Navigating the K-Shaped Economy with Embedded Finance

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1:46Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily. reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. Earlier in the program, we talked about affordability with Peter Atwater over at William & Mary Financial Insights. He's notable for coining or being among those who coined the K-shaped economy. He talked about the K-shaped life experience.

2:29And what was notable about that interview is he talked about the divergence of those Ks, right? And the idea that they're going parabolic. And you see that with wealth. I mean, we're talking$200 ,000 tickets to NBA games and those sorts of things. Exactly. And he really emphasized the despair that lower income households are feeling as they're priced out of the housing market. So how is it playing out in the housing market right now? We're joined by Mike Petrakis, founder and CEO of the FinTech PowerPlet, PowerPay. Also, Philip Brankle, CFO of the home renovating company West Shore Home. They both join us this afternoon on Bloomberg Business Week Daily.

3:02Mike, I just want to start with you and get people familiar with what you do at PowerPay and how it fits into how consumers are spending right now, especially when it comes to their homes. Yeah, look, I think it's completely changed. Over the years, I came from where Phil was. I was a contractor by trade a while ago. Fast forward a decade, and here we run this embedded finance that processes around$6 billion in consumer applications a year. And what we've been seeing is that the consumer has been stuck in sort of this K-shaped economy. At the top end, we have these consumers that are trapped with these golden handcuffed 3 % mortgages, and they're just looking for liquidity and they're looking for frictionless funding.

3:51And you do. And Mike, PowerPay plays in home renovation in the home space, but also in elective health care. Is that true? It is. So we have about 15 ,000 contractors in the network. Phil's a great customer of ours over at West Shore Home. And we're arguably the largest funder of hearing aids in the country through Miracle Air. Okay, Phil, come on in here and talk a little bit about what you're seeing over at West Shore Home, where you specialize in home renovations? Yeah, I mean, I would echo Michael's comments. I mean, I really think there are two consumers who are out in the market, right? First, there are those that have the means and the ability to spend right now and don't need financing solutions and just don't have mobility.

4:34The house that they want isn't for sale right now. So they're focused on remodeling what they have. And then you have more of those demand based customers. So think in our business, you know, leaking windows or an unsafe shower for an aging in place environment. And, you know, those are customers that need to remodel. So I think it bifurcates that that K shape perfectly, you know, paralleling what PowerPay does. That that is one of the bridges that we're able to use in bringing financing into the home to help those customers that may have those needs based projects, but don't necessarily have, you know, our average tickets around eighteen thousand dollars for a remodeling project.

5:11they might not have access to$18 ,000 of cash. So they're able to spread that out through a home improvement financing loan that's conducted right in the home. Philip, just how much of the renovation is aspirational versus needs-based? Let's say you're talking to consumers who have accepted that they are locked into the housing market, the house that they're in, and are they just deciding, hey, we can't afford another home, let's upgrade the kitchen, or is this kind of voluntary? I definitely think it's both. Meaning if you were to listen to a smattering of people calling into our contact centers to set appointments every day, you would hear, you know, a lot of, look, the bathroom's just ugly and I just want it remodeled and we're not moving anywhere.

5:53So we feel like now's the time to the example I gave of, hey, look, you know, my husband or wife is coming home from the hospital. Our shower is no longer safe. We need to we need to get a low barrier shower put in. And, you know, it's more of a needs base. We sell windows, baths, doors and flooring. So particularly in the in the window and bath space, you know, you do have a strong amount of both discretionary and non-discretionary spending. Hey, Mike, for PowerPay specifically, what does financing demand tell you about the consumer right now? Are homeowners becoming more payment sensitive? Are they stretching projects over longer terms?

6:32Yeah, they've always been payment sensitive here. That's part of the reason why we've been focused in on trying to find some front end relief for the consumers. So you have those consumers on the front end, the top end of the K who are looking for promotional products. That way they can sort of get through this year or two of maybe inconsistency with the macro environment. At the bottom end is really all about affordability. But what we're finding is because there's really a lack of inventory, people are staying put and they're trying to reinvest in the home. And in doing that, they're looking for payment options.

7:10Mike, the payment options you offer, sorry, just clarify for me and forgive me. You go to the actual point of sale, like for the client, but also for the contractor too. How does that work, that relationship? Yes. So the way this works, that's a great question. We're embedded with the likes of a West Shore home. So when they're out there and Phil's doing takeoffs for windows or a bathroom, they'll present the consumer a quote. At that point in time, they're looking to figure out how they're going to finance it. With first name, last name, and mobile phone, we're able to aggregate a bunch of data on the backend and deliver a solution in milliseconds.

7:50Right. That makes sense. So I've been, you know, if I, if I made a big purchase, let's say from a bike shop, I've been presented with like a Wells Fargo credit card that would offer 0 % financing for X number of months. It's similar to that. It is. Although we go out about 20 years in payments so that we can really drive down that monthly. So, so Phil, come on back in here and just talk a little bit about the mix of clients that are, that are using this financing as an option right now. And it kind of follows on Alex's question from earlier. Are you seeing that mix change? Like, are you seeing a wealthier client choose to finance that way?

8:23Are you seeing a change in like who is actually using that option right now? I'm just trying to get a sense of what this economic environment is. Yeah, not major macro changes over the past few years. Approximately 60 % of our customers choose a financing option and 40%, you know, pay with cash. That being said, Mike hit on it. You have two kind of buyers. There are some that are interested in our promotional offers. So you see that with all kinds of products where you can pay no payments or no interest or both over a period of time as more of a promotion. So they do that. Hey, we'll use your money instead of using ours.

9:00So they buy on promotion versus a customer who says, hey, I need to spread this out over five, seven, 10, 15. And as Mike said, even as long as 20 years, depending on the size of the project. So it looks and acts very much like a home equity product. But these products, Mike's firm is a great example. They do not carry mortgages. So they're not mortgage products. Hey, Philip, how have tariffs played a role in your business? Obviously, they've driven up costs for materials. Has that impacted renovations at all and kind of consumer sentiment about, you know, refurnishing homes? I think there's been some.

9:38The good news is a lot of building products are made in the U.S. or they might be exempt if they're made in Mexico under certain agreements in NAFTA and things like that. So we haven't seen a huge impact. We are a scale provider. We're almost probably a little shot of a billion dollars in sales currently and over 4 ,000 employees. So we do use our size and scale to control costs and try to, you know, limit the amount of price increases that come through. Certainly the recent spike in energy, you know, we've seen we have seen some some costs come in there and we've seen suppliers, you know, really looking for some price increases here in 25 or I should say in 26.

10:22But that's that's less to do about tariffs and I think more about macro commodities or energy prices. That's Philip Brankle, CFO of West Shore Home. We're also speaking right now to Mike Patrakas, founder and CEO of the FinTech PowerPlay. Hey, Mike, I want to go back to you and talk a little about your model and sort of what you're seeing. Would you consider PowerPay a buy now, pay later firm? No, I would think that we are more like traditional embedded finance in the context of we provide something that's equivalent to a bank product at point of sale. Where does the credit come from and how are delinquencies right now?

11:07Yes, we institutionalized the business a long time ago. I bootstrapped it. And today we have $3 billion in committed funding with dozens of community banks and credit unions. We have a balance sheet that we lend to that's about a half a billion. And then we can access the public markets through our abs program uh where we have about 30 institutional investors okay so sorry and how's that going so it's been great the market's been um uh friendly it's been uh liquid at this point and and why that's important is if we could provide liquidity in the secondary markets it allows liquidity on the front end which presents an opportunity for consumer to get better rates and so our consumers are our prime consumers that enter the platform so what's a typical rate?

11:51I know it's not monolithic, but what's typical? Yes. So it ranges. It's anywhere between 6 % and 12 % on average. Okay. And delinquencies right now? So extremely low. And from a performance perspective, we've only seen about 35 basis points of annualized loss since inception. Like single digits? Single digits. Okay. Yeah. Single digits. Yes. Yes. All right, Phil, come back on in here. We only have about a minute left, but I'm curious about what specifically customers are doing over on your platform and sort of like what you're seeing from these customers with the types of renovations that they're doing and how that is different in this moment versus like, let's say COVID.

12:31You know, we really focus around four products. So we've seen really consistent demand across all product categories. Bathroom remodeling does tend to be a favorite. At the end of the day, kitchen and bathrooms sell houses. So I think when people are thinking about, you know, resale, and maybe eventually mortgage rates do come down, and they do relocate, investing in your bathroom is always a, you know, generally a good investment. So I think that's, that's really where people are at. And, you know, to Mike's point on the interest rates, you know, bankrate.com right now, your average home equity is at like 8.11%.

13:09So you can see that, you know, we were able to bring these, you know, these in-home prices to basically the equivalent of a home equity loan and really just make it affordable. And it's an instant approval right in the home. So really makes it easy for the customer. Appreciate you guys both joining us. Philip Brankle, CFO of Westshore Home. Mike Petrakis, founder and CEO of PowerPay. This is Bloomberg. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

13:39So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. deep in the work that moves the business. Let's create smarter business. IBM. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game.

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14:58Advisory services by Public Advisors, SEC Registered Advisor. Crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. Everyone has been there. Your team's feedback is scattered across emails, chats, and sticky notes. It's a mess. But PDF Spaces and Adobe Acrobat gives you one collaborative workspace to streamline every file and comment. So, if you need six departments to finally agree on a proposal, do that with Acrobat. Need to turn a mountain of feedback into one plan of action? Do that with Acrobat. Want to stop searching for files and finally get everyone on the same page?

15:38Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Looking at shares that you hired Lily today, did nothing. Nothing. You're also down about 0.9%. Okay. This is crazy because, well, we're looking at the stock because Lily is buying three clinical stage vaccine developers for as much as$3.8 billion. It's using that obesity fuel dominance in cash to establish itself as a leader in other areas to become a major player in infectious disease.

16:22Speaking of infectious disease, the U.S. CDC seeking volunteers from its workforce to go to domestic airports and help screen for Ebola as the deadly viral outbreak in the Democratic Republic of the Congo in Uganda intensifies. For more on all this and more, we are joined by Madison Muller. She's Bloomberg News, U.S. health care reporter. She joins us here in the Bloomberg Interactive Brokers studio. Let's start with Ebola. What is the latest from the CDC? And first of all, no cases in the U.S. at this point? No cases in the U.S. at this point. We're hoping that it stays that way. I mean, And the CDC is definitely stepping up surveillance.

16:57Like we're seeing screening people at airports, asking for volunteers to help with this. I mean, Ebola, there's no messing around with that. I think that that is one of those viruses that just sort of triggers like the highest level of response, especially with this strain of the Ebola virus, because there are no treatments and no vaccines. So several years ago when there was another big Ebola outbreak, you know, we sort of mobilized everything to develop some treatments and vaccines. This was the scare here in New York like over 10 years ago? Yes, exactly, exactly. And so we do have treatments now and vaccines for that strain, but this one's different.

17:32And they don't work, you know, to the best of our knowledge right now, those vaccines treatments don't work against this specific strain. So I think that that's why this situation is definitely a higher priority, a little bit scarier, and the utmost vigilance is being exercised sort of across the board all over the world from various health agencies. Madison, we're talking about Ebola vaccines being developed at COVID-era speeds. How has the pandemic, the COVID pandemic, fundamentally changed the science and manufacturing when it comes to outbreaks like this? Yeah, I mean, that's an important question.

18:05I think had you asked that a couple of years ago, it would have been a little bit different. I mean, again, we saw this amazing mobilization and, you know, unification of various global health agencies, bodies, companies a couple of years ago to develop treatments, vaccines for COVID. but unfortunately some of those systems have sort of been dismantled especially here in the U.S. the U.S. has left the WHO the U.S. has sort of taken away some public funding for vaccines for mRNA vaccines in particular which as we all know were instrumental during the COVID-19 pandemic so we're dealing right now with a little bit of a dismantled public health infrastructure in the U.S.

18:47which makes it a little bit hard but other agencies around the world are really stepping it up and hopefully the situation doesn't get worse than it is now. Does the fact that Eli Lilly is foraying into this at a time when the vaccine industry is politically fraught, is it a sign of its confidence that it'll succeed? Yeah, I mean, that's a great question. I think Lilly is in an interesting position because they've sort of been, or at least they've been able to step around or outmaneuver some of the challenges that the Trump administration has posed. One, because Lilly is just such an incredibly important and powerful company in the US right now.

19:21I mean, they are the first health care company to reach a trillion dollar market cap last year. They're approaching that again now. You know, the CEO, Dave Ricks, has a really good relationship with President Trump. President Trump knows how popular and how important obesity drugs are to Americans. Actually, in July, they're expanding access to Medicare beneficiaries for obesity drugs. And so Lily is like in one, they have a ton of cash. They sort of can invest that wherever they want to. they probably are a little bit more protected than most other companies from backlash from the Trump administration, which is sort of what I was trying to get out there.

19:56They are in a little bit of a better position. But they hired someone, a former FDA official, Peter Marks, last year to head up their infectious diseases unit. And so they sort of signaled that they were interested in getting back into this field. But it is an important step to see a company at Lilly's scale investing in vaccines right now, I think that it should be sort of an encouraging sign to investors and to people that like, this is not an area of research that's going away. And there might just be more investment coming from companies rather than the government right now. I want to go back to Ebola specifically, or getting a headline right now from the Wall Street Journal.

20:37The US is expected to deploy public health officers to Kenya to staff potential Ebola quarantine facility. This according to sources to the Wall Street Journal, I'm going to read from the beginning of this. It just crossed. The Trump administration expected to deploy U.S. public health officers to Kenya to staff a potential quarantine facility. The people at the facility, which Tuesday was pending sign-off from the Kenyan government, is primarily intended for Americans who are exposed to or at high risk of testing positive for the virus in the region, as well as Americans who test positive. So again, this coming from the Wall Street Journal, you're hearing about this for the first time, Madison, but weigh in on that.

21:12Yeah, I mean, again, important. I think that the Trump administration has sort of learned from the recent, as in like a few weeks ago, Hantavirus outbreak, that there was some backlash as the fact that the Trump administration was not being super forthcoming with what it was doing to respond to that outbreak. And I think that what we're hearing, at least, is that they've learned from that that there needs to be a little bit more transparency. I mean, they're holding weekly, if not daily briefings right now on Ebola, updating on the Ebola situation. So I think that they're trying to be a little bit more forthcoming with what they're doing to help with this current Ebola outbreak.

21:48And also, again, goes back to the fact that Ebola is not something to mess around with. And I think everyone's aware of that. And so the Trump administration is trying to do what they can to help out the global situation. What is the latest on some of the other outbreaks that we've been hearing about? There was a neurovirus outbreak on a cruise ship. We were talking about the Hantavirus. is that kind of still getting worse? It seems like the Hantavirus situation actually is getting a little bit better. That is thankfully fading. I mean, that was one that I think raised some alarms, but Hantavirus is nowhere near the level of, I think, concern that we have around Ebola.

22:26But like throughout the past year, a couple of years, I mean, there's always outbreaks happening. And I think that that's one of the most concerning things sort of about the dismantling of and defunding of like the CDC and some of our public health infrastructure is like these things don't go away the viruses will always be around and without the proper monitoring tools in place like we're not going to have good insight or awareness of the situation and so there's always going to be something whether it's measles I mean we saw we've seen a big outbreak in measles over the last year or hantavirus or now Ebola it's like we all know from COVID I think that was the main lesson is like there's always going to be something.

23:05And without the infrastructure in place to be able to detect that early and to respond to it early, then it's a little bit concerning. Well, fortunately, we have you covering it all along with the rest of the health care team. Madison Muller, Bloomberg News, U.S. health care reporter joining us here in the Bloomberg Interactive Brokers Studio. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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