Student finance is a mess in many countries… Unless you are lucky to live in a country where the university fees are free and of quality… Higher education is often a quite a challenge from a personal finance perspective. Most students are faced with a tough choice: trying to borrow large amounts or skip university altogether. Even though, education, financial or not, can be a big push in your career. Not only in the USA, which is definitely a big mess, as most people know. Even more if you have attended a Trump University. So, what is next for student finance? How do we try to find enduring solutions to that huge problem? We asked a few questions to Ethan Fraenkel, Co-founder and CEO of ProGrad, an AI-powered credit scoring company focused on students and Gen Z.
Tell us more about ProGrad. What is your elevator pitch?
ProGrad enables lenders to win profitable market share through a disruptive technology that identifies younger customers’ future earnings. Established lenders can protect and grow their market share, and challengers can bring a differentiated student lending proposition to market. ProGrad leverages alternative sources of data to provide risk assessments for young people based on future earning potential and transactions data. And that at the time of a loan application and throughout the term of a loan. We replace default credit rejections to younger people with an API that allows lenders to make better-informed lending decisions. As well as to acquire, retain and increase share of wallet of new customers. That is both in the short-term and over the lifetime of the customer.
What is your background, and what is the story behind the company?
Marco and I met 5 years ago at Queen Mary University of London during our studies. When we applied for our respective postgraduate degrees we quickly noticed that we could not get access to sustainable funding from lenders. We were forced to borrow money at high cost.
This is when we understood that there was a gap in the market that needed to be filled. We started researching the problem to really pinpoint what the issue was. We quickly realised that young people cannot get access to sustainable funding from tier-1 financial institutions. Even the ones that they trust and know well because of their lack of financial history and lack of income. This is when ProGrad started.
What are the main challenges in student finance?
The main challenges in this area are that the government cannot keep up with the increase in financing needed by young people for education, living expenses or to start their career. More than this, tier-1 banks currently do not offer enough financing to young people. It means that students and the gen-z are forced to borrow money at high cost and often are not able to fulfil their dreams of going through education or work in certain industries.
Banks would like to attract younger customers… but the competition and emergence of neobanks make it even harder for traditional banks to attract the right customers. Especially since the funding they provide is very limited.
What are your views on fintech-bank partnerships?
Fintech partnerships are of key importance. Particularly in this current climate where regulations are tight and large incumbents such as banks do not have the capacity to move fast.
These partnerships ensure innovation remains key and that new products and technologies are available to consumers and large corporations. Strategic partnerships enable big companies to remain ahead of the curve and ensure they can continue to serve their customers in the best possible way.
Any innovation in fintech more broadly that you are really excited about?
I am really excited about the opportunities that open banking will provide to both banks and consumers. At the moment, the impact of it is still quite limited since the scale of adoption is not large enough yet.
However, once every country starts to adapt it, it could change the credit risk industry and enable people to have access to many more financial products at the right point in time. This innovation will have a massive impact on society.
Any plans for the future or product roadmap you want people to know about?
Our long-term vision is to create a unique hyper personalised marketplace. ProGrad will be the financial companion for every meaningful moment in someone’s life, starting with students at university.
This unique hyper personalised marketplace will allow us to leverage data in order to offer people the most relevant financial products throughout their lives based on everyone’s unique data.