Bringing Affordability and Responsibility to the World of Credit with Adelina Grozdanova of Upgrade

Our Guest: Adelina Grozdanova, Revolutionizing Affordable Credit Solutions

Adelina Grozdanova, the Co-Founder and Head of the Investor Group at Upgrade, Inc., is a fintech company that’s transforming the world of financial services. With over sixteen years of experience in the financial sector, Adelina has a diverse background that includes serving on the Board of Directors at MightyOwl, advising at Cardless, and holding the role of Vice President and Head of Institutional Investors at Lending Club. Her journey began with a BSE in Operations Research and Financial Engineering from Princeton University.

Adelina is passionate about redefining financial services, emphasizing affordability and responsibility, and breaking the traditional mold of the industry. Her expertise extends to investment banking, capital markets, and financial modeling, making her a well-rounded leader in the finance sector. With a strong focus on building trust with consumers and establishing meaningful connections.

Learn from Adelina’s rich experience as she offers a fresh perspective on how Upgrade is reshaping financial services for mainstream consumers. Don’t miss this opportunity to gain insights into the evolving world of finance and fintech with our distinguished guest, Adelina Grozdanova.

Episode Transcript

Adelina Grozdanova: Companies always talk about entrepreneurial culture, but a lot of times what they mean is entrepreneurial culture on the management level. The winners in this space tend to be the companies that are able to clearly convey the vision of the company to everybody throughout the organization and empower everybody throughout the organization to act on that vision. So be entrepreneurial from the ground up. 

Jacob Hollabaugh: Welcome to PayPod, the payments industry podcast. Each week, we’ll bring you in-depth conversations with leaders who are shaping the payments and fintech world, from payment processing to risk management, and from new technology to entirely new payment types. If you want to know what’s happening in the world of fintech and payments, you’re in the right place.
 
Hello everyone, and welcome to PayPod. I’m your host, Jacob Hollabaugh, and today on the show, we are going to be discussing how to make credit products more affordable, more responsible, and why doing so is not just the decent thing to do for consumers, but is also good business. With me to get into these topics and more is Adelina Grozdanova, co-founder and head of Investor Group at Upgrade, the fintech unicorn that has helped customers access over $24 billion in consumer credit since 2017. Adelina, welcome to the show. Thank you so much for joining me today.

Adelina Grozdanova: Thank you so much for hosting us.

Jacob Hollabaugh: Yes, the pleasure is mine. Before we dive into upgrade and everything it’s doing and the impact on the financial world, let’s start with a little bit of background on you, yourself and your career. When did you enter the financial world? What made you want to work in this industry, and what was that path like up to the point of 2016 where you founded Upgrade?

Adelina Grozdanova: Yeah. Great question. I actually started my career at Morgan Stanley in structured products in 2007. So just as the financial crisis started to unravel, a very interesting times.

Jacob Hollabaugh: Yeah, a heck of timing on your part there.

Adelina Grozdanova: Exactly and it was very interesting times. But frankly, I got to see in real-time the impact of unaffordable products and poorly disclosed products to the financial health of the US consumer and frankly, the financial industry as a whole. In 2013 I joined the company called Lending Club. Lending club at the time was the pioneer of online consumer lending in a much more consumer-first company. The company was offering unsecured personal loans online with much more transparent, much more affordable terms. I was fascinated by the work that we did at Lending Club and after Lending Club, my co-founders and I wanted to do something that was even broader in scope and more ambitious, that could potentially positively impact the lives of many more customers. And so we set out to build a fintech company that would offer the full range of credit and banking services to the everyday consumers. And, as you said, making the credit much more affordable and responsible.

Jacob Hollabaugh: Yeah, it’s wild to think that made me think back to at the time of Lending Club coming about, I was still in college at that point, and it’s wild now, talking to so many companies in the fintech world and thinking about how many different players there are and being like, oh yeah, there was a time where they was super innovative for Lending Club to come out and be like, we’re the one doing this. And one of the original pioneers of let’s go the digital route, let’s get online. And even going back further, it’s fascinating to think of is much as we had a laugh of you entered the financial world right before this huge collapse and all these big issues. It is something that the people that come out of that are thankfully, then the ones that have, or hopefully more so than not, are on your side that have the foresight of let’s not let that happen again. What let’s examine why that happened, and also some of the more reasons why we should treat the consumers in here a little bit better. So let’s dive into that kind of stuff. Now can we start with just who Upgrade is, the company you founded then in 2016?

Adelina Grozdanova: Yeah. So Upgrade is a fintech company that offers the full range of credit and banking services to the mainstream consumer. Frankly, when we started building Upgrade, the vision was to fundamentally improve our customers’ life in the long term, hence the name Upgrade. Literally, it means upgrade their credit and their finances, and we have many products that can speak about that truly are built around the customer’s needs and what was missing in the market. So for instance, a couple of examples. Their Upgrade card, which some of your listeners may already use, credit cards tend to be horrible consumer products. In fact, about a third of credit card companies are fees, and that’s where revenue comes from. So what we ended up doing is by utilizing technology and operating at a much lower cost. By not having a branch infrastructure, we were able to lower rates and reduce and eliminate fees. Another one of the worst examples of what credit cards do is the fact that if you just make your minimum payment, you end up paying off your balance in 20 years and paying three times as much as initially charged. So the product that we try to design there was to promote faster and more responsible repayment schedule with fixed rate, fully amortizing payments. So everything that Upgrade does is really with the vision of providing this more affordable, more responsible consumer products across different kinds of loans, credit cards, and ultimately mobile banking products as well.

Jacob Hollabaugh: Love that and that actually answered one of the things I wanted to ask you about. You used the phrase a lot, and we’ve both already referenced it in part of offering affordable, responsible credit mobile banking payment products to mainstream consumers. And you just broke down really well for us, what the affordable, responsible side of that means. And there’s been things in the market traditionally that aren’t really at the behest of the consumer at all. They may at first glance appear like it or maybe came around and was marketed as such, but in reality, it was much more built pretty strictly with the company’s bottom line in mind and not actually the value of the consumer. The second half of that phrase, though, the who those consumers are the says mainstream consumers. Can you break down? What do you mean by that? Who exactly are we talking about when we say mainstream consumers, and have they been just poorly treated as far as the products? Have they been ignored traditionally? Or who are these types of people that you’re referencing with that mainstream consumer?

Adelina Grozdanova: Yeah, it’s actually quite the opposite. These customers haven’t really been ignored by the banks. If anything, they’ve been the primary target of banks’ marketing tactics. Its customers that on average are in their late 30s early 40s typically make over 100,000 of income, are not new to credit. They’ve used credit for many years to come, and their typical FICO score is around 700. Now, of course, this is just the average profile. We certainly serve a larger population, but that’s the gist of it. And so what we’re trying to do is actually design products that are truly in the long-term interest of that customer base, and making sure that all the products that we offer to them and all the characteristics of these products are very well disclosed so that the customer understands them and then can budget better in the long term. So we spend a lot of time looking at customer reviews. And typically if you look at a lot of these review sites, the Upgrade rating tends to be in the 4.6 to 4.9 rating out of five.

Jacob Hollabaugh: Wow. Very impressive. And with that consumer base having before you or the traditional stuff not really serving their best interest, I can imagine then that’s a consumer base that does lack a bit of trust. And being one of the companies coming in and saying, we swear these are better, these are different. They actually have you in mind? It’s a bit of a something you have to overcome as a company of building that trust with the consumer base, who has been taught more or less to have hesitation or to not maybe believe because they’ve been burned before. The last company said that, and I ended up in all this credit card debt that I felt was a little misleading or things like that. So how do you interact and look at the feedback, which is great to hear. Are there other ways in which you go about overcoming that trust barrier, building up that trust with these consumers who have been not treated as well as you hope to treat them?

Adelina Grozdanova: I think a lot of the proof is in the pudding. I think a lot of the customers that look for a loan or a card product or a savings account online typically read reviews, and they’re common themes and common either positive or negative items that come out from traditional lenders or from online lenders that they focus on. And so making sure that we continue to evolve the product to ensure that it meets the customer needs is really the way we earn their trust and how we’ve done it over the last now, seven years.

Jacob Hollabaugh: Wow very cool. Then you referenced a few different of your products before and you’ve got a bunch of great product offerings. There is one I want to ask about in specifically because it at least appeared to me as somewhat unique, or at least much newer to the marketplace. And I’m interested in learning more of like the idea behind it and the popularity level you think it can reach. And that’s your Upgrade One card, which with One card you’ve basically done what the name implies. You’ve put a debit card and a credit card functionality into One card. So great naming as always. Just like Upgrade. Great name. You guys are really good on the naming front. A+ for sure on there, but a couple of questions come up with doing this. First is, am I correct that there’s not a ton of companies doing this, merging the two into one item, and then the second that comes off, that is what was the original idea behind it? Is it just simply like, hey, that seems like a nice flexible solution or two card, one card is easier than two, or is there a lot more benefit to be derived from it? Or maybe a best use-case scenario for it that you saw? What was the appeal in kind of idea behind? We can combine this and create this new product.

Adelina Grozdanova: Yeah, absolutely. It’s an obvious product. Yet it didn’t exist in the market prior to that. It certainly resonates very well with the consumer. To your point, as the name itself reveals, it’s a card that offers the best of debit and credit cards in one. So practically speaking, what that means is you can set the card to pay now in the Upgrade app for everyday purchases, things that you typically would like to pay with your debit card, and it will debit your bank account the next day. And if there is another purchase that you make that would potentially stretch your budget and you need to pay over time, you can toggle the pay later in the app and pay it over several months or years, depending on the size of the transaction. You can also set some rules whereby smaller expenses just automatically get paid through debit, and larger ones automatically get paid over time.

The benefit of it is that in either mode, you can get the rewards and the fraud protection that you typically get with a credit card. One of the main reasons why this product is so popular is because it combines the benefits of both worlds. You don’t need to carry two different credit cards in your wallet. You don’t have to worry about reviewing two different statements and just managing two different cards. You just need to have one in your pocket. But the other big benefit is that oftentimes consumers use their credit cards for smaller purchases just because they want to earn points. And oftentimes for a variety of reasons, they don’t end up paying off the balance and start incurring interest on those balances and getting into a debt spiral, when in fact, they would have been better off if they just paid off for that purchase with debit card. Now, you can opt for pay now and still get the full credit card reward. Wards through one card, making a debit card purchase.

Jacob Hollabaugh: I love that it making the innovation behind trying to help the people avoid the bad tendencies that we can fall in because as we referenced, the different credit cards and things before of the past, that it’s not like they were coming out totally malicious in what they were trying to do off. We hope everyone runs up this debt. They can’t pay and interest and everything else. But we did, slowly but surely over time learn that we as humans have bad tendencies and things like what you just referenced. If I’m only carrying my credit card or I want the points and I start buying a bunch of small purchases, I probably am going to spend more because it’s all going over to this credit card bill that I’m not paying attention to until the end of the month, versus actually being pulled from the money I have and the budget I have and everything. And so I think it’s a really innovative solution and I’m interested. When did you bring that product to market? Was that more recent in the recent years, or was that one of the first ones you rolled out with?

Adelina Grozdanova: No, it’s one of the recent years. We launched the Upgrade card product in 2019, and we launched the One card about a year ago.

Jacob Hollabaugh: Do you see it as one of your biggest products in the future, and one that seeing that as the future of not just you, but others maybe falling in line of like, hey, does anyone else ever thought you could just merge these two into one and actually bring the functionality of both? Do you see the market size for it being? Because to me, it does seem obvious that someone should have done it by now. And now that you have done it, and it seems to be to do everything it’s purported to do, it does seem obvious that once someone’s done it, the dominoes started falling and eventually five ten years down the road, everyone would be doing the same thing. Is that kind of the hope or the idea?

Adelina Grozdanova: Yeah, absolutely. And I think all the data that we have so far in terms of consumer reception to the product and behavior around the use of the card totally supports that vision. And so we do expect the One-card product to be a very prominent product in the future, and potentially others will follow and enter the space as well.

Jacob Hollabaugh: Love it. I want to pivot to some still fairly recent exciting news that you and Upgrade announced. It’s been a few months back, I think July or June it was, but recent enough. Still very exciting, which was the acquisition of Uplift, which I have to make sure I get Uplift and Upgrade right here, but an obvious by-the-name acquisition for you. But Uplift was a leading provider of BNPL payment and credit products for travel and the travel industry specifically, what was the strategy behind that acquisition and what were the kind of hopes and goals of bringing Uplift under the Upgrade umbrella? What was the goals and ambitions for Upgrade as a whole with that?

Adelina Grozdanova: Yeah, outside of the name being very complimentary with with upgrade, keep ending.

Jacob Hollabaugh: Up on your website. They’re trying to come to us. They’re going to you. They’re trying. Yeah.

Adelina Grozdanova: I think what was certainly very impressive about the company is the mission statement and the value of the company, which was, again, to provide better, more affordable consumer products that can truly enrich and benefit consumers’ lives. A lot of times when people talk about BNPL, they often talk about the fact that not all companies are created equal. And sometimes BNPL companies in the past have failed to report balances to the credit bureaus. Uplift actually stands out there. They provide fixed rate, fixed monthly payments and report all their loans to the credit bureau. But in terms of why we acquired the company, it was to round up our strategy around being helpful to our customers across all the different aspects of their credit needs that are relevant to them. So through Uplift, we can finance their travel, and we already have strategies around home improvement and auto purchases. Again, a couple other variants of the point of sale strategy that we’ve been building over the last couple of years. These tend to be three of the largest spend categories for the consumers, and allow us to complement what we do on the Upgrade card and Upgrade loan product. Outside of that, Uplift has partnered with over 300 of the world’s largest airlines and travel providers, which gives them unparalleled distribution capabilities and allowed us to be able to access significant number of customers pretty much overnight and almost double our customer base.

Jacob Hollabaugh: Yeah, I love that. And it makes total sense of that being the kind of last frontier to get all of the big. As you referenced earlier, the big payments in our lives are the ones that actually the credit is where it comes in handy and should be used. And you had a couple of the others checked off there to bring the last one in-house, but you did bring it in-house via acquisition versus building it out yourself. And because of that, I’m led to ask a question that I’ve asked a lot of guests about this here on the show. And in the last decade or so, we’ve had the big as a service boom. It’s been pretty much almost, I don’t know, 75% of the guests we have on this show are in some way, some form as a service type of company that are really niche down, really trying to tackle one specific part of the payment chain of the financial ecosystem and do it incredibly well.

And prior to this big boom in the last decade, it was a lot more of big institutions building things internally to grow out their systems and everything like that. So with someone fresh off of a big acquisition to grow out their fold, I’m very interested to hear your opinions on where the landscape of the financial world is, and if you think the as a service boom is the world we live in now and is going to continue to be that, or if you think there will be a period of acquisition and consolidation within the financial industry, where it will go a little bit back towards the let’s buy up some of these as a service companies, let’s find ways to do exactly what you’ve done and say we do two-thirds of this kind of thing and you do the other one really well. We should join that up together. So do you think we’re in the new status quo, or do you think we’ve maybe started heading back towards the world of acquisitions in that part of the cycle?

Adelina Grozdanova: Yeah, that’s a great question. I think over the last couple of years, VC funding was certainly readily available for a lot of US service companies. And as a result of that, there are a lot of new entrants in the space that focus on very niche verticals to your point. And now we live in a different environment. VC funding certainly isn’t as plentiful as it used to be, and if you’re in a position where you are focused on a very niche product or a very niche company, and you’re not yet at the profitability level, and your cost of financing has increased significantly with the interest rate environment, it certainly makes sense to start looking for partners that can provide economies of scale, and that can expand the scope and product and services that you offer. So I think there’s certainly over the next couple of months to a few months, potentially even the next couple of years, I think we’re going to see a wave of consolidation of such companies.

Jacob Hollabaugh: Yeah, absolutely. It’s definitely a topic I think will continue to return to as we find out if it is, in fact just the cycle going back the other way. But definitely. So you referenced the VC money drying up definitely leads to a lot of those VCs also, that being like we could use some money coming in. So some of these companies we’ve invested in that we maybe weren’t thinking acquisition down the road. Maybe now we’re thinking it would be a little helpful if we had some acquisitions so we could get some money back in to go, maybe fund the next as a service. Boom. This has been fantastic conversation thus far. Super enlightening. Adelina, before I let you go, I want to finish out with a couple of questions on the kind of business and personal development side of things for those listening who are trying to operate successfully in this financial and payments world, the first of the two being over the course of your career thus far, what has been the biggest lesson you’ve had to learn, or maybe obstacle you had to overcome? Has there been any one major setback that stands out that really taught you something important about the way the industry operates, or a strategy that didn’t work, that opened your eyes up to some necessary piece of knowledge for you to continue moving forward successfully? Any big stand-out lesson that you’ve been taught over the course of your career in this industry?

Adelina Grozdanova: Yeah, and I think the answer may surprise you, but I think in the fintech space, companies often still tend to prioritize building amazing products and features that they’re mostly focusing on the tech side and then worrying about building a compliance infrastructure once the product takes off. One of the main lessons that I learned is actually the prioritization of compliance culture from the get-go when it comes to the fintech space because it’s very hard to introduce compliance if you’ve run a company for three, 4 or 5 years differently, playing a major role in the fintech space. So we actually started Upgrade. We wanted to embed compliance in all of our product development and more or less instill a culture of compliance from day one. So one of the very first hires that we made at Upgrade was our chief compliance officers. I don’t think you can think of many companies that make their chief compliance officer as number one or number two hires. But we did that because he had a very extensive experience as a former bank regulator. He had previously designed compliance management system. And we knew that if we are going to create products that are in the best interest of our customers, we need to be very mindful of the compliance aspect and make sure that compliance informs these decisions. And I think result of that, we have certainly a standout compliance management system. I think consistently we get feedback from our banking credit union partners about the strength of the system, which certainly gives us a differentiation versus our competitors.

Jacob Hollabaugh: Yeah, makes total sense. The second question then for you is beyond the compliance piece, what would be 1 or 2 characteristics of a company that you think are good signals, that they are companies that are going to find success in this industry? If you were either looking at them for acquisition or just talking to someone that worked at another company, if 1 or 2 characteristics that would stand out to you, that would signal, I think that company is going to be successful. They’re doing things the right way.

Adelina Grozdanova: Yeah. And I think it’s going back to the initial part of our conversation. Companies that stand out are those that truly are building products with the best interest of their customers in mind. And it sounds obvious, but that’s actually not a widely observed practice in banking. So fintech companies that can demonstrate the characteristics to their customers of having their best interest in mind are the ones that will earn customer loyalty, they will build strong brand, and ultimately emerges as leaders. So that’s on the product side. On the company culture side, companies always talk about entrepreneurial culture, but a lot of times what they mean is entrepreneurial culture. On the management level, the winners in this space tend to be the companies that are able to clearly convey the vision of the company to everybody throughout the organization and empower everybody throughout the organization to act on that vision. So be entrepreneurial from the ground up. Those companies tend to end up being the leaders in the space. And most importantly, they typically have the happiest employees as well.

Jacob Hollabaugh: I love that. Well, Adelina, this has been a real pleasure for those listening. Who may want to follow you or learn more about Upgrade? Keep up with everything you and the company have going on. Where would be the best place for them to go to find you?

Adelina Grozdanova: Certainly LinkedIn would be one option. I try to post about various new initiatives that we do at Upgrade there, and outside of that, my email is grozdanov@upgrade.com. So anybody who wants to find out more about the company is welcome to reach out.

Jacob Hollabaugh: Fantastic. We will link to that and more in the show notes below. Adelina, thank you so much for your time and knowledge today. I’ve greatly enjoyed the conversation and hope to speak again sometime soon.

Adelina Grozdanova: Perfect. Thank you.

Jacob Hollabaugh: If you enjoyed this episode and want to hear more, head on over to soarpay.com/podcast to subscribe on your podcast listening platform of choice. That’s soarpay.com slash podcast.