Why ‘It’s a World of Opportunity for Canadian Credit Unions’

“I don’t have that much cash available. Is there any way I can get a loan to finance this?” she asked the dentist. Her teeth were in need of care, and she had no dental insurance.

“I’m sorry, not really,” said the dentist.

Adam Rice was sitting there, watching the whole thing unfold. Even as a college student, he couldn’t let it go, and he never really has. That story, and others just like it, are what has fueled Loan Connect’s rise to the premier lending search engine for Canada.

I sat down with Adam on the Payments Innovation podcast, and he told me all about his unique approach to consumer personal loans:

Loan Connect had a ‘chicken-and-egg’ problem

That story truly is the “why” behind Lan Connect. The original idea was pretty simple: provide consumers personal loans, and ensure the lenders are actually competing with the lowest interest rates to gain the consumers’ business. But originally, Loan Connect had a chicken-and-egg problem:

They had no lenders, because they had no borrowers. They had no borrowers, because they had no lenders.

So, to start with, Adam went after the lenders, powering their behind-the-curtain operations. His clients are big names north of the border, and even Americans have probably heard of Credit Karma, whose Canadian operations are powered by Loan Connect.

Now, with the lenders to back them, borrowers are flocking to their innovative approach to personal loans in Canada.

Canadian banks are slow to change

“Things are moving slowly here in Canada,” said Adam. Personally, I’d say the US is about 5 years behind parts of Europe. When I asked Adam where Canada is at, he said it wasn’t quite the Stone Ages, but still even further behind than the US is.

Essentially, Canadian banks are very conservative, built on outdated coding and legacy systems. While that’s frustrating to Adam, it does have its benefits, he said: Canada wasn’t hit nearly as hard by the recent recession. 

The ‘Big 5’

Currently, there are 5 main banks that serve 90% of Canadians. The other 10% are using credit unions, which is what Adam has predominantly targeted.

Example of getting a personal loan in Canada via the Big 5

Currently, if someone were to attempt to get a loan from one of the Big Five banks (and, remember, 90% of Canadians use those), here’s what would happen:

They’d physically walk into a branch while someone took their ID and verified it by hand. Then, the bank employee would fax the loan application to the main branch in Toronto and await approval. In total, the process would take 5 days.

This simply doesn’t work within Loan Connect’s business model: Their goal is to get someone approved within 5 minutes, and funded on the same day.

Because of the slow-moving nature of Canada’s banks, going the traditional route wasn’t going to work for Adam. The banks weren’t interested in speeding up their process or updating their infrastructure. So, Loan Connect went to the credit unions, who were far more interested in agile innovation. 

Why Adam went around the ‘Big 5’ & focused on credit unions

So, as a work-around right now, Loan Connect has went to the credit unions as the lenders. The good news is: credit unions are keen on getting new customers, and they’re willing to upgrade outdated systems. Loan Connect offers them a simple deal: 

Leads for loans.

“We filter in new clients to them, as long as they can provide instant adjudication of those loans.”

Within this system, Loan Connect provides essentially no-cost leads to the credit unions, so they can take on new customers. Loan Connect makes money when those leads convert to a funded product.

Credit unions love this approach because they are able to get well-qualified leads that have a very high chance of conversion for no money upfront.

Loan Connect’s desire to help the end-user

Loan Connect runs a call center, which makes them little money at best, and loses money at its worst.

The entire purpose is to help consumers who are trapped in endless cycles, like the “payday” loan cycle: You borrow from one payday loan, and then to pay it back, you borrow from another, and so on. The APR on these payday loans can be north of 500%, which makes it harder and harder to get out of this cycle once you’re trapped in it.

So, Loan Connect helps those caught in such a trap by matching them with a loan with a much lower interest rate, so they can pay off all their payday loans. Then, their call center helps educate these borrowers about how they can rebuild their credit, so they won’t find themselves in the same position in the future. (And also, so they can afford great dentistry!)

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Until next time!