Credit Is Like Nuclear Energy

Introduction

In an era when half of US small businesses remain undigitized, the potential to bridge gaps in capital and financial services for SMBs is immense. Rather than competing with banks, Prashant Fuloria, CEO at Fundbox, claims that the key is to complement them by providing faster, more flexible funding through digital loan systems.

In this insightful discussion, Prashant shares strategies for offering real-time funding and overcoming challenges, and explains why providing capital can be as convoluted as rocket science — and as impactful as nuclear energy.

“Credit is like nuclear energy in that it can be very helpful for the world. It can support individuals, businesses, and even economies. However, if you don’t know what you’re doing or take your eye off the ball, you can blow yourself up and take everyone else with you.”

Interview

Omri Yacubovich: Starting with a personal question: You have an impressive background from Google, Facebook, Yahoo, and many more. What made you transition to business lending and join Fundbox?

Prashant Fuloria: My previous experience taught me that technology can level the playing field between large and small companies. For example, whether you’re a mega retailer or a small mom-and-pop shop, you can still advertise on Google AdWords, participate in the same auction, and reach the same customers. This made me wonder if technology could also level the playing field between large and small businesses in other areas, such as financial services. That’s the thematic explanation for why I joined Fundbox, along with the company’s strong mission, dedicated team, and excellent execution.

I think the other factor was the power of data in making predictions. Having witnessed the effectiveness of data and machine-learning tools across various applications, I felt that leveraging my knowledge to help SMBs was the right thing to do.

Omri: After seeing it firsthand, do you feel or think differently about the small business lending space?

Prashant: The market for small business lending was big 10 years ago, and it’s even bigger today. The extent to which the SMB lending market is underserved remains very high. The biggest growth is still ahead of us because the opportunity is so vast. What I learned along the way is that providing small business capital is a much more difficult problem to solve than I initially thought.

Whether it’s customer acquisition, data and underwriting, servicing, customer experience, capital markets, or regulatory and compliance constructs, this is hard. It poses a challenge, but it’s also an opportunity. When problems are hard, sustained effort, thinking, and diligence can help crack open big opportunities. That’s what excites me.

Omri: What are the key challenges and opportunities you see today?

Prashant: When it comes to the landscape of capital and financial services for SMBs, I believe that what exists today is overshadowed by what doesn’t exist, but should. While technology for SMBs is starting to take hold, with roughly half of US small businesses using various tools for operations and growth, the other half remain largely undigitized. This massive gap also represents a significant opportunity.

Another gap is the support and access to capital that banks provide to small businesses. While substantial, we are still far below where we should be. Funding from banks today is below pre-Recession levels. Both traditional financial institutions and fintechs have significant opportunities to address these gaps.

Omri: That makes a lot of sense and leads me to my next question. How can alternative lenders compete with banks, given banks’ cheaper capital from deposits and their ability to lend most of it?

Prashant: Money is a bit like drinking water. In some ways, drinking water is the quintessential commodity. Yet, drinking water is also an enormous industry with bottled water brands, reusable water containers, home filtration systems, reverse osmosis systems, and the list goes on. Similarly, a dollar is a dollar, but there are many important aspects of how you get it and how you can use it. For example, the speed of getting the money you need, the terms associated with it, and the flexibility that lets you decide how and when to use it all make a significant difference. So, while money can be seen as a commodity, there’s substantial differentiation in the overall customer experience and accessibility.

There was a time at Fundbox when we focused on building a brand for the small business owner. Over time, we’ve shifted our efforts entirely towards partnerships and embedded capital, where our brand is secondary to the brand of the platform we are working with. If a business owner already trusts one of the platforms their business is using, there is no reason not to offer capital through that platform and focus our efforts on the experience and process. 

I don’t think alternative lenders necessarily need to compete with banks. Fintechs have built products and experiences that are very different from going to a bank and applying for a loan. If anything, fintechs can be a tool for banks to use, helping them serve their customers better.

Omri: Some banks are indeed embedding themselves into various sources, and that’s where they need more data. Can you share which types of alternative data you’ve found most useful for assessing SMB creditworthiness?

Prashant: Consumer credit folks will hate me for saying this, but the small business data landscape is way more messy and challenging than consumer data, which is largely standardized. Different Fundbox partners bring different data sets, including accounting ledgers, bank account transactions, invoices, retail and B2B payments, and so on. Over time, we have built the data and machine learning infrastructure to effectively use these different data sources. Additionally, many of these data sources are real time and keep getting updated, which is terrific from an underwriting standpoint and yet creates some customer experience challenges. For example, you don’t want a small business’s line of credit to fluctuate daily based on the previous day’s business performance, but you also need to manage risk effectively.

A big part of the challenge is pulling together all this complexity into a credit operation. People say that rocket science is hard, but the basic science behind a rocket is relatively straightforward physics. The real problem is rocket engineering, or making the whole thing work in a complex environment. The same goes for financial services. You’ve got to gather the data, underwrite, manage the customer, manage risk over time, and more. All these elements have to come together in a cost-efficient way to make the economics work.

Omri: AI obviously helps organize data and make sense out of the nonsense. What other use cases do you see for AI in credit decisioning for small businesses in the near future?

Prashant: AI and LLMs can be very disruptive. For example, they can help during the customer onboarding process by asking questions in a more conversational way, thus improving conversion rates. There’s also an opportunity for generative AI in customer support to answer questions and provide assistance. 

In terms of data, AI can help with data cleansing and categorization. For instance, determining whether a transaction is revenue or a credit transaction from another loan can have very different implications from a risk perspective.

The actual credit predictions and decisions have to be very careful because it’s a highly regulated space, and decisions must be explainable. Right now, GenAI tools are not there at all in terms of explainability, but I’m sure this space will evolve soon. Until technology gets there, it’s not something that we will be able to do. However, we are looking at ways to improve using new technology.

Omri: Ways to improve?

Prashant: Credit is like nuclear energy in that it can be very helpful for the world. It can support individuals, businesses, and even economies. However, if you don’t know what you’re doing or take your eye off the ball, you can blow yourself up and take everyone else with you.

That’s why Fundbox has chosen to focus on credit and capital. We believe that responsibly provided capital can make a significant difference in the small business economy. The best way to do this is by collaborating with other players already serving those SMBs. Whether they are technology players or financial services players, we can work together to strengthen the small business economy, which is a crucial part of our society and the world.

Omri: Thank you for your great insights!

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Prashant Fuloria - Bio

Prashant, CEO of Fundbox, is a seasoned product and technology leader with over 25 years of product and technology leadership experience.

As an early member of Google's product management team, Prashant helped build Google AdWords, established Google’s first global payment network, and led all product initiatives across APAC. He then went on to become an early product leader at Facebook, where he spearheaded monetization products encompassing both advertising and commerce. Beyond Google and Facebook, Prashant led engineering and product teams at Flurry, the largest mobile analytics platform of its era, and held an SVP position overseeing the advertising and data group at Yahoo. 

Prashant actively shares his expertise as an in-demand lecturer at the business schools at Stanford, UC Berkeley, Columbia, and Cornell. His academic background includes a PhD and MA in Business, a PhD Minor in Operations Research, and an MS in Statistics, all from the prestigious Stanford University. He also holds a BTech from the renowned Indian Institute of Technology, where he was the President’s Gold Medalist.