You know the names — Rocket Mortgage, LendingTree, Kabbage, SoFi — but do you understand what they mean to your business? The fact is these are no longer companies that just do unsecured personal loans. They are now pretty much in every asset class you can imagine. Commercial lending, auto lending, credit card consolidation, you name it — they’re here and they’re getting a lot better and smarter.
One of the fastest-growing segments is ‘buy now, pay later”. These companies have gotten very intelligent about using alternative scoring models to get consumers into “buy now, pay later” loans. They are retaining data, retaining the consumer, and essentially graduating them to other types of products (including reward checking). As the first entry point, consumers now have their app and are loyal to them, leading to an easy cross-sell transition.
While community financial institutions (CFIs) are hyper-focused on liquidity right now, fintechs are continuing to raise money and build behind the scenes. Which means as markets start to change, they’re going to have better and more sophisticated offerings ready to go.
What’s driving fintech success?
You can’t point to just one thing that’s led to fintechs increasing their market share so dramatically. It’s been more like a perfect storm over time. But there are four main factors which have all worked in their favor.
1. Increased adoption of digital-first solutions
While COVID didn’t necessarily drive digital adoption, it certainly exacerbated it. Remote workers, online school, shopping with apps, food order and delivery, etc. — everybody expanded their digital use (and trust of it) through the pandemic.
2. Lack of legacy infrastructure
CFIs are definitely not playing in the same sandbox when it comes to technology. Any new innovative idea must go through a laundry list of conditions first. How does it work with our core? What about our online banking? What about our Bill Pay? Much of what the tech companies use is built from the ground up and is modern, API-enabled, and sits on technology stacks that are designed to play with each other — which allows them to go much faster and create more enticing user experiences.
3. Lack of regulatory oversight
Although we’re just now starting to see bills introduced, tech companies have been able to play a little fast and loose with the rules through specific algorithms. This is how they’re able to get a loan through, for instance, that has a 680 FICO score, but no credit report being used.
4. Difference in fundamental business models
CFIs don’t make loan decisions just based on paperwork, but also how they feel about the potential borrower and their ability to pay that loan back. They know they have to live with that decision for the next 3-5 years. The fintechs have a very different business model — they want to get that person from point A to point C as fast as possible. And they can do that because they don’t actually care if the borrower can pay the loan back or not. They’re going to check the boxes, get the money in their hands, and then find someone who will take that credit risk. Ironically, in the last year, CFIs have become the prime candidates to take that risk. So, ultimately, CFIs may get the loan, but they don’t get the customer.
You can still win.
One thing almost every borrower agrees on is wanting their loan paid back and done with as soon as possible. So why don’t they do what Dave Ramsey advises and pay a little extra each month on that loan to get it paid off quicker?
Two words…”what if?"
Borrowers don’t generally have vast amounts in savings, so they opt to hold onto any extra funds each month just in case something comes up. Hard to fault them for that. But what if you could offer them a loan that allows them to do both — pay ahead on their loan and still have funds available for unexpected situations?
That’s why we built Take-Backs™ — a powerful loan feature that ensures they don’t have to make that tradeoff. Take-Backs engages borrowers in a whole new way, empowering them to pay down their debt faster knowing they can take back the extra dollars they’ve paid at any time. It also offers the transparency they crave through an award-winning dashboard that allows them to better understand and manage their debt in real time.
Convenient and profitable.
Take-Backs are fully integrated with Jack Henry Symitar and can be seamlessly layered onto any loan in your system using SymXchange and custom PowerOns — and managed within your current business processes. And we’re in the process of integrating into other cores right now! The simple onboarding process also encourages borrowers to easily set up autopay and a checking account.
Take-Back users help CFIs win because they:
Compete on something other than rate.
The Take-Backs feature turns your loan into something much more impactful. It actually changes people’s lives by offering them more control over their financial situation as well as the safety net they need to weather life’s unexpected challenges. There’s a reason it has a Net Promoter Score of 61.
When was the last time you heard someone rave about their loan? Just look at what real borrowers are saying:
“Though I live paycheck to paycheck, I still always try to put a little extra on my loans each month. Through the pandemic, I had a reserve of payments. I was able to provide for my family amidst all the chaos and uncertainty.” – Shea, LA
“I lived in my car with my baby for about a week and a half and then I remembered about my Take-Back balance, and I used it for a down payment on an apartment.” — Savana, IL
“I love this loan, it has allowed me to plan my finances in a way I never thought possible!” – Jennifer, ME
A loan feature that’s changing the game. For good.
Borrowers and financial institutions alike are experiencing the Take-Backs difference. From major life challenges being aided to extraordinary increases in loans per borrower for financial institutions, this feature is proving to be a win-win for everyone.
1Source: Kasasa Analytics, 2023. Behaviors of borrowers using Take-Backs.