FinTech Lenders:Strategies to compete or partner with the new players in
banking
Mike Horrocks- Sr. Director, Solutions Management
“BE FEARFUL WHEN OTHERS ARE GREEDY AND GREEDY WHEN OTHERS ARE
FEARFUL” WARREN BUFFETT
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
What is FinTech?
1950 – Credit Cards
1960 – ATMs
1970 – Electronic Stock Trading
1980 – Personal Computers
1990 – Online Banking
Today – FinTech
User-friendly and high quality service
Mobile and responsive
Social networks and financial networks
What is driving FinTech?
Trends towards growing trust in online transactions
Increasing consumer expectations of immediacy
The proliferation of public data for risk scoring
Disruptions by FinTech
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)
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
Existing Regulation
New economy means new regulations
Innovation makes the traditional financial system more complex and opaque
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
Why you should care
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
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
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
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
FinTech in Lending
The FinTech Lending Landscape
Marketplace / Alternative Lenders
Crowd Funding Peer2Peer Lending
Providers
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 ?
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
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%
Businesses using MPLAware? Used?
76% aware
24% unaware
MPLs
94% not used
3% lent
4% borrowed
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
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
Strategies for disruptions
Play your advantage
Cost of funds– Attract deposits
Relationships with regulators
Infrastructure
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.
Partner with existing solutions
Partner, Buy, or Build Leverage new
innovations Monitor and learn Respond to change
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
Encourage internal innovation.
Hackathons Encourage “what if” Foster a culture of
innovation
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?
Work with others for economies of scale.
Partner with:– Incubators– Local businesses– Trusted vendors– Universities
Focus on what your borrowers want
20 40 6080 100Safety
SecurityFairnessReliable
Transparent
Control
Customized- Importance
- Performance
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
Call to action…
Set goals for collaboration
Push for transparency in processes
Foster the needed cultural changes
Questions and answers
THANK YOU
Optimize, Change, Innovate#BHCM16@bakerhill
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