In the Bourne series by Robert Ludlum, Jason Bourne, the main character, is a highly trained (or mentally programmed) assassin for the United States who was highly successful at taking out targets.
In the lending space we may need to start thinking about alternative lenders as the Jason Bournes of the industry. Like Bourne, they’re nimble, quick on their feet and playing by a disruptive set of rules to capture a growing share of unsecured consumer and small business loans. Recently, Lending Club announced two partnerships. The first was with BancAlliance, a consortium of about 200 community banks, to facilitate loans to individuals; the second was with Sam’s Club to provide small business loans to its members.
There is a scene in The Bourne Identity that comes to my mind when I think about alternative lenders such as Lending Club. It takes place outside a U.S. consulate, where Bourne has escaped capture and is trying to get out of town. He runs into Marie Kreutz standing next to a car and asks if the car is hers. When she says “yes,” he proposes to pay her $20,000 to drive him to Paris. Seconds into the discussion, she starts to object and Bourne tosses $10,000 to her. She catches the money and stares at the stack of bills. With Kreutz still objecting, Bourne asks for the money back. Cut to the next scene, where Kreutz is driving Bourne to Paris.
Why is this scene relevant to lending and the alternative lenders? The key to the scene is how Bourne gets Kreutz to drive him to Paris. He doesn’t just say he has $10,000. He doesn’t just show her the $10,000. He quickly puts the money into her hands. Then, when she refuses to drive him, he asks for the money back. It is at this moment, when Kruetz has to let go of the money she so desperately needs, that she changes her mind and drives him to Paris.
Alternative lenders basically do the same thing. They let applicants know they are “approved” – in minutes, if not seconds. The dollar amount, interest rate and repayment terms are set shortly after a minimum amount of information is sent. There is no negotiation. It’s, “here is what you need to do to complete the approval process. Take it or leave it.”
Traditional bankers are not “Bourne” in their approach. The traditional bank mindset asks, “Why would Bourne put $10,000 in Kreutz’s hands? She could run away and he’d be out the money.” Really? She is going to outrun/escape Bourne? I don’t think so. Bourne doesn’t randomly select a person to drive him to Paris; he assessed and selected Kreutz. The fear of the conditional approval is that it will somehow force a bank to make a bad loan. But one has to ask, if the conditions of approval are fulfilled to your satisfaction, why would it suddenly become a bad loan decision?
Several years ago, a J.D. Power survey revealed that customer satisfaction of small business borrowers dropped off significantly if a loan decision took longer than three days. Why do community banks typically take twice as long to make and communicate the initial decision on a small business application compared to larger, national lenders, or three or more times longer than alternative lenders when one of the bragging rights of community banks is that they “know their customers better?”
Here are four questions bankers should ask themselves as they design a Bourne origination process:
What information from the applicant is needed up front to get to a conditional approval?
Collecting unnecessary information in a “non-Bourne” origination process wastes time, slows the time-to-decision and frustrates the applicant. If the information is needed for preparing the loan documents but not to prove credit-worthiness, it can be obtained after the bank says “approved.” After approval, it’s “drive to Paris or give me the $10,000 back.” Similarly, the Bourne Banker is telling the applicant, “To keep this approval and actually get the funds, you will need to provide X, Y and Z or the approval is no longer valid.”
What information can the bank obtain about the applicant but not require the applicant to provide?
A great example of this is a list of debts for a consumer application. If the bank can obtain an accurate view of the consumer debt from the personal credit bureau report, why make it part of the information on the application?
Is the information “nice to know” or “need to know?”
Why is the bank requesting the various pieces of information in its application? Are the items critical or just “nice to know?” Bourne asked Kreutz if she owned the car and made the offer. Sure, it would have been “nice to know” if Kreutz also knew a fast route to Paris, but it wasn’t a critical piece of information for Bourne to make a decision and so he didn’t ask.
What are the real risks in making a conditional approval if the applicant is able to comply with all the requirements?
Can the initial risk assessment be boiled down to a few key factors? Bourne saw Kreutz and a car. She was by herself and confirmed that the car was hers. What real risk did Bourne face by asking her to drive him to Paris in exchange for $10,000? Bourne didn’t know Kreutz before he saw her in that embassy and a half hour later he struck a deal with her to get to Paris. So the question is, “Are you a Jason Bourne Banker?”
Mr. Pruis is a senior director with Cornerstone Advisors, Inc., a Scottsdale, Ariz.-based consulting firm specializing in bank management, strategy and technology advisory services. He can be reached at [email protected].
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