Bochenek makes no apologies, saying Avant provides a service to consumers whose alternatives would otherwise be more expensive when they need credit.
“If Avant and others (subprime lenders) aren’t there to provide access, what’s the alternative?” he says. “The alternative is usually extremely expensive payday lenders.”
This is a strong case for the high-rate term loans that Avant’s original business model favored and that the company continues to offer. These are intended for consumers faced with an unexpected healthcare or car repair bill and are paid off in monthly installments over a few years.
These are transactional agreements and generally do not produce an ongoing relationship with the company. A credit card, on the other hand, is designed to allow customers to stay for the long haul.
Nor does a consumer necessarily get a credit card to cover an emergency expense.
Bochenek admits that customer relationships are different between the two products. “A credit card product is a consumer utility,” he says.
Before launched its card business in 2017 primarily to serve consumers who did not qualify for a high rate term loan. The idea was to give them a card with a very low line of credit – say $300 – and improve their creditworthiness by using the card and keeping it current.
Today, the card is a stand-alone business, marketed to consumers whether or not they are interested in a personal loan. This is also where Avant invests its marketing dollars and attempts to build a brand. In August, Avant unveiled a multi-year program agreement with Major League Soccer to become the league’s official card company and offer a fan affinity card.
For reputational and commercial reasons, it is therefore in the interests of card companies to keep their customers informed about their loans. In the case of Discover, for example, net card loan write-offs hit 8% in 2010 as the company struggled through the Great Recession, but remained profitable.
A default rate of 11% would be terrible financially for Discover. But that’s largely due to the lower interest rates it charges its higher-rated clientele. The average interest in the second quarter for Discover cardholders was 12.8%.
For Avant card loans, the average interest rate is 28.5%, according to Kroll’s September report.
For customers who are in default on their Avant cards, the company reports to the credit bureaus, Bochenek said. Thus, the 15% of consumers whose ultimate default is built into Avant’s card business model will see their creditworthiness worsened by the experience.
Bochenek answers: “We design our products and services in a very transparent and understandable way.
As for the future and current financial situation of Avant, Bochenek refuses to say whether the company is profitable. But he says there is no need to raise capital, either equity or debt. Avant last raised capital in 2015.
A functioning securitization market is essential to prevent Avant from taking on more debt in an era of soaring attractive rates or increasing equity at valuations likely to be much lower than they were seven years ago. year. The company will need to continue to appeal to investors for the loan packages it generates. To do this, the loans will have to perform as advertised.
With the potential for a recession looming, that could be tough. So far, says Bochenek, Avant hasn’t seen anything surprising in the financial situation of its borrowers. But it is to be watched closely.
“We are preparing like everyone else,” he said.