When entrepreneur David Zalik went on a roadshow back in 2005 to pitch his idea for a fintech company that would extend instant point-of-sale retail loans, he knew that he had stumbled across a gold mine. But the 32-year-old veteran of the business world had a tough row to hoe when trying to convince banks to loan him the capital that he needed to get his new business off the ground.
Zalik visited dozens of banks in the fall of that year, only to be rebuffed by skeptical looks and promises by bankers to talk to their bosses, meetings that somehow never seemed to materialize. Eventually, Zalik came to terms with the fact that it wasn’t so much the concept behind his new company, which would become known as GreenSky Credit. Instead, it was the revenue model that had bankers spooked. Quite simply, it was a business model that had no historic analogue.
All sides gladly pay when everyone wins
But Zalik would end up being proven right. After being rejected by so many banks, the determined businessman decided to liquidate his entire real estate portfolio and finance the company himself. This would turn out to be a good bet. But even Zalik had doubts in the beginning about whether he could really make the GreenSky revenue model work.
GreenSky would ultimately end up making money from all three of the parties to the transaction although it wouldn’t be advertised that the borrowers themselves are actually paying for some of it. The contractors and retailers who pitch GreenSky loans and with whom the GreenSky borrowers are actually purchasing goods and services pay the highest fee, 6 percent of the principal amount. But these entities are more than happy to pay that fee because the loans are going towards business that they almost certainly would never have otherwise had.
And the fact is that the 6 percent fee that the retailer pays is effectively rolled into the loan itself, meaning that it is really the customer who ends up paying it. But the customers or borrowers couldn’t be happier. That’s because they’re getting to complete projects that otherwise would have fallen through. And the banks themselves pay a 1 percent carrying fee on all loan balances originated by GreenSky.