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Behind the Scenes with Digital Retail Apps and Verde International

Behind the Scenes with Digital Retail Apps and Verde International

And so, because all good things must come to an end, we’ve reached the final installment of our Behind the Scenes series. It has been a pleasure highlighting the companies that became new Finovate alums after being accepted to demo at FinovateSpring 2014.

We’ve taken a good look at 23 Finovate newcomers in the week since our spring conference in San Jose. If you’re looking to get caught up, here’s a list that will connect you with all the previous installments in the series.

So now that you’re ready to go, come with us and meet two more newcomers to the Finovate family: mobile shopping innovator, Digital Retail Apps, and alternative credit decisioning specialist, Verde International.

What they do
From the perspective of Digital Retail Apps, it doesn’t matter how efficient your payment device is if you are still waiting in line with everybody else.
Instead, Digital Retail Apps has launched Self-Pay. Self-Pay is a technology that allows consumers to pay for items in store with their mobile devices, and have those purchases confirmed by mobile device-equipped sales personnel rather than waiting in line.
The goal, in the words of company founder and CEO Wendy MacKinnon Keith, is to have consumers spending more time shopping and buying, and less time standing and waiting.
Digital Retail Apps launched Self-Pay last December at a beauty salon in Edmonton, Canada. During an anniversary event in the store the following spring, Self-Pay represented 8% of in-store transactions, with 78% of the Self-Pay shoppers opening accounts that day. From the company’s perspective, this is evidence that consumers will readily download and use a mobile app alternative to waiting in line.
The stats
  • Founded in March 2012
  • Launched SelfPay in May 2014
  • Has $500,000 in self-funded capital
  • Less than 10 employees
The experience
“We’ve finally integrated shopping and paying in one seamless flow,” says Wendy during a conversation at FinovateSpring 2014. And seamless is an apt description for the Self-Pay experience. Shoppers in a store where Self-Pay is available simply scan the QR codes of the items they want to purchase with the camera on their mobile device. The Self-Pay mobile app keeps the product data in a cart, just as shopper would encounter while doing online e-commerce.
When the shopper is ready to check out, rather than head over to the register and hope the line isn’t too long, all she needs to do is bring her mobile device to a salesperson who is also carrying a Self-Pay enabled mobile device. The salesperson can then confirm the sale, and the shopper is quickly on her way. 
What’s interesting – and what was in evidence at the Lux Beauty Salon Self-Pay launch noted above – is that the time spent not waiting in line is often instead spent doing more shopping. Wendy found that the receipts for Self-Pay transactions were 17% higher than non Self-Pay transactions during Lux’s anniversary day event, and doubts that is a coincidence. “Lines change behavior,” she says.
Self-Pay leverages Beacon technology in a number of ways, from welcoming shoppers when they enter stores where Self-Pay is available, to reminders to “come back soon” the next time the shopper is in the area. It is easy to imagine this technology being leveraged further, with highly-targeted offers, for example.
Over the balance of the year, Digital Retail Apps hopes to pilot with much larger retailers. Self-Pay is fully-integrated with Beanstream, LightSpeed, Shopify, and Vend POS software, helping pave the way for wide adoption. A pilot with a major retailer by 2015 is among the company’s goals.
In the meanwhile, Digital Retail Apps remains focused on solving the needs of end users, reducing friction as much as possible. Technology should help consumers focus on what Wendy calls “the delight of the shopping experience” as opposed to the payment experience, where she sees most of the innovation focusing. “We are not payers, we are shoppers,” she says.

What they do
Are borrowers more than just credit risks to be managed? Or are borrowers fully financial and economic entities that are often more than the sum of their credit scores?
It may sound crazy in this post-financial crisis era, but Verde International is making a strong case for the latter.
In the words of Verde International’ s Chief Operating Officer Jason Daniels, Verde International’s goal is to help financial institutions capture the $140 billion in net income of dollars “left on the table” due to the inability of FI’s to properly serve retail and business customers deemed poor credit risks. Unveiling their loan decisioning technology, Aurora, at FinovateSpring, the company is showing how big data and big analytics can help lenders catch many potential borrowers who are otherwise falling through the cracks.
My conversation with Verde International CEO Pat Reily was a fascinating excursion into the world of lending at the margin. “As we move beyond the very best credit customers,” he explained. “Denial rates go up in part because models are poor.”
“Looking at out of the mainstream customers with mainstream tools,” he said, is a sure path to what he calls “alienated customers.” It also offers us a new way of looking at a lending market, the subprime market, in a way that is also very much out of fashion in recent years.
“Subprime isn’t bad,” Pat said. “There may not be enough information or a life event. These factors go unseen.”
The stats
  • Founded in June 2006
  • Product launched in April 2014
  • Headquartered in Atlanta, Georgia
The experience
Verde Aurora looks to both improve loan terms and to help FIs meet the unmet demand Jason and Pat spoke of. The technology starts by predicting payment behavior and uses these predictions as a basis to set up pro forms for each set of loan terms.
Each possible loan term option is given optimal terms that satisfy both the customer and investor return expectations. Verde International calls this part of the process “getting to the best guess” and explains how it differs from the “fast” but “crude” traditional approach that focuses almost exclusively on “rates on scorecards.”
Instead, Verde International relies on advanced, market-specific modeling, as well as customer experience, to predict not only repayment behavior (including default risk), but repayment timing and magnitude, also. This nuanced attention to behavior helps the company understand the complex relationship between behavior and pricing. “This is a simultaneous problem requiring a simultaneous, convergent solution,” said Jason.
Aurora lets clients test their financial assumptions around their policy thresholds. Everything from fees and costs, collateral and cost of capital can be seen alongside real world loan application scenarios. These initial loan terms are compared with optimized terms calculated by Verde Aurora to provide clients with a base from which to make further adjustments.
In the examples provided, the adjustment for the given loan included a term adjustment that extended the life of the loan. The idea in this instance was that a loan with a potential charge-off later in its life was more valuable than a loan that had the potential for an earlier charge-off date.
The goal is to create a win-win for all stakeholders involved: competitive pricing for borrowers, a fair return for shareholder risk, and terms that meet the letter and spirit of fair lending. Above is a screenshot showing a comparison of cash flows for the optimized solution versus collateral value in the sample loan.
And below is a screenshot of Verde Aurora’s loan origination system (although the platform plays well with most common loan origination systems). Aurora provides a final evaluation of the loan terms as requested, an evaluation that even includes a counteroffer in the event that it can improve on the terms initially offered.
Looking forward, Pat seems a number of opportunities for Verde International and Aurora, real estate and the mortgage area is one, particularly as it relates to the economics of the secondary market. He said the company is also looking into the possibility of integrating a mobile web app for loan origination with top fraud and ID verification resources. “If you’re going to lend well in a non-traditional environment, you need to meet (people) where they are,” Pat said, adding that features as straightforward as push alerts and similar reminders could also become a part of the platform by early 2015. The goal, he said, “is to increase the quality of the engagement.”
But in many ways it is the underlying insight that not only guides the technology, but the mission of the company as well. “If you take away nothing else,” said Jason from the Finovate stage, ” it’s that underwriting loans is not just a credit risk decision.”
In conversation late on Wednesday as the conference attendees were making their way downstairs for the Best of Show announcements, Pat echoes those sentiments: “I’m passionate about giving people a rung on the ladder.  For example, the nature of the job matters. Consider a farm worker. What kind of cash flow can we expect from this borrower? Making the payment easy to digest is critical.”