Lending is as old as money and Embedded lending is the meme of the day. In this post, I unpack my thinking and thesis on where embedded lending needs to end up. But first, always start with the basics.
What are the fundamental building blocks?
The core components of a lending business are Demand, Supply, Underwriting/pricing, Loan servicing, Payments and money management, and Legal and compliance.
Demand and supply: In our economic model capital is the grease that drives the entire economy – it is one of the required inputs for the economic machine. The need for access to capital is the demand side of the lending business. To satisfy this demand for capital, you need a supply of capital to lend to the borrower.
Underwriting: The demand for capital and the supply of capital makes a market and the clearing price for this market is the price of the capital i.e the interest rate. This price is set by the underwriting function. Its core role is to set the amount if any should the borrower be able to obtain (loan amount) and at what price (interest rate).
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