Building smarter pipes for debt repayments

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Student debt had once again become a hot-button issue in national politics in the States, triggered by the Biden Administration’s loan forgiveness plan. Regardless of the politics and the policy, student debt is a real burden for millions.

I caught up with Rightfoot’s cofounder, Danielle, to understand how she’s trying to help people with student loan repayments.

In this chat, Danielle and I talked about:

• Lack of progress in the payments stack for debt

• Problems with debt repayments today

• Intelligent debt repayment as a wealth creation tool

• Discovering the infrastructure problem

• Working with loan servicers and financial institutions

• Enabling an embedded experience for consumers

• Strategic choice of doing money movement

• Not competing with the data aggregators

• Expansion into other types of consumer debt

• Brewing consumer debt crisis

Sar: The last time we connected was almost two years ago. Rightfoot had just raised a Seed round from Bain Capital Ventures. Your vision was to empower financial institutions to add intelligent debt repayment into their apps via an embedded experience. You started with student loans but always wanted to tackle other types of debt. You worked directly with loan servicers to pay off public and private loans. And you wanted to help people repay the highest interest, highest priority loans.

Danielle: You've got a great memory. Rightfoot is building smarter pipes for debt. Our clients are financial institutions that help customers save, spend, and retire, and we complement their stack to bring streamlined debt management and repayment capabilities directly into their user experience. We started with student loans and expanded to cover credit card debt. We're launching our personal loans module, and our near-term roadmap includes helping borrowers manage and repay auto loans, mortgages, and even unique types of debt like BNPL.

Sar: What kind of companies embed your API to offer debt repayments to consumers?

Danielle: Rightfoot partners with fintechs, major enterprise financial institutions, and workplace benefits companies to offer smart debt management and repayment within their native user experiences. Every financial application wants to become the “one-stop shop” to manage all things related to a customer’s finances – and they can’t possibly do that if they ignore the liabilities side of the balance sheet. We enable our clients to get to market with technology that compliments their stack, powering them to become the central place that customers go to manage their money.

Sar: I want you to walk me through the minimal viable context. Can you talk about the philosophy behind what you are doing, how you look at the industry, what’s broken, and where Rightfoot fits in?

Danielle: Debt is the most fragmented, neglected part of the payment stack. There are thousands of loan servicers across the country whose backends were built in the 1970s on COBOL, so the way each entity validates and accepts payments differs from one to the next.

Things get messy quickly because debt has a unique structure: it is not a routable account like a bank account. So let's say, for example, that I want to send $30 into your Chase bank account. Of course, I can do that. There are clear instructions for where to send the funds or an account and routing number. On the other hand, let’s say I want to send $30 to your student loan account. That’s where we get stuck. There’s no standard, canonical “institution” identifier for a loan institution in the same way that ABA Routing Numbers exist for bank accounts.

Rightfoot takes out the time, cost, and complexity for financial institutions to get to market with an intelligent debt management and repayment solution by building enterprise-proven, direct integrations into loan servicers. We offer a completely self-service portal where any developer can be live with Rightfoot in 24hrs.

Rightfoot’s mission is to maximize wealth for underrepresented individuals. We believe making consumer debt management and repayment automated, intelligent, and frictionless is one of the biggest potential drivers to increase consumer wealth and one of the largest untapped opportunities for banking institutions to drive account primacy, stickiness, and cash inflows to their ecosystems.

Sar: How did you get started?

Danielle: We first discovered this infrastructure problem when Deirdre and I were at Stanford. We had taken out a crushing amount of student debt and didn’t know where to turn. We met our technical co-founder Will and started building an application to help borrowers see all their loans in one place. In thousands of customer interviews, we learned that savvy borrowers used spreadsheets to track their progress, but most used sticky notes or nothing at all, and we knew there was a better way.

We realized that the major data aggregators like Plaid, MX, and Finicity could surface user-permissioned data on consumer loans to help track and manage debt. Still, none of them could take that data and make it actionable in the form of a payment. To make the application useful and sticky, we knew the ability to optimize payments across multiple different loan types was critical.

In our search for debt payment APIs, we approached dozens of payment processors like Stripe to ask if we could leverage their APIs to make payments to customer loan accounts from within our app. They said, “what on earth are you talking about? We can't make payments to debt. It would be a total nightmare to build, as lenders were built in the 1970s on COBOL and don’t have APIs that developers can simply plug into.”

Instead of building a direct-to-consumer application, we realized we could instead power popular fintech and banking applications if we were to build this foundational infrastructure. Our backgrounds were far better suited to building and scaling API infrastructure. We realized we could touch millions and millions of lives and achieve our mission quicker by powering the pipes underneath applications.

Sar: You had this classic journey of trying to build a consumer app and realizing that the infrastructure opportunity was much bigger. And the challenges others highlighted for why they don’t do what you wanted them to do as a consumer app company became the thesis for Rightfoot! The status quo experience is subpar for the borrowers.

Danielle: We realized we could build a much better solution than the status quo for everyone: lenders, fintechs, and borrower. Many of our customers were sending checks to lenders or using old bill pay systems before we partnered, and they often ran into payment reliability issues. For example, one of our customers used bill pay to make payments and submitted a payment to Navient. They thought everything was fine – that the payment had landed properly – however, three months passed, and they received a returned check in the mail. As bill pay systems are a functional black box, they only learned months later that they had sent a payment to the wrong Navient biller ID, and therefore the payment was never applied. When dealing with payments as sensitive as debt, you need to be certain that your payment will go through every time, and on time. That’s why customers, from fintechs to major enterprise financial institutions, trust Rightfoot.

Sar: Given the challenges you mentioned above, how did you go about selling the servicing companies to integrate with you?

Danielle: Building direct integrations into lenders is a significant lift, but for Rightfoot, the slow and steady path gives us the most secure and reliable payment technology. We're helping lenders get paid on time; they understand that’s a good thing. They want to provide flexible payment options to customers to decrease their default rates. We have a symbiotic relationship. It's also extremely sticky once they've built an integration with Rightfoot. There's a lot of value that we unlock for lenders. And we've been leaning into that.

Sar: You don’t have a direct relationship with the borrowers, correct?

Danielle: We do not have a direct relationship with consumers, and building a direct relationship with borrowers is not in our company DNA.

Sar: Why not? Isn’t that a strategic asset for most companies?

Danielle: We have a clear commitment to what we do best: providing smart pipes for debt. We help financial institutions provide a better customer experience to drive their bottom line and maximize customer financial health. We will never market to end borrowers or compete with our clients in any way. This focus has propelled us to become the market-leading debt infrastructure.

Sar: Walk me through the user experience of the end users.

Danielle: Like every fintech out there, our clients want to be the one-stop shop for everything financial in their customers’ lives. Today, our clients help customers invest. They help them save. Well, 80% of households in the US have consumer debt. If a financial institution wants to be relevant and solve its customers’ biggest pains, they need to bring the entire financial picture into focus.

For example, a borrower can start by clicking a button within their banking application that says, “help me manage and repay my debt.” An iframe will pop up to sync their customers’ loan data. Behind the scenes, we map our API endpoints to the response of any major data aggregator, so financial institutions can continue leveraging the data partners they work with today, and receiving the data in a way that’s simple for their engineers. Alternatively, clients can leverage Rightfoot’s own capabilities in which we retrieve data from credit reports to avoid borrowers needing to log-in proactively. Rightfoot can then make a payment to a loan account anytime – no matter what. We never screen-scrape to make payments like other companies in this space, so our integrations are never stale.

Sar: Talk about your relationship with the financial data aggregators. You handle money movement. The aggregators don’t handle money movement.

Danielle: We have unique partnerships with data aggregators across the US. We understand that every fintech and financial institution is already partnering with a data aggregator like Plaid or MX. Borrowers can retrieve their loan information using their credentials via the existing aggregator experience. If a customer has already logged in with the aggregator, even before partnering with Rightfoot, we can make a payment to that loan without needing any user intervention. The information that is surfaced contains unique details about the loan, and we extend that “read” information and turn it into a “write” action.

Rightfoot makes data actionable within the fintech or bank’s application. We can pull money from any bank account, such as the borrower’s, our client’s, or an employer’s account, and pay the loan servicer directly. We send the loan servicer data and payments, giving them instructions on how to intelligently apply dollars to each loan to maximize every borrower’s dollar.

Sar: So you don’t have a contentious relationship with the data aggregators as you offer complimentary technology?

Danielle: Exactly. We achieve massive distribution by partnering with the best data aggregators instead of reinventing the wheel and creating friction in our clients’ user experiences. If a client prefers that Rightfoot handles all the data, we can do that too.

Sar: Have you seen companies try to build the integrations in-house? What are the most common pitfalls that make them want to find a vendor like Rightfoot?

Danielle: Several of Rightfoot’s clients told us they originally tried to build this functionality themselves and spent months spinning their wheels. It cost them quarters of engineering work, and they had little to show for their time. Several loan servicers told them, “hey, why don’t you work with Rightfoot?” So they did– and told us they were happy they listened!

Sar: You now make credit card payments and student loans. How did you decide on that being the second vertical you wanted to enter?

Danielle: To achieve our mission of maximizing borrower wealth, we realized that only offering functionality to optimize and repay student loans wouldn’t cut it. Credit cards have much higher interest rates, and late payments negatively impact a person’s credit score. We knew we needed to prioritize tackling the debt that hurt borrowers the most to build a robust, intelligent loan payment engine.

Sar: What is your coverage of providers across student loans and credit cards?

Danielle: Today, we cover 99% of student loans and 95% of credit card debt and growing.

Sar: What are the benefits of direct integrations?

Danielle: Rightfoot is the only company with secure, direct integrations into servicers across the US. Other companies in this space leverage screen scraping to pay loans. They say to borrowers, “hey, I'm going to log into your account and make a payment on your behalf.” That approach is not reliable or secure, especially as the increase in adoption of two-factor authentication means that a consumer oftentimes needs to be present to ensure payment goes through. The borrower may have to confirm via text message that it is them making a payment. This approach creates friction and is unreliable, as scrapers will often break, and the application must prompt the user to re-login if they want to complete the payment.

Sar: Are you exposed to screen-scraping as inputs to the payment via the data aggregators?

Danielle: We offer several flexible approaches on the data side. Firstly, if our client has an existing relationship with a data aggregator and wants to use data from that partner, their customers can log in once through their app. From that point on, Rightfoot can make a payment to that loan 24/7 moving forward. If the connection with any aggregator stalls, that is irrelevant, as we have a direct relationship with the loan servicer and can make payments to loans regardless of a connection moving forward. Secondly, we enable our clients to bring their own data. As another flexible option for financial institutions looking to avoid leaning on a data aggregator, we are actively building alternative paths to understanding borrowers' full debt picture that does not involve any log-ins.

Sar: I see, so you’re not dependent on the third-party data aggregator. Did you always have this insight on how the money movement would matter more than the data aggregation play? Otherwise, you risk getting commoditized by the larger aggregators that retrieve information on assets and liabilities through an embedded UI in a user-permissioned way.

Danielle: We understood that there were many trusted data aggregators in the market. They have matured to become established players. So why steer Rightfoot down the same path when we can be collaborative, not competitive? Our customers are already working with these players. We realized we could create value for everyone by partnering with them and turning their insights into action entirely within our shared client’s user experience. We also realized that as an early-stage company, we could be scrappy and lean on the extensive sales teams of these aggregators because we help them close deals faster. We learned many aggregators are losing RFPs because they don't have payment functionality. We compliment their technology, enhancing their value to clients.

Sar: What was living through the pandemic like for Rightfoot? Biden recently announced a student loan cancellation policy. How does that impact you? What’s brewing in the consumer debt world?

Danielle: It’s been quite the journey! Rightfoot celebrated when Biden announced his targeted student loan cancellation plan. Zooming out to look holistically at the consumer debt landscape, forgiving $10-20k in student loans per borrower is a great start, and for many, it makes taking control of their debt an attractive goal within reach.

That being said, things are looking grim in the world of consumer debt. Student loan payments restart on January 1, and nearly 90% of borrowers say they are not financially ready to begin making payments. Personal and auto lenders aren’t thinking enough about the impact that student loan payments restarting will have on their portfolios. The number of individuals with credit cards and personal loans reached record highs in Q2 2022. BNPL is exploding, and over a third of users report missing at least one payment. The consumer debt crisis is only worsening, and fintechs and financial institutions are increasingly turning to technology providers like Rightfoot to help make money less stressful and more relatable for their customers.

Sar: What’s next for Rightfoot?

Danielle: We’re growing fast and actively hiring across Engineering, Marketing, Sales, and BizOps. It’s been really tough to see the recent massive layoffs across tech, and our hope is to find some of these great folks a new home at Rightfoot. If you’re in the market for a new chapter, looking to work with ambitious, kind, and intelligent teammates, and motivated to make a dent in our rampant consumer debt crisis, please give me a shout! You can find send us a note at [email protected].

Secureframe helps companies achieve fast SOC 2, ISO 27001, PCI, HIPAA, NIST, and GDPR compliance.

Click here to chat with their team. Mention “Sar” during your demo to get 20% off your first year of Secureframe. Promotion available through December 31st, 2022.

My rant on leadership not owning the decision to lay off employees

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