If the lending world is going digital, what do you do if you’re a bank with all the bells and whistles and bricks-and-mortar, where real time is confined to nine to five, Monday through Friday?
Perhaps grab some of the technology that might bring you into the 21st century and give you a little (and much needed) alt lending street cred.
In an announcement today (May 17), Numerated Growth Technologies, with $9 million raised from investors, including Cultivated Capital FinTech and Venrock, among others, said it had been spun out and officially launched from the FinTech incubator housed in Eastern Bank where the idea — and the platform — was initially developed.
And it is offering its real-time credit decisions platform for any bank that wants it.
The platform allows banks to offer real-time credit decisioning, along with automated marketing services that make it easier for banks to target pre-approved small businesses via direct mail, email and mobile. The process of application through to disbursement takes a matter of minutes. Numerated CEO, Dan O’Malley, said the platform has been live for a year, and with the spinout, the technology is being licensed to banks beyond initial clients, including First Federal Lakewood.
O’Malley, a CapOne veteran, told Karen Webster in an interview before the announcement that Numerated traces its genesis to the claims made, and which are still made, by alternative and online lenders, where the applications take seconds and credit decisioning is lightning fast. Initial tests of Eastern Bank’s banking clients showed keen interest in the marketing pitches and quick turnarounds promised by alternative lenders — and willingness to use those services; the subsequent creation of a prototypical real-time lending system, said O’Malley, engendered even keener interest.
But the issue had been one that you may have heard of: Banks have been slow to embrace speed. Queried Webster: Why can’t banks do what the FinTech guys do?
“It’s easy to give money away and promise a decision in five minutes or however long you want it to take,” said O’Malley. “The hard thing is doing that while executing a bank credit policy.”
In response, O’Malley said, Numerated has built its platform and the models that underpin it to “digitize the existing credit policy” of a bank, with examination and consideration of industry verticals, revenues and any number of other variables. The model pulls in data from disparate sources, including credit bureaus and secretaries of state, and via automation offers with benefits of efficiencies because, as O’Malley stated, when humans have to do the pulling, real time is never an option.
Every bank that has come onto Numerated’s platform has done something a little bit different to configure their credit policies. “Some of the variables that we allow in the model, I don’t see a lot of other companies talking about,” he told Webster. “There are some interesting things we have learned here” that illuminate how banks can embrace this streamlined, technologically driven model and get benefits that might be different than seen with a strictly alternative lending model.”
Said Webster, a common criticism of the traditional lenders, levied by FinTech players, is that would-be borrowers now are creating new types of businesses that are asset-lite, which can make it harder for banks with traditional models to underwrite the risk.
Perhaps, countered O’Malley, but if one looks at where the bulk of capital for financing small businesses comes from, it’s one of two places: from the banks or, more likely, their personal credit cards. Numerated, O’Malley said, is designed to make lending decisions and processes easier for banks and to modernize how they lend so that banks can make smaller loans to small businesses.
“It used to be there were three groups [within a bank] involved in touching a loan, even if it was a $10,000 loan,” said O’Malley, which drove up the cost to service such a loan, which many times resulted in not even bothering to consider such a loan unless it was for a good, established customer.
With Numerated, the lending process converges along a series of API calls that support the existing credit policy of the banks, which O’Malley said is key, not enough.
“So, let’s say you, the bank, creates a five-minute loan that somebody can do from their phone or online; how do they find out about it?” O’Malley queried. “If you give it to the bankers, will the bankers actually let the right customers know?”
What Numerated realized, said O’Malley, is that the answer is no.
“The industry has spent 15 years talking about online banking and technology as a service, and yet lending has not fully embraced the fact that a borrower need not come into a branch to get funding,” O’Malley explained.
To make marketing efforts successful, O’Malley pointed to pre-eligibility as a way of executing the credit policy before somebody even applies in real time. The process is one where an email is sent every week at a partner bank to every single eligible business inside of the bank. “You can tell them: You’re eligible, you can apply in 30 seconds, here’s the link, with … personalized applications, and you can get the money in five minutes … it’s just a different e-mail than a bank can send, [such as] ‘hey, did you know we do small business loans … maybe if you come into the branch you might get one.’”
The proof, O’Malley said, is in the numbers. Over the past two years, Eastern Bank tripled the lending activity ($100 million since December of 2015), while doubling the interest rate at the same time and enabling with risk-based pricing consistent with the bank’s credit policy. Remarking on the interest rates, O’Malley said that customers will pay for a level of convenience to get a real-time decision that is cheaper than credit card interest rates.
So, with the platform in hand and with money in the bank, O’Malley mulled his firm’s ability to scale. “I don’t think there are any kinds of technological barriers,” he said. “We will certainly have to understand how to create more digital variables for credit policies,” and there is some work left to be done on consumer products the firm is working on.
But the biggest tasks over the next several months come as the firm starts to “onboard a lot of banks and really start to scale our implementation capacity.”
The upshot? As O’Malley noted, in the quest to grab business outside the branch and the workaday hours when physical doors are open, “the convenience promised by the alternative players is just as important, and real, an opportunity for banks.”