fintech lenders: strategies to compete or partner
TRANSCRIPT
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FinTech Lenders:Strategies to compete or partner with the new players in
banking
Mike Horrocks- Sr. Director, Solutions Management
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“BE FEARFUL WHEN OTHERS ARE GREEDY AND GREEDY WHEN OTHERS ARE
FEARFUL” WARREN BUFFETT
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Agenda
What is FinTech? Disruptions created by FinTech Why we you should care about FinTech? FinTech and lending business Strategies to manage FinTech disruptions Questions, Answers, and Discussion
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What is FinTech?
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1950 – Credit Cards
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1960 – ATMs
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1970 – Electronic Stock Trading
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1980 – Personal Computers
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1990 – Online Banking
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Today – FinTech
User-friendly and high quality service
Mobile and responsive
Social networks and financial networks
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What is driving FinTech?
Trends towards growing trust in online transactions
Increasing consumer expectations of immediacy
The proliferation of public data for risk scoring
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Disruptions by FinTech
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a match of borrowers and investors for both risk & duration
a borrower experience, driven by speed & convenience
an ability to use public data to an advantage in scoring risk
a fundamentally lower-cost operating model
FinTech advantages (or at least perceived)
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Notion of big data: analyse and capture value from large and complex data sets
Traditional Bank FinTech
- Basic credit scoring based on long term relationship
- Information collected through various modern channels
- Other kind of FinTech will be able to generate additional data
Big data
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Existing Regulation
New economy means new regulations
Innovation makes the traditional financial system more complex and opaque
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Investment in FinTech
2000$447 M
2013$677 M
2014$1.2 B
Global Investment In FinTech • Global investment has
tripled• Banks are the first one to
be affected by the growing popularity of FinTech
• Every department is threaten
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Why you should care
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of respondents expect a life event in the next 36 months that will
significantly impact their finances60%
Source: 2016 FIS PACE Index July 2016 The Financial Brand
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The primary financial institution is the first choice for funding anticipated life events…
…however, 19% of banked consumers have not yet decided where to turn to finance these events
Source: 2016 FIS PACE Index July 2016 The Financial Brand
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Millennials ranked being digitally connected higher than reliability and transparency…
…and they make nearly 2x the number of online transactions as Gen Xers or Baby Boomers
Source: 2016 FIS PACE Index July 2016 The Financial Brand
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of smartphone users could list one feature/service they would want their
bank to provide via mobile app 50%
Source: 2016 FIS PACE Index July 2016 The Financial Brand
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FinTech in Lending
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The FinTech Lending Landscape
Marketplace / Alternative Lenders
Crowd Funding Peer2Peer Lending
Providers
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Marketplace / Alternative Lenders
Development of algorithms and use of Big Data
Faster respondent to technological changes ~ Digital Generation
More transparency are required by clients
Banks may still have an advantage in this sector, but for how long ?
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HOW MARKETPLACE LENDING WORKS
1
23
4
BORROWER CHOOSES A PORTAL
&CHOOSES A LOAN TYPE
BORROWER
POSTS A LOAN LISTING
ONLINE A LOAN OFFER MAY TAKE ONLY MINUTES
INVESTORS REVIEW & SELECT LOANSLOAN FUNDING CAN TAKE LESS THAN A WEEK
THE MARKET-PLACE LENDING PLATFORM SERVICES THE LOAN
BORROWER REPAYS LOAN IN MONTHLY INSTALLMENTS
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Just how big is MarketPlace Lending?
2011 2012 2013 2014 2015$0
$5,000
$10,000
$15,000
$20,000
$25,000
US MPL Annual loan volumes, US$ million 2011-2015
Lending Club Prosper SoFi OnDeck Avant Other
Source: Direct Lending: Finding value/minimizing risk, Liberum, 20 Oct 2015, p.6
$473$1,529
$4,114
$10,653
$22,732
CAGR: 163.3%
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Businesses using MPLAware? Used?
76% aware
24% unaware
MPLs
94% not used
3% lent
4% borrowed
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Crowdfunding
Allow projects that maybe can’t get a bank loan to benefit from external financing
Straightforward selection of risk and projects
More transparent for lenders
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Peer2Peer Lending
Challenging the core activity of a bank Putting in relation borrowers with many
lenders based on their risk aversion Big Data is used for a more precise risk
profile more efficient credit selection process
Faster collection and treatment of the information
Biggest challenge for the banking industry Credit Selection Process
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Strategies for disruptions
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Play your advantage
Cost of funds– Attract deposits
Relationships with regulators
Infrastructure
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Strategies to disrupt FinTech
Partner with existing vendors. Develop structures that encourage internal
innovation. Work with other institutions to benefit from
economies of scale. Mimic what works best for others.
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Partner with existing solutions
Partner, Buy, or Build Leverage new
innovations Monitor and learn Respond to change
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Royal Credit Case Study
Member Business Lending on their website
Rapid deployment timelines Nearly 50% of all MBL
applications came from the channel
User satisfaction SLA’s– 96% within targeted SLA
700 applications for $35 million in MBL growth
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Encourage internal innovation.
Hackathons Encourage “what if” Foster a culture of
innovation
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Berkshire Bank – Fostering a new culture
America’s most exciting bank Why is the bank changing? What is the reaction in the
bank? What is the reaction of the
market?
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Work with others for economies of scale.
Partner with:– Incubators– Local businesses– Trusted vendors– Universities
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Focus on what your borrowers want
20 40 6080 100Safety
SecurityFairnessReliable
Transparent
Control
Customized- Importance
- Performance
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Mimic what works well for others
Replicate elements of the UX Enhance a bank’s overall
customer proposition Capture more of the value
inherent in the brand
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Call to action…
Set goals for collaboration
Push for transparency in processes
Foster the needed cultural changes
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Questions and answers
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THANK YOU
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Optimize, Change, Innovate#BHCM16@bakerhill
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