When David Zalik, a highly successful entrepreneur who had already founded and sold multiple businesses by the age of 32, decided to start a technology company that would provide instant point-of-sale loans for big-ticket retail goods, he ran into serious difficulty getting people to believe his vision was possible.
In 2005, Zalik embarked on a coast-to-coast roadshow, pitching his idea to bankers across the country. While Zalik’s idea for a company that would only focus on top-end prime borrowers who needed big-ticket items was a fundamentally conservative one, the revenue model he was proposing was so radical that he had difficulty convincing anyone of its viability. In meeting after meeting, Zalik was enthused by the initial interest that bankers expressed in his idea, only to be later rebuffed by polite declines to pursue his deal. After months on the road, Zalik came to a difficult conclusion; if he wanted to launch GreenSky, he would need to finance it himself.
A big bet pays off
Zalik liquidated his nearly $12 million in commercial real estate holdings, risking his entire worth on the success of GreenSky. But just as Zalik had predicted to all the reticent bankers with whom he spoke, the GreenSky revenue model not only proved to be viable, but it also proved to be one of the most spectacular successes that the fintech industry had ever seen.
The perceived risk in the revenue model was that Zalik was proposing to do three things that had never been done in concert before. First, GreenSky would take no lending risk whatsoever. The company would originate the loans, but it would hold no loans on its books. Second, the firm would get retailers themselves to pay a hefty 6 percent fee up front. And third, the firm would get its lending partners to pay a 1 percent annual carrying fee on all loans that it had originated, subject to certain performance stipulations.
It turns out that GreenSky was easily able to convince all parties to sign up for these terms. The reason is simple: The company creates tremendous value for all involved parties.