Joe Fielding: Putting the Personal Back into Personal Lending



Banks have inherent strengths to help them win in the fragmented personal lending market, if they can adapt their current models. Joe Fielding, a partner with Bain's Financial Services practice, shares three steps that banks can take to compete with a raft of new competitors and retain and gain share in this profitable sector.

Read the Bain Brief: Tapping Latent Demand in Personal Lending

Read the transcript below.

JOE FIELDING: The US personal lending market has seen significant competition lately, with fintechs, big techs and investment banks all in the mix. To capture a fair share of profits, banks will have to create a repeatable process based on customer experience and need. This $1.5 trillion market is fragmented in terms of market share, but remarkably, it's underserved.

A recent study found that unmet demand and a couple of other interesting facts. For instance, one-third of borrowers take their loan through referrals or word-of-mouth, so customer advocacy matters. Over 20% of borrowers took a solution that was higher cost than they otherwise would have qualified for, like a payday loan. And finally, over half of all borrowers take the first solution that they find that's suitable. So origination is about being in the right place at the right time.

And we also found barriers, lack of awareness, lack of trust, and difficulty navigating the application process, not just creditworthiness or interest rate. So successful lenders will do three things well.

First, they'll tailor the experience to the customer need. Banks can learn from specialists, like borrower or Art Money, to make the process very simple from origination through fulfillment.

Second, they're going to make the process repeatable and modular, [with] modular components like automated underwriting workflows and risk and pricing engines.

And third, they're going to make the model durable through the cycle. And that requires data, analytics, rigorous compliance and stable funding.

Banks have inherent advantages to win at personal lending if they adapt their current models, and then they can achieve stronger growth and superior economics.

Read the Bain Brief: Tapping Latent Demand in Personal Lending