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The Evolving Digital & Mobile Lending
Landscape
May 9, 2017
RCGILTNER Services, Inc.
Trevor Knott SVP, BSG Financial Group
Robert C. Giltner Chairman, RCGILTNER Services, Inc.
In association with
Copyright CourtesyCloud Management Solutions LLC, 2017 • All Rights Reserved • Confidential and Proprietary • v 916.3
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Helps financial institutions build a successful fee-revenue strategy–STEP-BY-STEP–by meeting account holders’ retail banking needs and protecting the institution.
• Offering OD programs for over 20 years
• Worked with RCG since 1997
• Emphasizes Compliance
• Provides Implementation & Training
• Is a Consultative Partner
The BSG Financial Group of Companies
Add value to the relationship
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Copyright CourtesyCloud Management Solutions, LLC, 2017 • All Rights Reserved • Confidential and Proprietary • v 916.3
Innovative Programs for FIs
Attract accounts
Offer Transaction/ Liquidity options
Protect the institution
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Digital lending is the next major revenue opportunity for regional and community banks.
NSF OVERDRAFT Revenue/Fees ($B)
DEBIT INTERCHANGE Fees ($B)
DIGITAL LENDING Interest & Fees ($B)
1995 $12 $.05 $0
2000 $19 $6 $0
2005 $34 $13 $0
2010 $38 $17 $0
2015 $33 $18 $1
2020 $34 $19 $14
2025 $35 $21 $30
Source: Our analysis, FDIC, FRB, Pugh Trust, Sachs #/Acct/Yr: NSF - 3.5 items/retail acct; Debit - 444 Goldman swipes/acct/yr; Digital Lending – 20% 0f accts 2025
YEA
R
Digital Lending is a $30 Billion Opportunity
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
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FIs WIN COMPETITIVELY WITH:
Documented compliance
Lower cost of funds
Established customer relationships
Digital Lending is a $30 Billion Opportunity
FIs just need the technology.
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
A $600B loan market is driving the rapidly growing $30B revenue opportunity―documented by many studies, including Goldman Sachs, SNL Global and FinXtech.
6 Source: FinXtech Intelligence Report, February 2017
Aggregate Online Originations ($B)
Source: SNL Global Market Intelligence
Fintech Addressable Market
Digital Lending is a $30 Billion Opportunity
The market for digital lending services can be segmented according to digital speed and size of loan, which determine efficiency and marketability.
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Efficiency and Marketability
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
• MinuteLender • Kabbage • ExpressLoan • Lightstream
• Akuba • Mirador • OnDeck • Marcus • LendingClub • Baker Hill • D+H/Compliance1 • Core Platforms • nCino • D+H Total Business
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COMPLETELY DIGITAL
PARTIALLY AUTOMATED
Targeted Fast Track Process
Target loans = small business < $100K & consumer loans <$35K
Target loans = > $500K up to $1M
Online Application Fully automated, five-field applications and response
Multi-page application, matching paper application
Customer Communication Automated communication and adverse action
Relies also on manual communication
Capture or Upload Documents
None required Upload and secondary documents required
Underwriting and Decision-ing
Fully automated for customer response in seconds
Partially rules-based review and review
Digital E-sign with No Paper
Fully integrated E-sign for 3-minute experience
Separate E-sign process; requires 48 hours or more
Targeted to Small Business & Consumer
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
Small business loans under $100K represent 51% of all loans.
Average size of these loans is $20K.
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Underserved Opportunity
Source: Federal Reserve (New York), “Small Business Credit Survey,” Fall 2013
Community banks under $5B underserve this market because these loans are not profitable.
Existing Cost Revenue
Cost to Underwrite & Manage Loans vs. Revenue
Digital Lending Cost
Size of Loans by Small Firms
$150
$2,400
Community banks have lost most consumer lending largely because these loans are unprofitable.
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Recapture Lost Income
Checking Households w/Unsecured Loan
64%
Average Loan Outstanding
$5,200
Source: FDIC
Consumer Loans
Households hold loans elsewhere, with credit cards and other alternatives.
Loans to Individuals
Community banks have the highest customer satisfaction with lending
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Customers Want Speed & Simplicity
Source: 2015 Small Business Credit Survey, FRB, March, 2016.
Borrower Satisfaction by Institution Type
Borrower Satisfaction for Speed/Simplicity
However, they significantly lag online lenders for “simple application” and “speed of services.”
Two-thirds of online loans are initiated on a smart device and two-thirds are abandoned, according to Avoka. The experience must be under three minutes.
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Keys to Closing Mobile Loans
Automate re-targeting abandonments
Minimize field entry
Use easy, easily recognizable information
Make the experience 100% digital
Focus on the service the customer wants
“ A sea change in banking economics is gathering strength–as digital grows the fight to hold on to customer relationships will be banks’ high stakes struggle.
The Fight for the Customer, McKinsey, 2015
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They’re Coming for Your Customers
SMALL BUSINESS
REAL ESTATE
CONSUMER
SOLAR EDUCATION MEDICAL RECEIVABLES
Community FIs are implementing turnkey, integrated digital lending and marketing for small business and consumer segments.
14 Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
Turnkey Digital Lending
Approvals in less than 3 minutes
Deliver on mobile, smart or computer devices
Your brand, your loans, your underwriting and your control
Business MinuteLender® Small Business Loans <$100k
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Potential ROA Business
MinuteLender® (per account)
Consumer MinuteLender®
(per account)
Average Loan $21,000 $5,000
Average Spread 10% 14%
Average Int Inc $2,100 $700
Average Fees 124 $124
Incremental Revenue $2,224 $824
Incremental Efficiencies
$500 $300
Incremental Benefit $2,724 $1,124
LESS:
Digital Delivery $87 $87
Marketing $457 $230
Charge-Off Losses $735 $175
Contribution $1,446 $633
% of Revenue 65% 77%
ROA 6.9% 12.7%
Consumer MinuteLender® Consumer Loans <$30k 12.7%
6.9%
Business MinuteLender®
(per account)
Consumer MinuteLender®
(per account)
Average Loan $21,000 $5,000
Average Spread 10% 14%
Average Int Inc $2,100 $700
Average Fees 124 $124
Incremental Revenue $2,224 $824
Incremental Efficiencies
$500 $300
Incremental Benefit $2,724 $1,124
Less:
Digital Delivery $87 $87
Marketing $457 $230
Charge-Off Losses $735 $175
Contribution $1,446 $633
% of Revenue 65% 77%
ROA 6.9% 12.7%
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Automated Underwriting
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
Simplifying BSA/CIP Validation Validating income Determining deposit-to-loan ratio (50%-300%) Simplifying disbursement speed and eliminating
fraud risk by requiring established deposit account Improving risk with right of offset Providing early warning of loan problems
CREDIT REPORT is first level of approval – 30 years of loss history
DEPOSIT ACCOUNT & VOLUMES enhance this information materially by:
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Harvard Business School, 2016, The State of Small Business Lending
Automated Underwriting
Use of Deposit Accounts & Deposit Volume has several underwriting and loan
management benefits
“
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
Interpreting cash flow data using the Demand Deposit Account (DDA) as part of assessing credit worthiness is a major innovation brought by online lenders. Banks could have formidable advantages if they can better tap DDA data, given they have such data on every small business customer which has an account with them.
Automated underwriting (with owner-guarantees for business loans) based on credit history and deposits.
Default Risk by FICO Score (20-yr Average; 90-day delinquency)
710 Median Score
4.1% Default
Risk
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Automated systems automatically grade and monitor credit quarterly looking at cash flow and pulled credit information.
Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
Risk Rating & Credit Monitoring
CREDIT GRADING
CREDIT SCORE RANGE
SUSTAINED DEPOSIT ACTIVITY
MAX # of 30 DAYS
LATE (past 12 months)
Pass 1 1 750 +
Pass 2 2 700 749
Pass 3 3 670 699
Watch 4 650 669 Below 3,000 2
Special Mention 5 640 649 3
Substandard 6 - 639 Greater than 3
Loss 7
19 Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
Sales & Marketing
Sales All logins provided for sales management to assign leads to sales
Marketing Digital and Direct Marketing
Direct Mail Emails Digital Ads
Targeted Digital IP Addresses Target digital just like we
do with direct mail One-click to access digital
lending Collateral Material
Posters Counter cards Tent Cards Web Banner
SALES PROCESSES
DIGITAL TRACKING
SUPPORT
MARKETING TEMPLATES
Thank you for your time.
RCGILTNER Services, Inc.
For more info: Trevor Knott
SVP, BSG Financial Group
(781) 254-9647 [email protected]
In association with
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Implementation Management Documentation
Executive Overview
Legal & Regulatory Compliance
Program Administration
Secure Data Management & Infrastructure
Vendor Due Diligence Documentation
Business Process Workflow
Daily Operation & Management
Marketing
Sales & Sales Management
Training Materials
Sample of automated credit monitoring that includes key factors, such as line utilization, NSFs, deposits, age, maturity and status.
24 Copyright 2017 RC GILTNER SERVICES, Inc. • Confidential
AGE
Risk Rating and Credit Monitoring