e. business combination) was completed, The Bear Cave launched a short attack arguing OPFI is a “payday lender” with a 129% average annual interest rate, pays for positive online reviews, and is the target of some state attorney generals. As with most short attacks, this characterization is a false narrative. While the 129% average annual interest rate may be close to the truth, the range is 59% to 160% per the analyst day presentation. More importantly, real payday lenders charge 391% on average according to the Federal Reserve Bank of St. Louis and subprime lenders like OPFI need to charge a fair rate given the risk undertaken, since approximately 30% of its loans are charged-off. Regarding online reviews, TrustPilot has received more than 2,100 customer reviews for OppFi and the average review is a 4.7 on a 5-point scale. TrustPilot ensures its scoring integrity through multiple safeguards as outlined in its recently published transparency report. In addition, while a small number of politically motivated attorney generals in Democrat-controlled states have attacked subprime small dollar lenders, including OppFi, the truth is that OPFI is in favor of “common sense consumer protection guidance” that also “protects credit access for millions of everyday consumers.” This past summer, OppFi released its position statement titled Non-Prime Consumer Loan Market Reform: A Policy Paper. In sum, part of the reason why OPFI generates such stellar customer reviews despite charging the interest rates that it does is because this lender is customer friendly by structuring the loans with amortization, imposing no origination, late, or NSF fees, and when needed collaborating with customers to modify payment terms.
Robust Growth For Current Products
We expect OppFi’s robust growth to continue for the foreseeable future, as management elects to strategically tradeoff some profitability margin for higher origination growth. During the five-year period from 2015 through 2020, OPFI’s revenue compounded annual growth rate (CAGR) grew more 100%.
By investing more in marketing and technology, and tweaking its underwriting algorithm, OPFI can further accelerate origination growth. These initiatives would further increase the automated approval percentage (51% in 2Q:21 up from 0% in 4Q:17) and application conversation (total funded loans to applications, which was 24% in 2Q:21 up from 9% in 4Q:17). Based on the analyst day investor presentation, OPFI has significantly shifted its marketing focus to lower cost non-direct mail (i.e. SEO, email marketing, customer referrals, strategic partnerships, etc) and away from direct mail, such that the mix was approximately in 2020 compared to in 2017.
OppFi’s current product portfolio is a well-rounded ecosystem in that OppLoans and SalaryTap are entry-point products to introduce customers to OPFI and the OppFi Card is a brand extension, “graduation product” intended for its best OppLoan customers who have improved their credit profiles sufficiently to qualify for revolving credit.
OppFi signaled accelerating growth for SalaryTap and the OppFi Card. Earlier this month, OPFI announced its credit facility for SalaryTap increased 80% to $45 million and its $75 million credit facility for the OppFi Card was amended to support the product’s expansion, including permitting the pledging of receivables.
Introduce New Product Categories
OppFi’s longer-term growth strategy is to leverage its digitally-enabled lending platform to scale-up its financial services offerings for the underbanked everyday consumer. The OPFI strategic goal is to become the “SoFi” for this underserved consumer segment. By offering new products, OPFI can increase its average customer lifetime value by retaining customers as they improve their credit rating.
We think the most logical next product for OppFi to introduce is a “buy now, pay later” product. Katapult (KPLT), with its lease-to-own model, is currently one of the subprime leaders in this category, however we think that OPFI could easily enter this space, perhaps even with a different operating model, to leverage its customer database to quickly build market share. Longer-term, we expect OPFI to installmentloansgroup.com/payday-loans-id enter mortgage lending, auto lending, mobile banking, and investment platform categories. Since many subprime consumers lack access to traditional bank accounts, we suggest mobile banking would likely be the most lucrative category after point of sale lending. By launching mobile banking and investment platforms, OppFi would also make progress on its mission to help everyday consumers to save and build wealth.
