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I wonder if you’ve considered the perverse incentive you’ve created. It may prove fatal to this model. In short, you’re charging the highest interest rate to t

by CPLX 7y ago

I wonder if you’ve considered the perverse incentive you’ve created. It may prove fatal to this model. In short, you’re charging the highest interest rate to those whose businesses do better than you expected and the lowest rate to business who underperform your projections. As such, you’ve created a financial incentive to underperform, and are entering this business of lending money by literally penalizing the least risky borrowers and rewarding the riskiest borrowers. When you incentivize something you get more of it. Your borrowers know their business better than you, and you’ve provided them with a mechanism to exploit that asymmetry in information. You sort of have to assume that your incentives will be effective: the customers who have the most reason to believe they are growing faster than baseline will avoid your product and those who are pessimistic will embrace it, greatly increasing your default rate.

chii 7y ago
> the customers who have the most reason to believe they are growing faster than baseline if you have reasons to believe that you can grow faster than "the baseline", it makes sense to use that evidence to borrow from a traditional bank. If you are undertaking a risky business move, the bank will not want to lend you the loan, and this model stripe has is going to be the next best thing.
gesticulator 7y ago
Perhaps, but it’s really only worse looking at it from the APR. The business is still performing better nominally when they outperform so there’s no incentive to do worse on a nominal basis.
dylz 7y ago
Yeah, but at the same time Stripe Capital only lends to people that have history selling on Stripe, and if they're anything like other processors they'll be holding some percent for chargebacks and other stuff anyway, lowering the default risk even if a company decides to take a "loan" and then swap processors overnight as soon as they get the money.
- londons_explore 7y ago
  Most midsize businesses will be thinking of having at least two CC processors. Having a stripe loan would make me, as a successful business owner, make that move much sooner.
jpalomaki 7y ago
Stripe has been in business quite a while and I believe their volumes are fairly large. I’d also assume they know quite many details about their customers’ business. All that gives pretty good dataset for building predictive models that tell how the business will do. These models could be actually better at predicting the future than individual business owner (on large population). Stripe has information about the past performance of many similar businesses while the owner just knows about his. Also need to remember that business owner is not just optimizing for low APR. He should be still making money through the sales. So hopefully in total there’s still the financial incentive to have as good sales as possible.

by CPLX 7y ago

chii 7y ago

> the customers who have the most reason to believe they are growing faster than baseline if you have reasons to believe that you can grow faster than "the baseline", it makes sense to use that evidence to borrow from a traditional bank. If you are undertaking a risky business move, the bank will not want to lend you the loan, and this model stripe has is going to be the next best thing.

gesticulator 7y ago

Perhaps, but it’s really only worse looking at it from the APR. The business is still performing better nominally when they outperform so there’s no incentive to do worse on a nominal basis.

dylz 7y ago

Yeah, but at the same time Stripe Capital only lends to people that have history selling on Stripe, and if they're anything like other processors they'll be holding some percent for chargebacks and other stuff anyway, lowering the default risk even if a company decides to take a "loan" and then swap processors overnight as soon as they get the money.

londons_explore 7y ago
Most midsize businesses will be thinking of having at least two CC processors. Having a stripe loan would make me, as a successful business owner, make that move much sooner.

jpalomaki 7y ago

Stripe has been in business quite a while and I believe their volumes are fairly large. I’d also assume they know quite many details about their customers’ business. All that gives pretty good dataset for building predictive models that tell how the business will do. These models could be actually better at predicting the future than individual business owner (on large population). Stripe has information about the past performance of many similar businesses while the owner just knows about his. Also need to remember that business owner is not just optimizing for low APR. He should be still making money through the sales. So hopefully in total there’s still the financial incentive to have as good sales as possible.