Alternative Finances

LendKey And Unlocking A Generation Of Borrowers For Small Banks And Credit Unions

For value, the Federal Reserve estimates that a college grad will make about $830,000 over the course of a lifetime; the Georgetown University Center for Education and the Workforce estimates the value at around a cool million.

A big payout to be sure, but one that requires a significant upfront investment of time and treasure. On the lower end, a four-year education with in-state rates at a state school will run the average student around $60,000 in costs by the end. At the upper edge of the spectrum, students can be looking at a ~$330,000 total price tag for an education at an elite private college.

And with price tags that large, there is going to be a generation of students who are by necessity going to be seeking private student loans.

“ A public university will cost between $20,000 to $40,000 annually; private schools are even more all over the map with a range of $30,000 to $100,000. Federal loans cover only a fraction of that bill,” noted LendKey CEO Vince Passione in an article.

And that, Passione said, is an opportunity for lenders who, in the years since the Great Depression, have found themselves struggling to build relationships with millennial consumers and who have taken a sort of “chilly” outlook toward traditional financial institutions (FIs).

“These are the people who are already over half the workforce and who are slated to be over three-quarters of the workforce by 2025. Lenders who ignore this age group do so at their peril.”

But, Passione noted, many of the players who are taking a pass on offering student lending and other forms of personal loans often aren’t doing so for lack of interest — but lack of ability via smart technology.

The reality, according to Passione and the team and LendKey, is that smaller [community] banks, regional banks and credit unions, there just aren’t the in-house resources to build their own digital lending solutions for products such as private student loans, student refinancing and home improvement loans.”

The interest is there, but interest alone does not translate into the ability to build out these alternative lending products and offer them in a revenue-positive way — and for community banks and credit unions, running consumer lending services as loss leaders “just isn’t really an option.”

What is an option — and one LendKey is committed to delivering to the 300 or so small banks and credit unions and alternative lenders it works with — is a method to partner up and offer those consumer and student lending services and make those connections, without taking on the onerous costs of loan servicing.

Lending-as-a-Service

LendKey’s basic offering is a white label Lending-as-a-Service (LaaS) model that gives its financial institution partners a chance to digitize their alt lending operations via smart technology by outsourcing it to them and giving those partners the chance to design their digital loan program for the borrowers they want, by customizing things like the risk criteria used in making underwriting choices.

LendKey takes the hard parts — demand generation, online credit decisioning, origination and customer service — and manages that side. The banks and Fis they partner with sets the parameters for the lending solutions they want and the borrowers they want to work with.”

There are currently 13,000 community banks in the U.S., Passione noted, and those banks often offer extremely borrower-friendly loan terms in the form of lower interest rates, more flexible products and an overall more personalized interaction.

In the years since the economic down turn,  the issue that credit unions and small banks have faced isn’t that they are locked out of the space by larger players with more reach — if anything, the bigger banks, like Bank of Americ,a have moved further from the space in the post-Recession period. But new alt lending players like SoFi, which offers a student loan refinancing platform that is easy to use, intuitive and naturally attractive to digitally native consumers, have emerged to take their place.

LendKey just wants to give small banks and credit unions the ability to offer similar streamlined frictionless services and to compete on an even playing field.

And, speaking of competing, LendKey will also be doing that a bit better themselves these days — since they’ve recently become the beneficiaries of an infusion of new funds.

New Financing — New Growth

A few week ago, LendKey announced news of $13 million in Series C funding in a round led by North Atlantic Capital, with participation from each of LendKey’s existing investors, including DFJ, Updata Partners, Gotham Ventures and TTV Capital. The breakdown of that funding is $8 million in equity and $5 million in debt financing.

According to Passione, the new funds will go toward addressing their expanding demand among bank and credit unions. Specifically, he noted, LendKey will grow its offices and staffing.

“This is a very strong team with very impressive industry knowledge and background, solving a real need for banks and credit unions,” said Mark Morrissette, managing director at North Atlantic Capital. “With more than a dozen bank investors in our current fund, this is a great fit for us.”

Passione also said that the funds would go toward developing and rolling out some new consumer lending service areas available through LendKey.

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