2026.09.24 | GP | Fintech | Enova AI Underwriting

Driven Underwriting Economics and the Consequences of the Withdrawal on the Grasshopper Acquisition

Primary:

ENVA

Associated:

Populus Financial Group, Inc.

HAPN

FCH:LN

WU

MoneyGram International, Inc.

RELY

Wise Payments Limited

Check Into Cash, Inc.

CNG Holdings, Inc.

OneMain Financial Services, Inc.

Viewpoint:

Former Executive

Moderator: Julien Dray (JD)

| Sep 23, 2026 | 39 Min Read

Aaron Filous (AF), Former Strategy and Business Operations Lead - Enova International

SU MMARY

Overview

The discussion centered around Enova International, a technology-driven financial services company specializing in lending to underserved small businesses and non-prime consumers. The company operates in three divisions: small business lending, unsecured consumer lending, and money transfer services. The conversation explored Enova's growth outlook, AI-driven underwriting, and the strategic implications of the Grasshopper acquisition write-off.

Key Insights

The expert highlighted Enova's unique position in the market, offering quick and accessible loans to small businesses that traditional banks often overlook due to stringent credit requirements and lengthy processes. Enova's AI-driven underwriting is a significant advantage, allowing them to assess creditworthiness beyond traditional metrics like FICO scores. The expert noted that Enova's growth is driven by macroeconomic factors and operational efficiencies, with opportunities in expanding ticket sizes and improving customer retention through renewals. The Grasshopper acquisition was seen as a strategic move to lower funding costs and streamline regulatory processes, although it faced regulatory challenges.

Competitive Landscape

Aspect

Enova International

Traditional Banks

Regional Banks

Competitors (e.g., PayPal)

Market Focus

Underserved SMBs and non-prime consumers

Larger businesses

Varies, often conservative

Varies, some attempts in SMB lending

Loan Process Speed

Fast, decisions in <24 hours

Slow, lengthy processes

Varies, often slower

Varies, some fast processes

Interest Rates

High (40-60% for SMBs)

Lower

Lower

Competitive, but can miss targets

Underwriting Approach

AI-driven, cash flow focus

Traditional metrics

Traditional metrics

Varies, some innovative approaches

Regulatory Challenges

Faced with Grasshopper acquisition

Established frameworks

Varies

Some faced challenges

Quantitative Insights

Metric

Value/Insight

Small Business Loan Size

Average $50,000 to $100,000

Loan Duration

Typically 1 to 2 years

Interest Rates (SMBs)

40% to 60%

Consumer APRs

Hundreds of percent

Marketing Expense

Increased from 19% to 22% of sales

Operating Costs

Stable at 8% of revenue

Growth Rate

Clinical Data

Not applicable.

Sustained 30% growth in SMB division

The transcript provided a comprehensive look at Enova's strategic positioning, competitive advantages, and challenges in the financial services sector, particularly in lending to underserved markets.

JD: Hello everyone, my name is Julien Dray, I'm a moderator with Guidepoint. I want to welcome you on our call today with regards to Enova International. We have its former strategic lead to discuss growth outlook, AI-driven underwriting economics and the strategic rationale and value consequences for the write-off of the consideration of the Grasshopper acquisition. If you have any questions, please feel free to email ask@guidepoint.com. Before we start, I would like to introduce our advisor for the day, Aaron Filous. Aaron, if you could quickly introduce yourself and give us a bit of background on your career, it would be helpful and then we can begin.

AF: Sure. Yeah, no problem. Hi, my name is Aaron. Obviously, formerly of Enova, I was a strategy and ops lead there, primarily on the SMB side. Prior, I spent a lot of time in the startup space, both bootstrapping and the high growth variety, and now currently doing a mix of consulting work, stuff like this and others. I'm so happy to dive in.

JD: Thank you, Aaron. I'll briefly describe Enova and we'll get going. It's a technology-led online financial services business focused on lending to underserved small business and non-prime consumers. It has 3 divisions, small business lending, which is mostly about working capital financing, unsecured consumer lending, and money transfer from the US to LATAM and Asia. The business has around 20 employees. In 2025, it had a top line of $1.5 billion for an earnings, net income, let's call it, of $209 million, so that's a 17% margin. All right, let's start the call with understanding for each division, the basic unit economics. For small business lending, what's an average loan size and what typical terms are we talking about in terms of collateral duration and interest rate?

AF: Sure. So at a high level, I would say minimum. I don't remember what the exact minimum was, but we didn't see much less than $20,000 to $30,000. Typical max loan at the time, and they may have changed this, I think that's part of the opportunity if they haven't already, was about $200,000. And then the average, it was somewhere in the middle, I would say, in that high five figures to low six figures is probably more of an average kind of loan, so $50,000 to

$100,000, sometimes a little bit more. In terms of tenor length, typically 1 to 2 years. The max was 2 years. There were a couple of... I mean, there is the capability of doing a little bit more, but that's the usual max unless there are exceptional circumstances.

JD: Okay.

AF: And interest rates. They vary. I would say, on the lowest of low end, I don't think Enova does anything under 40%. There may be some unusual circumstances where previously you may have seen something like that, but currently I doubt you see anything like that. And then on the high end, I'm speaking on the SMB side. Obviously, consumer APRs are a whole different beast, but on the SMB side, I would say on the top end, you probably see stuff in the 60s. And then obviously, there are some anomalies, but I'd say 40% to 60% is your probably average.

JD: So 40 to 60, like 40 to 60.

AF: Yep, exactly. Percent.

JD: Is there any collateral provided in the loans?

AF: No, there's no collateral, which partly goes to inform the rates. Obviously, if someone doesn't pay them, then there's collections operations and such, but there's no upfront collateral or any property or anything else that's tied to the loan itself.

JD: And are we saying that most of the time the small businesses that turn to Enova are struggling with the bank market and they just can't find any financing, that's why they turn to Enova or is there another reason?

AF: Yeah. So it's primarily, it's just when you think of your big banks, most banks, they lend primarily to larger businesses. So companies, generally speaking, if you don't have $10 million in revenue on a really stable kind of business, or you are not venture backed, you're not going to Wells Fargo or Bank of America for a business loan. You can try, but you're going to get a swift rejection, or maybe not a swift rejection, but either way, highly unlikely unless you have some other kind of relationship, collateral, millions of dollars at the bank, something like that. But your average small business can't go to a typical bank. The other option is to go to the Small Business Administration. But again, a very long-term process, we're talking in the order of months. So 6 months to get a decision, good or bad, right? And if you're a small business, if you're a restaurant, or say you're an importer, right? You have a container you want to bring in. You can't wait that long. And so you go to alternative lenders like Enova.

JD: Remind me what duration you mentioned earlier.

AF: Terms of loan duration. Yeah, they're short-term loans. Primarily, I would say the max is about 2 years. On average, most loans I saw were in that 1 year to 1.5 years. But then, as part of retention efforts, those loans might get renewed faster. So say someone gets a 1.5 year loan or a 1 year loan, then in 6 months, they might renew that loan and get a... cancel the remaining 6 months and stack on a new 1 year or 2 year loan.

JD: And is it to say that the average business that borrows to Enova may also be running into some form of difficulty or not necessarily?

AF: It's just a problem with the banks not doing their job for smaller businesses. Yeah, it's primarily that last part. Banks not really doing their job for small businesses and for banks, the small business is a little bit more effort and maybe the scale isn't bad enough for Bank of America or Chase or whoever. But for these businesses, sometimes it's due to lumpy cash flow. So say you're in construction, for example, a lot of your revenue comes in the summer, but you don't have any projects in the winter, but you still have to pay your full-time staff. And so that's where a working

capital infusion from Enova, yes, it's expensive, but that allows you to spend what you need to spend in the winter. And then when your summer projects line up, then you're able to pay that back. And same thing with other kinds of businesses. Restaurants are a great example of this where you've got maybe in certain months, there's cyclical businesses to an extent. Certain months you have lower revenue. In the Midwest, in the wintertime when it's cold, you get less revenue in restaurants. In the summer, you have all the happy people sitting outside. The outside restaurants have substantially more revenue. And so a loan from something like Enova allows you to sculpt those payments in such a way or manage that cash flow in a way that allows you to meet your obligations that might not be as stable as the same payment or the same amount of revenue every single month.

JD: What can you tell us about the underwriting process at Enova for small business loans?

AF: At a high level, obviously, Enova looks at all of your standard credit metrics. And then the most important part is we look at the business cash flow. So we ask the business owner to give us bank statements. We obviously go through and make sure those are real. There are lots of fraud checks. And then we look at that business. What kind of cash flow does it have? Speaking of, we remove non-revenue deposits. We look at, is there any other business debt that they're paying on or any other debt in general? And then it's, what amount of debt, if any, could this business successfully service? We're not looking at... If a business is struggling, Enova is probably not going to want to do work with that business. Because generally, if you add debt to a struggling business, you're going to end up in collections. And maybe you might make more money at the end of the day, or you might make a profit on that, but that's not the business they want to be in. They want to be in a kind of business where it's a good, healthy business and the infusion of capital helps them continue to be a good, healthy business. Or unlocks them. Whether it's an expansion, say you're a restaurant, you want to double in size. So you have a one-time expense or you're a bakery and 1 of your machines breaks. So big one-time expense, you get that paid today and then you're able to pay off that loan over the 2 years or life of the loan.

JD: It's really solid underwriting analytics, so they get the accounts of the company and some people in-house in the underwriting team review in detail all the cash flows.

AF: Yeah, exactly. Look at all the cash flows, look at all the non-traditional metrics. And what we found is, as you guys have also noticed, that a FICO score isn't always the main indicator of whether someone will repay their loan. And ultimately, that's what we care about, right? And so sometimes we've had customers with a 600 or a 650, and we'll lend to them because we've seen maybe they haven't worked with Enova the whole time, but we've worked with other SMB lenders, right? Or when we see really healthy cash flow, we see the business, right? And so we're able to say, "Okay, well, your FICO might not be great, but we have these other indicators of healthy business and ability to repay." JD: Okay. How do you explain that the spread versus a larger business is so large? I mean, your 5 to 10 million business would probably borrow money at a fraction of that interest in terms of their cost.

AF: Well, some can and some can't. I think it all depends on the credit box and the requirements of those larger banks, and those have tightened. So I think part of the tailwind Enova's experiencing is higher quality customers that maybe would have been at the bottom end of a larger bank's model credit box, might now not be. And so, it depends. Some can access private credit, some might not be. And the other thing is speed. How fast can you do it? Enova can have money in your account in a couple of days. They can decision in less than 24 hours. You don't have to go through a bunch of manual paperwork, you don't have to go sit in an office. And so all those things add value, and it really depends on what that customer needs. And so the interest rates that are high sound really high, and they are, but if your pain point is speed, or your pain point is something else, you're willing to pay a little bit more to get that done on time.

JD: Yeah. And how are things handled when the business goes south? Is the claim sold to some debt collectors or is it

kept in-house and basically managed through the workout team of Enova?

AF: Yeah, it's primarily kept in-house. I can't speak to 100% of everything, but from my perspective and what I've seen, at least when I was there, we never sold any loans off or any past due. We had a workout team, we had a collections team. And then when things went really south, where someone doesn't pick up the phone or answer anything for months on end and they're long since charged off, there is outsourcing for legal action, but that's well down the road, but otherwise it's primarily an in-house team.

JD: Understood.

AF: And part of that. Enova wants the relationship with the customer. So you might have customers who are maybe not paying you a full amount, but maybe they're making you a half payment every time. And so, not perfect, but you'd rather have someone making you a 50% payment every single week or every single month and showing you the bank statements and stuff to confirm that that's what they can do. And then you have a workout plan to make sure that you're able to recover everything.

JD: How do you explain that banks, maybe not the large banks, but some regional banks haven't tried to penetrate this market or come up with a price point that would be still very profitable for them versus their average loans, but much below that of Enova.

AF: Yeah, I think usually a lot of the banks don't necessarily want to go into these kinds of credit profiles. Most banks use typical traditional metrics. And so if your FICO is not amazing, you might see some regional banks... maybe if you have a relationship with the regional banks, but the risk is high, and so it all depends on what those regional banks' investors look like, what kinds of returns they need. There is, I'm sure, a compliance element to it, but sometimes it's just a risk, right? When you haven't been doing this for a while, it's easy to go into this market and offer competitive rates, but if you don't have that 15-year, 20-year track record, you don't know what to expect all the time. It's easy to have a big miss. And if you're a big company—like PayPal tried it, and they ended up with, this is a couple years ago, when they had that $300 million miss on this—PayPal can just book that charge and move on, right? You're a big company, but a small regional bank, they can't take a $100 million hit. And you see this a lot with another competitor as well; they'll raise money, they'll come in at attractive rates to try and compete and then things change, right? Macro changes, micro changes, whatever changes happen. And then, they didn't account for that in their underwriting. They kind of were just like static conditions, and when things change, then you're out of your skis and then you've got a problem. And so, I assume that's why regional banks... and it's also not their bread and butter, right?

JD: Yeah. Is there a specialized or ideal profile in terms of clients, meaning that the team in-house at Innova will like to focus on certain industries and will have industry specialists to underwrite each credit, or is it broader than that?

AF: I would say it's somewhat broader than that. They don't focus on industries in that way. Yes, they do segment by industry, so there are certain industries they don't lend to. But for the most part, it's pretty broad. And then just every industry has its own risk profile. So, you know, when things shift, they will pull back on certain industries first.

JD: Yeah.

AF: And they do this on like a weekly JD: Hold on one sec. Sorry.

AF: basis.

JD: Sorry, Aaron. Small business revenues division of Innova grew 31% in 2025 and even accelerated in terms of growth in the second quarter of 2026. What do you think is driving this sustained 30% growth? Market share gain,

greater demand, higher approval rates, or larger ticket size.

AF: I would say, I mean, maybe I'll start with a little bit of all of the above. I think part of it also is macro. I think 1 of the big drivers of Enova and the opportunities they have, right, is when you have market uncertainty, credit uncertainty, all the things that we've kind of seen from the last couple of years, right, with this administration where we're changing rules all the time. Or you know you imagine like we say, hey, you know, I'm going to slap your product that you import is going to now cost 200% more, right? You're going to want to get as much of that in the country as possible, right? So you're going to you know bring in as much product which means you might not have the funding to cover that, so you're going to go out and get that like that. You don't have a month to wait, you've got 2 days, you're going to get that fast, you're going to pay what you need to pay, because paying 40 is better than paying 200. And then on the flip side of that, on a bigger company size, if you're not sure where you need to invest, where the economy is going to be, or the market's going to be, or where regulations are going to be in 2 years, you're not making huge investments; you're actually tightening to make sure you've got you know your ducks in order. So the big banks have tightened their credit boxes. You've seen some private credit, but again, you know, I would say those are larger companies than your typical SMB customer. And so to me, that all feeds into opportunity for Enova. And then there's what you talked about, right? Larger ticket sizes absolutely drive it. And then I think there's also, they've made some operational changes, I'm sure, that allow them to be more efficient. So, you know, whether that is changing into, you know, products internally to have a larger ticket or getting more efficient at processing, or just capturing more of the market on the direct side versus via partners, right? There is probably that as well.

JD: Understood. What kind of growth rates would you think is sustainable in the next 2 to 3 years?

AF: It's hard for me to speculate on a specific growth rate. Obviously, it can be anything. But I think what I will say is that there are a lot of opportunities. I think Enova has been fairly... it's crazy to say... I would say relatively conservative and constrained compared to others. And ticket size, I think, is a big one. I think for that, 1 of the opportunities is to go after some of those larger customers. Maybe they have to charge less on the APR side, but that's a huge opportunity. And then just improving efficiency on the marketing side. The reason I'm not going to give you a growth rate is I can't account for how much of the current rate is from macro. But the nice thing about Enova's business is when things are bad, it's good for their business. And when things are good, right? When things are bad, you have higher quality customers who come into their credit box or their opportunity zone, and when things are good, rather, on the opposite side, you have more customers that actually will fall into the bottom of their range, who now actually are looking good. So they've got opportunities. I think the opportunity really then is to figure out whether it's complementary businesses or products or what have you, because even on a ticket size, you have partners, your Lendio's of the world, who will say, "Oh, we loan up to $1 million." And of course, they shop that out to numerous partners, Small Business Administration, where I know that their top, at least when I was there, was $200,000. And so the opportunity there is to target a bigger customer, but need more money. And so there's opportunities.

JD: Oh, you can give us a broad range. What would you... Go ahead, sorry.

AF: No, yeah, I was finished.

JD: Okay, what would you say are the main risks to a lower... growth rate going forward, yeah?

AF: Risks in what sense? Risks to Enova's business in terms of the growth rate? You mean like economy growth rate?

JD: I mean, right now the business is growing north of 20% and closer to 30%, really. I'm wondering what you would think needs to happen, what might happen that would slow down the growth of the business going forward.

AF: Oh, I mean, I think in general, yeah.

JD: Please continue. Do you feel like this is, yeah...

AF: You said, do I see?

JD: Yeah, let's say, you know, does the macro slow down? Does it negatively impact the business, or would you think it's actually making small companies even more dependent on the funding that Enova provides? Or, you know, you could also argue that maybe they have higher bad debt. So, you tell me.

AF: All of the above. Yeah. Right now, we're in kind of a weird time where, you know, you have these tailwinds that aren't necessarily indicative of a good, booming economy, right? But Enova... I can't tell you, I can't say which is going to be better or worse... but I think to your point, if you see a slowdown, you're going to get that mix, right? You're going to see, you will have some bad debt. And so the risk for Enova is, you know, can they continue to make sure their underwriting is good and that they continue to track the vintages well? Because I think when I was there, they did a very good job of saying, "Okay, well, when we see these really large increases, we would say, hey, okay, great. We all, you know, the businesses love making money, but let's pause and stop expansion, whether it's like credit box or volume or whatever. Let's make sure that what we're seeing right now, vintages out and successfully performs over the next few months to a year, right?" So that, I think, is going to be part of how we see growth going forward. And also you might see that... you might see a slowdown because of that. They might say, "Okay, well, we've grown really, really fast. Let's take a beat and let's slow down and let's watch how these recent loans continue to perform so that we know that it's repeatable and we can continue to lend to these customers under these conditions." JD: Okay. At what level of delinquency rate would you start to worry that maybe the business is trying to push too fast on growth? What's a ballpark, you know, decent enough estimate?

AF: I'm going to give you an exact ballpark rate. Obviously, you don't want to see delinquencies ticking up. I would say, you know, I think it's one thing if we see delinquencies slowly ticking up, I think it's very different if all of a sudden you see one quarter where it's like really substantial. So if you see, you know, it's one thing to say, okay, it goes up by

1. 5%, right, whatever. But if you start to see stuff where it's like, okay, they went from 7 to 10, right, or they went from

10 to 15, I'm kind of making up numbers here, but if you see really sharp changes, I would say then I would start to worry, but I would also dig deeper into that and ask where those delinquencies are coming from and also what action Enova has taken. Because for example, when I was there and speaking of leadership there, I know they adjust the credit box and the volume and industries within those on a weekly basis. So basically, I see anything happening, there might be stuff being pulled back. And there's certain industries that are indicators. So things like trucking or construction, right, if those are the first couple of industries where you see those, you see pullbacks there or you see pain points, performance issues there, that's going to be indicative. So you want to pull back there the fastest, and also that's where you start to pull back volume on other industries as well. And then it depends on which segments of those businesses are non-performing and also what non-performing means. Because like I said, I've seen customers where it's full non-performing, like they just don't respond at all. And I think somewhere, you know, they pay partial and it still becomes charged off, but it's not the same thing, right? It's like that you'll eventually recover that revenue. So I think part of it is being able to dig a little bit deeper into what those non-performing loans look like.

JD: Let's switch to consumer. So same questions as before. What kind of unit economies are we talking about?

AF: Most of my exposure is on the SMB side. So I'm less familiar with the consumer lending. I can speak at a really high level, but in terms of nitty-gritty, it's hard for me to give you specifics. The APRs are really high, as are the non- performings. We're talking APRs like hundreds of percent, and part of that is because if you're saying, "Hey, I'm going to give you a $100 loan and I want $150 in 2 weeks," you guys can do the math, right? And that's the kind of stuff. Obviously, it depends on which level of consumer, right? The near prime is going to have much better rates than the really below prime. The payback periods are much shorter and the delinquency rates are much higher, which is why you have those really high rates. I would say consumer has done a really good job of automating their funnel. It's even

more automated than the SMB side of the house. And their credit box is what it is. I don't think they do much to change or open the credit box any further. I think their growth primarily is when things are going really good, then the bottom, you see more people entering the credit box from the bottom. And then when things are bad, you go from the top to the bottom. But I would say when things are good, consumer is even better. No, yeah, it kind of is what it is. www.guidepoint.com.

JD: Do you have a sense on what's an average ticket?

AF: No, I would say it's probably $1,000, but I'm really just guessing here.

JD: Does a gross or a net be... Okay.

AF: It might be $500.

JD: The growth was relatively modest in 2025. It accelerated in the second quarter this year with originations up 23% and revenue up 11%. What would you assess has changed in 2026?

AF: If I were to guess, I would say probably 2 things. I would say they may have gotten better on their targeted marketing. And that may be why there's just a larger pie to come in. And they may have, depending on kind of where we were at that time, they may have gotten more in the bottom. I doubt it's a higher quality customer. I assume it's more like the credit box hasn't changed, but maybe they've gotten more value out of the bottom end of that range. So I'd say it's probably those 2 things. Probably better targeting, better marketing, more efficient marketing spend, and more specific targeting, and then more stuff on the bottom of the credit box. But like I said, I'm less familiar with the consumer side and the mechanics, so take that away.

JD: Are you of the view that it's a much more competitive space?

AF: I would say it is. It's more competitive, it's more well-known, and it is more regulated. But I would also, on the flip side, say that the customers who come on the consumer side are more in extremis. SMB lenders aren't... their business isn't bad. They're not going bankrupt if they don't get a loan. It might hurt their expansion, might hurt some other things, but they're not... whereas the customer who comes to a consumer side loan, think of them as an hourly worker. Kind of barely paying the bills, barely making by. And all of a sudden their car breaks and they need $1,000 to fix the engine or something. Most people, I mean, if you've seen the stats, right? Most people do not have an extra $1,000 for an unexpected expense. And those are the kind of people, and $500, $300, these are the kind of people who come to consumer credit, typically at least for the Enova side. It's different from the people who might have credit card debt and need that consolidated. Because those are... I'm sure you've gotten the offers, right? I get them all the time from Chase and Citi, where it's, "Hey, you move all of your credit card debt over here and pay 15% APR or 10% APR." These are customers who are in a different world of extremists, where one, they don't have those credit cards, they don't have an option, and that's who comes. And so when you're in that position, you're less picking and choosing. Who will give me the money now? I don't have 3 days to shop to save 5% on a $150 APR loan.

JD: Yeah. What can you tell us about the proprietary models? The company mentioned that the FICO scores are roughly 500 to 700, but they heavily rely on proprietary models to underwrite the loans.

AF: Sure. So I think obviously part of it is just understanding with our pricing, right? How much, how many non- performing loans can we afford? And then from there, we're looking at, obviously I can't give away proprietary information, but at a really high level, you're looking at, like, have they had any debt before, right? What does payback look like? What's behavior look like? And those are the kinds of things, right? Do they have any liens and judgments on their property or anything else? Can they afford a loan? If nothing else bad happens based on the

revenue of that customer, can they afford to pay back a loan over a... That's ultimately what we're trying to decide and, you know, understanding that that's a much higher risk than your traditional metrics, but also that's where the opportunity is.

JD: What's your understanding on how they differentiate versus competition? Because we did mention earlier, it's a more competitive market. What's their edge?

AF: The edge in general is just fully automated. It's fast, right? So the edge in this business is less price and it's more speed and it's, you know, the squishy stuff is being nice. You want to have a really good customer service, right? You want to make it easy to pay and ultimately it's like how fast can I do it? How fast does the money get in my account? And how easy is it? How frictionless is it? And those are the most important things for a customer in this space, right? Can I find you? Can you underwrite me fast? And do you make it difficult, right? Is it, for us, I'm sure it's log into Plaid, right? Give us the information and we can automatically do it, right? Where some customers, some companies might say, "Oh I need your W-2s" or I need, you know, 3 months of paper statements, those kinds of things, right? If you make it really difficult, then the customer is going to look for someone who can do it faster and easier. And same thing applies on the SMB side. We always talk about how do we make something frictionless? How do you make it easy for the customer? Obviously, you want them to understand what they're getting themselves into and what their costs are and all that. We also don't want to add additional blockers to make it difficult for them to go through the process.

JD: The marketing expense increased from 19% of sales in the second quarter of last year to 22% in the second quarter of this year. Could that explain some of the momentum commercially?

AF: I think so. I know they often will test and they will do a lot on the marketing side. When I was there, the marketing expense changed pretty substantially even over a 2-year period, so I think where they see an opportunity they make the investment. So, I absolutely think an uptick in marketing expense isn't necessarily a bad thing. I think it's potentially they see opportunity to better target customers and, you know, sometimes with marketing, sometimes spending too little you end up paying a lot for even less, whereas there's a certain amount of spend to make it sustainable to where then your unit economics actually work out quite well.

JD: Operating and technology costs were rather stable. You're at around 8% of revenue while G&A declined. Do you feel that there's more to be saved on the fixed cost base of the business, or do you feel that it's done what it could in terms of containing inflation of fixed costs?

AF: I think they do a pretty good job on the fixed cost side. I don't remember there being ever any profligate spending. I think they have a pretty good amount of operational leverage in that sense, and so I think they're only going to add fixed costs as the business needs it. But given how automated they are and they're continuously working towards simplifying process, automating process, and all of that, I think they're as good as they're going to be. Could they be refined? Could there be improvements on the margins? Absolutely. Would I expect huge savings on the fixed cost side? No.

JD: Okay. Approximately 90% of Enova's analytical models are machine learning enabled. And so the question becomes, where would you think further AI investment could materially improve economics? Do you think that they were ahead of everyone else? AI is not going to materially impact Enova. Do you think that actually, because they were ahead of everyone else, it could actually help the business continue performing?

AF: Yeah, I think it'll help the business continue performing. I mean, part of their edge is time as well, right? Yes, they were ahead, I think, specifically, they did a lot of ML, AI modeling and a lot of algo, right? But also when we've talked about earlier, about why don't other companies try and enter this business? And part of it is, if you have a year of data, right, you don't see the cyclicality of the business, or you don't understand, is it, you know, what does January to

January look like, or August to August, that sort of thing. If you have 20 years of data, right, that I think is a massive advantage. And then with the right models and the right AI tools, you're able to further leverage that data. So I think it's good. I don't know that they're going to materially improve the economics from further investment in the AI model. Their underwriting is good. At that point, it's purely, in my opinion, a decision based on credit box and volume and how much volume you want to put out before you wait and monitor the vintages. Right. How risky is it to say, to your point, grow 20% this year? Well, if you guess wrong, 20% is a big number. And 30% is a big number. And so I'd say that's bigger, the bigger risk and where the opportunity is as well.

JD: Management continues to guide toward a normalized 55% to 60% margin. Do you think this is credible in light of what we talked about? So it feels like the G&A side of things, there's a little bit to gain, but not materially. Marketing expenses increased already 3% year-on-year. So that could explain some of the market share momentum or growth in the top line. And then in AI, you didn't sound, and again correct me if I'm wrong, but you didn't sound too excited about the cost-saving potential. Yet we're talking about a massive improvement in the normalized margin of the business.

AF: Yeah, I mean, either I assume they're trying to pull out costs elsewhere. I assume we'll talk later about the potential Grasshopper acquisition, right? I think the opportunity is... I don't think it's in AI, at least I don't think it's material enough. I think it'll add on the margin, absolutely. But yeah, I think the opportunities are purely in higher tickets. And more importantly, I would contend the opportunities on renewal rates. Because I think that can drive material increase in margins, right? Because on the renewal side, you're no longer paying to acquire that customer again, you've already acquired them. And your costs are huge to acquire a customer. And if you can renew them, 2, 3, 4, I've seen renewals that are 10 times. But the biggest pain point when I was there was that renewal, right? And if you can do that, that's where your margins are. That, and then lowering your cost of funds. And Enova did a great job of that while I was there, and obviously Grasshopper would have helped tremendously, but I think that's another opportunity they're going to continue to focus on.

JD: Let's talk about the last division, money transfer. I'm quite curious about the rationale for being involved in that side of the business, given that it's a very crowded space.

AF: Yeah, agreed. So Pangea, I remember when they bought it because I was in Chicago, but not working for them at the time, but I was familiar with the company. I suspect I don't think Enova bought the money transfer business because they want to be in the money transfer business. I suspect, and this is purely just me talking, this is no one else's opinion, whatever. I suspect it was to support the Latin business. So they have a Brazil business. And, you know, there's potential opportunity to expand there and across Latin America. And then having your own money transfer business probably allows... probably adds leverage to the lending business there. I don't think, from what I can tell, and I'm not sure if you've seen something different, I don't think there are huge investments into the money transfer business to try and compete with, you know, TransferWise or the big players. Okay.

JD: Well, let's finish with the acquisition of Grasshopper. What was the rationale for the deal in your understanding?

AF: I mean, to me, I think there's 2. It's regulatory, and even the regulatory is a cost as well as cost, right? Obviously, when you have lower cost deposits, you're not paying like 8%, right? Because Enova has got some bonds issued, then they have their financing facility where they pledge their loans, right? And I'm not sure what the average is for all of them, but, you know, it's probably about 8 or 9%. And then on the flip side, when part of how Enova is able to lend in all the states, right, is for states that might require an FDIC license, or we want to use certain laws, you use a partner bank. And most fintech companies do, right? They're not a lender. You partner with a small regional bank, usually they're in Utah, and then you use that to, whether it's offer checking accounts... which I know we didn't do, but a lot of fintechs do, like your Brex probably did that initially... and then also it makes it easier so you don't have to deal with state financial regulations across 50 states, right? You can do that. And then obviously it's cheaper to have deposits,

which you pay very low interest rates on, and then you can lend that money out. And then that, even then, they need a platform to enter other complimentary businesses. So I think that was a growth opportunity. And I suspect you'll see them continue to take those bigger swings, right? Because now, you know, when I started, Enova was a little bit smaller, to both sides, but also just PE, right? I think there was just less investor attention. Now that PE has at least doubled since I was there, if not more. And so now, right, the strategy of just buying back shares probably isn't enough anymore. And so now when you think of, like, how do I really grow? And right now the bank obviously didn't work from a regulatory perspective, but I suspect that they're going to do more like that to try and address those 2 core concerns of how do I make it easier. And then they don't have to have as much investment or time or effort to have all these different state regulatory regimes and drop your cost of capital.

JD: And what do you think what's wrong with the deal?

AF: What was wrong with what?

JD: What's wrong with the transaction?

AF: So from what I understand, there was a lot of pushback from like state attorneys general and such. I think there are 2 things. I think the biggest pain point really is more of a narrative one. The consumer side in particular, you know, if it's a necessary business, lots of them exist. But then there was definitely a narrative around like, oh well, now we're just making it easier to push these super expensive loans onto people. And so I think it was a very easy target at scale. When you're operating, when you're 1 of many banks in a state or 1 of many alternative lenders in the state, it's less of a big deal. But now that you're getting a federal banking license, it's a different conversation. And so I think it was as much narrative as it also was risk, because there aren't that many alternative lenders like Enova with the balance sheet of Enova who have become banks. The ones that did were a little bit different, right? Lending Club, SoFi. And so I think there also isn't like a good playbook from the regulatory side for how to deal with that. And then my understanding was because Enova had done this before, there was probably a lot of compliance work that needed to happen to look like a bank. And so there may have been that as well. My understanding was before the OnDeck acquisition they had done a lot of that prep work as well, because OnDeck was trying to also apply for a banking license. But if I had to guess, I'd say it's the first. That first one, that more PR narrative that caused a lot of the pushback. And at that point, you know, it's a long slug. It's like, are you going to really spend the time and the distraction of fighting 10 different states in court for this acquisition? Or do you say, okay, I'm going to go try a different approach?

JD: Understood. But what would be the way around that then going forward? Would you expect the regulatory environment to change? It's unlikely, no?

AF: I don't know that it'll necessarily change, but I think evolve is probably the way I'd approach it. As you see more alternative lenders and fintech companies trying to enter this space, it's only natural that they will. And then, lenders are eventually going to come up with a proper list of requirements that they're looking for. I also think right now there are definitely some other federal headaches, politically speaking. So I'd say right now, it's probably both a great time and also from a, how do we construct constructive regulatory frameworks? I don't think that we're there yet. And so, I think right now you have banks, especially around election season, AGs, governors, everyone's looking for someone, a boogeyman, to make it easy to make headlines. So I suspect either they try again when it's not as... you think of elections as this 2-year cycle, right? And so they're going to try and close it before it becomes an easy target of, "Okay, we're going to get caught in this cycle." And that's the way... that's one of the plays. And then the second is to continue to diversify their businesses so they're not thought of as this payday lender, because they're not. But that's still in there; that's still how I think, up until recently, I think that's how a lot of folks thought of a company like Enova, and now I think of them as nothing but lenders; that's the majority of their business, but I think narrative has a lot to do with it.

JD: When there is the end of this call, Aaron, is there any other topic that you think we should have covered to assess the situation at Enova?

AF: I mean, to me, I think we covered a lot of ground. Obviously, I think Enova has immense potential as a business. I definitely agree that there are questions on the growth and that is fast. I also think that there is an ability to make it sustainable. To me, I think there is just a lot of opportunity either entering different segments or complementary areas of their business, and so I think that is the growth. I think the risk is always when you grow fast, if you get it wrong, then there is going to be that retreat. So it is just how have they positioned themselves for that potential? But otherwise, I think we have covered a lot, but happy to dive into other topics if there is something you think we have not gone into enough.

JD: Well, thank you for your time today. As a reminder for our audience, a replay and transcript of the call will be available shortly. Thanks again, Aaron, and have a good rest of the day. Goodbye.

AF: Thank you. Bye.

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