been from the kind of bottom up approach in order for you to make a confident decision from that perspective. 

0:24:22 - Mehmet
You know, it's like absolute wisdom. I would say, Andres, and thank you for sharing good experience. One more thing also you mentioned to me before that you turned down an offer from Y Combinator, from YC, and say bold move, because there are plenty of people like they. Even here in Dubai, people come and ask do you think we should go and apply it? Because they need this one in a time, one in a life chance to at least be accepted. And then the rest of the story so, but what made you take this? You know, bold decision, and how, actually, you know, when you reflect on it now you see that it was the right decision, that it was aligning with your long term vision and strategy for views. 

0:25:14 - Andres
I would say, in the context of that time, it was the right decision. I think that if I had the ability to see the future and see that we were going to pivot and going to different direction, probably would have. We would have. We will rethink that decision. But at that point, key things that we already had we had already raised some venture money. So there's an allure associated with YC that means that you're going to be able to raise venture money if you're like a pre-seed or like no unbacked company yet. So that component of getting capital was not necessarily like that kind of sweetener, was not as sweet anymore, because it would actually mean that the YC valuation will be a big discount to what we already had. Second was that we were B2C and although there's plenty of good examples of YC companies that are B2C focused, the benefit of the batch was different, right. And third, we actually spoke with a plethora of founders and also investors and we were going to be able to make our mind in terms of like, hey, we want to focus on our energy and actually building the business, let's go and build, right. 

I think, and just to be super transparent, like there's no real negotiation of terms of YC. I mean, we've read through blogs and all of that and we were hoping that there will be a possibility to, like, negotiate terms. I think that's very hard. I'm sure very few folks. 

In general, it's just a recipe for failure if you want to negotiate terms and we just thought, hey, like in this moment in time, with the information we have, the best path for us is not to take YC. We're not going to be a good combination. Of course, we felt it's not an easy decision, but it was not something that we spent months on thinking. Right, you have a few days less than a week to decide and make a decision with information and the fact that you're going back to having a good co-founder is just the two of you have to agree and then just move forward and go on with your life. Yeah, I would say, if you're building B2B, if we were just fused instead of just like the B2C alternative, I think that the scoring of the decision would have been different. 

0:27:51 - Mehmet
Out of curiosity, andres, you're a first time founder, right, yeah, you know, I congratulate you on this courage because, you know, in my day job, I would say so, part of this I do kind of mentoring, and you know like everyone is running after, yeah, we need the VC money now and they still, as you said, in the pre-seed and seed, and you know. 

But you took a very different and actually bright approach by building first and then actually you are now VC backed, as I understood right. So, yeah, so you, so you showed some traction and then you brought the VC to the pictures, which is amazing. And you know one thing and I like that and I love that you mentioned about this is much of the first time founders they don't realize it about the equity, and you know how much control you are also giving. It's not only that you are taking the money, also you are giving control actually to the, to the, especially like some places like Y Combinator Amazing. You know, I really love to hear these stories and I'm happy that you shared that with us today. As we are coming to an end, andres, I want from you final thoughts, some advices to fellow entrepreneurs and to be founders in general, and if you know you want to touch on the fintech a little bit, feel free to do so. 

0:29:16 - Andres
Yeah, I think for founders it's it's there's a lot of common sense involved, but, like, sometimes you just there's just so much noise out there that, like it, it started like bending over backwards to. And I think, like, first principles are still remain as important and work with people that you trust, trust in the people that you work with, because it kind of like that Same thing applies not only like for the people you hire, is the people you partner with, the people that you raise money from. It's it does, it goes. That's common sense, right, and it's stuff that you will learn from your parents. 

But, I mean, life is complex and sometimes we tend to over build on top of things so that and as it comes to ideas, you don't get married to an idea like, nurture it, but like always have a competing kind of even around the product right. Like talk with customers as much as possible, get feedback and be able to like really rate quickly right. Like, especially at our stages when your startup, it is fundamental to recognize that your product needs to evolve based on the client needs but, at the same time, also be careful of sometimes start building too much for a specific client, right, because that client might have a need, that it's very niche and just if you over build for them that you lose the flexibility you don't need the reason why your product was winning. Right, and in fintech that that's particularly true. Right, because a lot of folks in fintech because technology in the, in the, in the segment that we operate in, has not changed much in the last 20, 30 years they are used to processes and those processing themselves have not been questioned for a while. Right, like what, what's efficient and what's better. 

So, bringing up perspective, of course, listen to your customer, but like, don't be scared to like, say, like hey, I think I can add more value here. And like, let me, let me figure you out and repeat back what you want. But have you thought about this? Other solutions that we've implemented? We've seen this implemented in insurance or healthcare or direct consumer. I think that that's something your clients will appreciate. And, yeah, I think that those are some of the thoughts that come immediately to my mind. 

0:31:36 - Mehmet
Great advice, especially the last one. It applies a lot and I've seen start up that they did the mistake, you know, on the promise that they are working, let's say, on a big contract. So they stop everything, they drop all the road map, they go focus on that one single feature, that it's applicable maybe to one, maybe two, but maybe they have one in hand. And then they discover that, hey, because this is an advice from me, maybe this customer, even if you build that feature, he will not sign the contract with you. 

So you have wasted your time, wasted your resources and lost, like a bunch of other customers. Andress, I really enjoyed the conversation today, where people can find more about you and about fuse. 

0:32:25 - Andres
I'm really like me on LinkedIn and I can. I usually try to make time within a week or two to speak with anyone that reaches out. 

0:32:33 - Mehmet
Sure great. Thank you very much. I will make sure that you know the links are in the show notes. And again, andress, thank you very much for sharing your experience, first, and also enlightened us about what you are doing with fuse. It's like a revolutionary technology. I can see that. I can see the future is brilliant for you. I wish you all the best with that. And you know, again, thank you for giving us the time and sharing the knowledge, and this is how usually I end my episodes. 

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