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PCBB Banc Investment Daily May 31, 2016
Banc Investment Daily
May 31, 2016

What The Heck Is That

It goes without saying that you can find some really strange stuff on the internet. You can hire professional mourners to come to a funeral, prank your friends with a nice smelling candle that stinks when you light it (into such scents as skunk, baby diaper and flatulence), buy pants printed with disgusting and realistic pee and poo stains, unicorn meat and even socks that come in 3's because you will always lose one.
In the banking world things aren't that strange, but some fintech players nonetheless are certainly trying to move things away from the world of status quo banking. For instance, there are fintech players that cater to wealthy customers (promising a simpler, richer experience), others that aim to solve niche problems and still others that try to morph a whole bunch of things together.
One fintech player doing something interesting is Ascend. They have an alternative proposal for high interest payday loans to non prime borrowers. Their program offers loans at a high 30% annual interest rate, but as borrowers demonstrate good habits (such as savings skills, reduce credit card spending and other things), the rate can decline to 15%. Maybe it is time for community banks to consider being more proactive with the loan book in similar fashion. You could perhaps approach existing customers that have exhibited good behaviors (such as paying their loans on a timely basis, etc.) and reduce their rate in exchange for an extended loan term or other such opportunity. It might be something to think about perhaps.
Another fintech company called Oportun is targeting specific groups of customers as well. They too are competing with payday lenders and pawn shops with their approach. Here, Oportun uses data analytics to score customers and then offers a fixed payment schedule over a period of 7 to 35 months. Payments are made 2x per month by borrowers in order to coincide with paycheck deposits, which may reduce risk to the lender. Perhaps community bankers could leverage part of this idea. Maybe bank lending teams could structure certain loans to borrowers where the borrower makes twice monthly payments (or more) in return for a lower rate. This could improve cashflows to the bank, reduce credit exposures, and perhaps even result in a higher credit quality loan that requires less loan loss reserves.
A third fintech company called Digit is designed to address the problem of people creating savings. It focuses on automating the process of saving by doing so a few dollars at a time. Users create an account where spending habits are monitored over time. Using algorithms, small dollars ($1.50 to $50) are then periodically transferred to your savings account. The idea is that people won't miss change in their pocket and even if only a little bit is saved every month it will add up. Community bankers in theory could do something similar perhaps. Every once in a while check customer balances under some new program and then text or alert them that you are moving money from one account to another automatically. Customers may appreciate the ease of such an approach and it can give your teams a deeper insight into how, where and when customers are spending money.
As can be seen from these simple examples, there are lots of ways savvy community bankers may be able to leverage up customer information to help your customers help themselves and help your bank over time.
In the meantime, we wonder what those shopping bots will pop onto your next news search after you look at such things as poop pants and stinky candles. Good luck out there.