MoneyLion Inc. (ML) Earnings Call Transcript & Summary

Good afternoon. Welcome to the MoneyLion session this afternoon. I'm John Hall. I'm Vice Chairman of Investment Banking. I've been a fintech banker for a long time. Pleased today to have Dee Choubey, who is the Founder and CEO of MoneyLion along with Rick Correia, who's the CFO, who's right there, why don't you raise your hand, Rick, in case -- thank you. As many of you know, MoneyLion is a digital banking platform with a unique and visionary business model, which we'll spend some time talking about offering consumer and enterprise solutions, which is not your typical construct. The company is headquartered in New York City, went public through a SPAC merger in September 2021, and here we are today. Before we jump into our conversation, I want to congratulate both Dee and Rick and the team overall for tremendous performance that has exceeded both expectations and their guidance. In the last 2 quarters, growing respectively 71% and 34%, added over 1 million customers in each of the last 2 quarters. For now, we have a total of almost 8 million, and they had their first adjusted EBITDA positive quarter in the last quarter. So they have exceeded it and having worked on the SPAC, I can tell you they've exceeded their own expectations in terms of what we thought they'd be able to do. So it's a tremendous performance.

So let's start off talking more general in terms of the vision and the concept for the company. You guys have a tag line, which I noticed recently rewiring the financial system. So everyone can live their best money life. What does that mean -- particularly what does rewiring mean?

Yes. Well, John, first of all, thanks for having me, and thanks for JPMorgan support over the years. So look, we've always been a mission-driven company here. When we think about traditional financial services, anytime you have a downturn, it's the average American consumer that pays the price. So when we started the business in 2013, it was really on the heels of the last credit crisis. The money center banks coming out of '08, '09, we're really figuring out how to deal with the American regulator as part of their capital structure. So this was chased all the way down to the community and regional banks. And the opportunity that we saw and the problem that we saw in the market that we wanted to disrupt using technology and using the latest and greatest innovations was to give more empowerment to the American consumer. So when we say rewiring the financial system, we're talking about a paradigm shift. We're talking about how do we get personalized financial services down to the consumer that's a gig economy worker, the teacher, the cop, the union worker all the way up. So we always say that 99% of Americans should be a client of MoneyLion. And when we say rewiring of the financial system, it's really to be pioneers in using data-driven technologies, data-driven approaches to give superpowers to the consumer every day across financial inflection points, whether it's a time of excess, when they make more money in their spending or whether it's a time of need when they need to really smooth their earnings from one period to the other.

So talk a little bit about that vision in the context of what you've got of this two-sided marketplace of a model now serving both consumers and enterprise. Maybe you can talk a little bit about that and then we can dive in a little deeper on the 2 lines of business.

Yes. So I think to really get an appreciation for why we have a consumer business and why we're really pushing hard on the enterprise side, the B2B2C side. If you look at our evolution, we started in 2013 with a simple algorithm and that algorithm could predict when consumers would have money and when they would run out of money. And around that, the first product we built with 5 people in the room, it was a typical start-up strategy. It was never up and to the right but it was typical in the sense that we wanted to compete with Chase. And when you're young, you think that you could do that. But it was a once in a lifetime opportunity, where the hood of the car of American Financial Services was open. Chase was distracted, Capital One was distracted. So the early idea was, we can use the proliferation of data. Data is being generated by your utility bills. It's being generated by your cards, being generated by all the signals that you're getting from your mobile device. And our idea was we're going to use all those signals to create a better lending product for the consumer, a better digital bank product, better investing, better roundups, better -- the entire panoply of financial features that help you live a better life. That was the early thesis that, hey, we're going to be that digital bank at neobank. When we went public in 2021, what we saw from a market structure perspective was that hundreds of millions of dollars were going into acquiring customers, right? So we made a very conservative decision that instead of buying up TV ads or naming stadiums, MoneyLion Stadium as much as we'd like to do that, a better approach would be to actually provide the capabilities that we're using for the digital bank from a micro services perspective to be able to provide that across the Internet. So we acquired a company called Even Financial. Even Financial is a piece of technology that allows any website to really compete with Credit Karma, NerdWallet, LendingTree and the like. So that business sees anywhere from 20 million to 30 million consumer inquiries on a quarterly basis. In real time, we're matching them with the Chase credit card, the personal loan, SoFi, LendingClub, LendingTree, they're all clients on the demand side. And what we're able to do with that connectivity by providing that service throughout the Internet is we're also able to put that into the consumer proposition. So if you look at the MoneyLion consumer app, it's one of the most powerful, fully built super apps in America, maybe even the world. But we're not going to be building every single financial product. We have digital banking. We have the entirety of wealth management from stock trading to managed portfolios to crypto. We've done a lot of work on the content side. If you download the app, it's -- every money adjacent conversation that happens on the Internet, we want that to happen on the MoneyLion consumer side. But we knew that we weren't going to be able to build out full-service insurance, full-service HELOCs, full-service high-yield savings accounts. So what we do now is we take the products from seemingly our competitors or seemingly other participants in the market, and we play the role of Switzerland. And we say, okay, we want to do what's best for the consumer. Again, it goes back to rewiring the financial system, mission-driven, we want to basically say, whether you take our product or not, we want you to have the best end outcome. And with that philosophy and with that mission, the 2-sided approach allows us to keep our CAC down. So if you look at the most recent quarter, we were able to acquire customers for under $15, which if you can compare that across fintechs, you can compare that across digital banks, traditional banks, it's going to be industry-leading. And we get that paid back within 3 to 3.5 months consistently now across cohorts. So it does work. Now really, the challenge for us is to scale it even more. But from a business model perspective, I think we've done a good job in changing the narrative of not being as capital intensive as some of our competitors and some of our peers in having to spend hundreds of millions of dollars or more in acquiring consumers on a yearly basis. We have a differentiated approach to customer acquisition.

When you think about your competition and competition comes in many different forms and flavors here, how -- is there anybody who comes close to the approach that you've taken? I'm not aware of anybody, but I mean just to give the audience some sense of when you look at your peers, who do you watch most carefully closely?

Yes. Look, I think over the last 10 years as we have built the platform, we've always admired -- you and I have had this conversation, we've always admired just on the consumer side, the work that a lot of the Asian apps have done, right? When Rick and I, over the years, when we were raising venture capital and when we went to VCs, and we said we have this ambition to create a super app, the reason we said that was we understood that consumers think of their lives holistically. They don't think of it as a debit card or a credit card or I want to invest today, they think of it holistically that I want to earn more, I want to spend less and I want to save more, right? So the idea of building that super app was not a popular approach here in the States. And you can debate that multiple times over. So you have to look at a lot of the Asian applications, right? You have, of course, Tencent, WeChat. I think now it's becoming knowledge.

Alipay [indiscernible] Financial.

Exactly. But if you look at the last 2 years, you see that everyone now is converging back to the strategy that we were expounding for the last 6 or 7 years, right? And you see PayPal, you see others.

Klarna.

Klarna. Right, going back into realizing that customer acquisition is super difficult. It's even more difficult to take that customer that you acquire and make them into loyal user. And it's likely that a very small set of your loyal users are the ones that are most likely to take your second or third or your fourth product. And therefore, you need the ability really to expand that lifetime value to go up there. The other -- on the other side, we think of ourselves as an insights in data company that happens to have a monetization angle through digital banks, right? So if you think about -- we actually look to data companies and insight companies for what we want to be in 2 years and 3 years and 5 years, right? So who's done a really good job of that? You think about in the financial services space, people like Intuit that are able to take inferences that they get from their tax business and they're able to hit the consumer at multiple times across the year. We have a similar way that we've set up our business between our consumer app and the fact that we see 30 million-plus inquiries every quarter, over the next couple of quarters, we'll have seen a 100 million Americans come through our system. That data set is incredibly valuable, right? We know exactly where they're living, how much money they're making, whether they're working at Amazon or Walmart or IBM. We know what type of cars they're driving. We know what they're purchasing next. We have over 20 million bank accounts linked to our system, right? We have our own bank account that generates billions of transaction or insights. And our ability to match that together only but creates a distance in our ability to provide the next best option to that consumer that -- why is it important to do it? Ultimately, it just increases the lifetime value even more. They trust us even more with the next financial product that they want to consume. We are agnostic whether it's our first party or it's one that's offered by one of our marketplace partners.

So let's talk a little bit about the customer base and how do you measure engagement? Because one would be a number of products number, the kind of revenue there but what's the best way to think about engagement?

Yes. So on the consumer side of the business, which again makes up just over 60% of our revenue mix, that has very traditional KPIs that we look at, right? So these are -- you can go on first financial accounts. These are customers that are taking their banking products or investing products. They're coming into our capabilities every day. Our message to them is that this is what a bank would not do, right? This is a daily destination for money adjacent conversations. And that part of our business has typical daily active usage metrics, monthly active usage metrics. And we're top of the class in how we measure or how we stock up on that side. On the enterprise side of the business, we're matching leads, right? So every day, people are starting their journeys from anywhere on the Internet, could be CNBC, Forbes all the way down. We have over 500 supply partners, publisher partners that we provide monetization as a service. And they get through the funnel, we're able to instantly match them with personal loans, credit cards, HELOCs, high-yield savings, auto loans, insurance products, and that generates an entire funnel of consumers that come in as well. And together, that makes up monetized total customers on a quarterly basis.

Do you measure a number of products per customer? And has that pre-enterprise marketplace and then post enterprise marketplace, what do those comparisons look like?

Yes. So we do. One of the statistics that have remained fairly consistent pre and post have been the fact that when we acquire a consumer, when we acquire a customer, we're able to get them to engage with at least 2.4 products over the course of -- that's a very precise number because that's the number we can point out from our last release. But we've done actually a good job of getting that consumer to open either a bank account, monetize the marketplace, taking Instacash product, invest with us, round up with us. All of those capabilities have actually gone up over time. And if you look at our total product per customer, we're industry-leading in that aspect.

And how many products between first party and third party do you roughly offer?

Wow. So look, I mean, I think we think of third-party as one discrete offering, right, because inside of that third-party, you could have a number of products. And that's dynamic, that's changing all the time. In fact, one of the things that we're super proud of is on the enterprise side, we were not immune to the pullback last year on the advertising side of the marketplace. A lot of our monetization was coming from personal loans. Of course, as we saw interest rates rise precipitously, not only are the lenders impacted but the American consumer, who is before getting a 9% personal loan for a $50,000 loan to redo their kitchen, that interest rate, all of a sudden increased to 15%, 16% or 17%. So a lot of the substitution effects played out in the sense that personal loan demand went down. We were able to replace that personal loan demand with high-yield savings, with HELOCs, with other products, right, that were made available in the market. We think of that as one asset class. So when we say 2.4, 2.5, 2.6 products per customer, it's our banking product that consumers usually come in for. We try to get -- we try hard to get them into that product -- they may take one of our credit products. They may take one of our membership products, investing and then we cross-sell them with a lot of these insights that we know about that consumer, the right point into our marketplace.

And how many of your banking account clients actually have direct deposits these days?

Yes. So look, I think that is a very traditional KPI in terms of looking at our types of businesses. As you know, we don't disclose that. But from a -- from just a general perspective, from a framework perspective, we think that the bank account plays the role of a wallet in our ecosystem. And 1/3 of those consumers will use it as their primary bank account. But the 2/3 that don't use it as their primary bank account, they are still incredibly valuable because they're using it as a supplementary bank account. They're using it to pay friends. They're using it for their secondary spend card. And that's generating not only revenue streams for us, but it's also generating a lot of signals from a data perspective that we're then able to use for cross-sell into the marketplace or into insights or content. I mean we haven't really talked about the content part of the business, we'll talk about that in a second. But all of it really plays in to provide a feedback loop back to our enterprise clients as well in terms of where they should be positioning their products in our marketplace.

You spoke about this, but let's just spend a little time on the whole game of conversion and adoption and keeping people in the loop and cross-selling is not a trivial matter. And you guys have a very interesting kind of life cycle strategy. Maybe you could spend a little time on that?

Yes. Look, I mean, I think it's -- financial services, it's really hard to convince a very evolved American consumer about switching their bank account or trusting any institution with their money, especially let alone fintechs or digital institutions. So we've made a lot of investments in that area. We acquired a media company. So we actually have our own studios in -- on the East Coast as well as in Los Angeles. We have our own creator network. We have our own talent representation capability. And the reason to do that is really to use the athletes, the influencers, the celebrities that everybody is used to seeing on their Instagram feed. They all have money lives and money conversations. And what we have found is that when we can be really authentic with our consumers on talking about the really hard money matters. If you think about some of the most disadvantaged communities in America, Kevin Garnett, spokesperson for us, and we had a conversation with him. And he still reminded us that when he grew up in South Carolina, there is such a massive distrust for traditional financial institutions. In a lot of communities in the United States that we take for granted in Boston and New York and San Francisco or LA, that requires a demystification. So our ability to have our own storytelling capabilities, our own content production capabilities allows us to be really authentically involved in money conversations. So you'll see us doing a lot with high school athletes with college athletes, you'll see us really being an embedded persona, if you will, in sports. And there's a reason why we do that. And the reason to do that is to actually be partners with a lot of these athletes that then go to our consumer base and talk about the first time they made their first $10,000 or their first $100,000. They talk about their mistakes, right? We have a whole series with Kevin Garnett, who talks about having lost $200 million of his NBA -- at one point, he was one of the highest paid NBA athletes. But everything he just about made, he lost in an accounting scam with one of his tax guys. So the reason that's important for the person using our mobile app or using our network is they know that they're not alone in that journey. They know that there are people to learn from. And what it really does from our perspective, why do that, it increases the trust. You asked about direct deposits. You asked about how -- ultimately, how penetrated are our products, doing that in an authentic way increases our engagement and retention with our consumer base, ultimately driving up share of wallet and ultimately driving up the number of times that, that consumer comes back to us to trust us with the next recommendation.

Are you using the content platform solely for your own benefit? Or are you also selling it to third parties?

Yes. So I think the big part of our strategy is anything that our Consumer business uses, we want to productionalize that, commercialize that for the use of the entire network.