Dear online lending companies, please go out and hire additional business development people asap. Your teams will be very busy in 2017 as we are about to see a wave of banks seeking partnerships. We want to make sure that you are ready to close these deals. Sincerely, your friends at LendIt & Lend Academy.
Last week I traveled to North Carolina to speak at the Carolinas Credit Union League Annual Meeting. This was a gathering of CEOs from about 30 of the largest Credit Unions in the Carolinas. Admittedly, these Credit Unions are small potatoes in the broad landscape of banks, but they represented the largest Credit Unions in the Carolinas and it was refreshing to hear from a room full of CEOs that are hungry to do a deal. I presented on bank partnerships and why banks should consider buying, building and partnering with fintech companies.
Originally small banks feared possible disruption but that fear has subsided, now the focus has shifted to collaboration
Both banks and fintech companies have come to the realization that they have core competencies that are complimentary. According to a recent Manatt survey, a whopping 72% of regional and community banks said that they plan to collaborate with a fintech company in the next 12-18 months. In my small sample set, I polled the 30 CEOs in the room and only 3 had already established fintech partnerships (two with NCR for payments and one with a mobile banking developer) and the remainder were eager to find partners.
Partnerships have been most frequent. There are three ways that banks can partner with online lenders.
Banks are naturally conservative so it comes as no surprise that the early adopters have chosen to partner with fintech companies rather than buy or build. We expect that partnerships are going to rapidly accelerate in 2017.
Bank partnerships with Online Lenders take three forms as displayed above.
Bank-Fintech-Bank (BFB): In this scenario the bank uses their channel to originate borrowers, the online lender underwrites the loan, and the bank uses its depositor base to fund the loan. Some well known examples of the BFB structure are JP Morgan & OnDeck, Santander & Kabbage, and Regions Bank & Avant. [Read more…]