Fintech Lenders: Strategies to Compete or Partner

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

For more information, visit our Solutions Showcase, or, contact your presenter at Mike.Horrocks@bakerhill.com