Seems like over the last year that the industry buzzword has been “FinTech.”  According to BuiltIn.com “”Fintech” is a portmanteau (combination of two words to create a new one) of financial” and “technology.”  It is the application of new technological advancements to products and services in the financial industry.”

For those of us in business in Texas, “FinTech” is a term that is slowly evolving away from a vague Silcon Valley-esque concept to something that is becoming more clear and accessible by the week.  It seems like that with the conclusion of the Lend360 Conference last week in Dallas that the buzz around the term hit an all time high.  A few weeks ago I shared summary details about the upcoming event, talked about some of the topics, sessions, etc.  Turns out that it was heavily FinTech oriented for sure.  Many of my “google alerts” lit up with FinTech stories and articles after the Conference and it turns out that many friends of CAB Consulting and TOFSC attended as well.  

On September 26th one particular article on Banking Dive.com really hit home and painted a very clear picture of what FinTech is and how it is playing out in the personal loan marketplace.  The article was titled “FinTech leaders have doubled their market share in 4 years” that commented on a recent study done by Experian.  See below for some of the more interesting comments and findings:

• Fintechs are providing 49.4% of unsecured personal loans as of March, according to a study released Tuesday by credit reporting agency Experian, more than twice the 22.4% share they held in 2015.
• In 2019 there were 1.3 million new loan originations through March, compared with 656,000 through March in 2015.
• The loans are getting smaller…the average fintech loan was $5,548 in 2019, less than half the average amount of a fintech loan in 2016, when it was nearly $12,000.
• The loans are also smaller than the $7,383 traditional bank loan averaging.  (Comment: It is very possible that the average was driven down by smaller loan amounts in our CAB sector and in other payday loan State markets…for example we know that 26 out of State CABs (most of which are FinTechs) now own 50% of the entire Texas CAB installment loan market per the OCCC Q2 2019 reports, with an average loan amount of $740.  This is really astounding as it seemed like very recently this was 1/3).
• Customers may be increasingly relying on fintechs because they’re able to approve and fund a loan more quickly than traditional lenders or perhaps because, with a digital lender, borrowers don’t have to leave their house.
• Fintechs were quicker to recognize that consumer lending niche and improve the customer experience with pre-approvals and quicker funding of the loans.
• We’re seeing fintechs create digitally streamlined, customer-focused experiences, which may be the key contributor to their substantial growth in the personal lending space,” “Fintechs may be gaining traction as they are eliminating potential barriers consumers may face and are creating a more convenient experience.”
• Millennial consumers (age 20-37) accounted for 34.9% of fintech loans, compared with 24.9% for traditional lenders.
• Baby boomers (AGE 55-73) accounted for 33.5% of traditional loans, compared with 21.9% for fintechs.”

Here is a link to the article: https://www.bankingdive.com/news/fintech-lenders-double-market-share-in-4-years-experian/563793/

There should be plenty of inspiration here for the forward thinking Texas CAB that is operating in the brick & mortar environment.  How can brick & mortar stores emulate a FinTech?  Of the techniques employed by FinTechs we can do much of the same see below for how you can take one step closer to being a FinTech too by “adding new technological advancements to your products and services.”

• How can you fund loans remotely because borrowers don’t want to leave their house? Do ACH credits and also debit the customer payments from their bank account.
• Do you have e-signature capability? Have customers sign their documents online without coming into your store (also opens up your market to borrowers who would not come in due to privacy concerns).  
• How can you increase processing speed to fund loans quicker? Smart phone app! Send texting with links! Prompt calls from your team to guide the process. What barriers slow your process down?
• What does your website look like? Have it designed professionally and use FinTechs as a creative example fr the look and feel.
• Search Engine Optimization. Are you investing in this every month? Do it.
• Utilize data from Credit Reporting Agencies that allow decision making within seconds.  If you are not with Factor Trust and Microbilt this is them, sign up!
• Access banking activity with instant bank verification tools from Decision Logic and Microbilt.

So there you have it…a road map to becoming a small business FinTech without all that Silicon Valley capital raising and no high dollar public relations firm.  From my perspective we are really all just that close.  The numbers do not lie and as said earlier, the picture is very clear.  The lending market has evolved and if your business has got to evolve too.  

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

Some stores need deeper assessment and others do not because they are excellent performers.  Let’s look at one store and with the desire of loosening up in some areas where perhaps underwriting is too tight.   Dylan and Jeremy at Cashmax call it “turning a knob” or “moving a lever.” Let’s move a knob or lever with this one store and see what happens.

Doing an assessment and would love TOFSC opinions.  First, we are looking back at recent leads that have been sold through a lead buying network, what are others paying (we are going to assume it is a “FinTech”) for the leads they buy from you? After studying the sold lead what are your takeaways? If the smart FinTechs with all the “AI” and “Machine Learning and “Data” who own over half the Texas market are going for approvals with these customers who apply through you, then how can you learn from that and instead approve more for yourself versus letting go of potentially good paying customers?  See below for some key data points from three recent sold applicants.

$88 – Customer A:

No FT ran.

Online app – Google

Time at address: 5yrs

Time at bank: 2yrs

Bank: Bank of America

Time at employer: 7yrs

Employer: Filtration Group

Income: $6,594.77

**Customer was denied for having too many open loans and frequently being negative. He has loans out with Lend nation, Cash Store, Check n Go, TX Car Title & Payday, World Finance, Integrity Funding, and Easy Financial.

Comment: long time at address, bank, and employer, strong income over $6k, tons of loans out and the buyer did not care.  Also, did not care about account being so far in the negative. 

$83 – Customer B:

FT: 111

Online app – Google

Time at address: 2yrs

Time at bank: 2yrs

Bank: A+ FCU

Time at employer: 5yrs

Employer: Travis County

Income: $3,600 (per app)

Comment: customer was denied for having too many open loans. FT shows loans with a total of $4,508 in outstanding balance. On her banking it shows Credit Ninja ($700 borrowed on 09/14) and Cashnet ($800 borrowed on 08/03).

$18.50 – Customer C:

FT: 111

Online: Google

Time at address: 3yrs

Time at bank: 8yrs

Bank: United Heritage CU

Time at employer: 3yrs

Employer: HCA Healthcare

Income: $2,500 (per app but it was verified at $1660.91)

Comment: FT denied due to having too many open loans and too many loans in collections. FT shows 5 loans totaling $897 outstanding balance and 3 loans in collections. However, we cannot find any loans in her banking history.  Lower income and thus a lower sale amount.  But address, bank, and employer were in the same ranges as the other two customers above.  So, is the income the key factor here? Does that trump all other concerns?

Another one of our generous members shared his opinions on lead sales and how quoting lower first-time loan amounts can hinder growth”

“Typically, a loan selling for greater than $50.00 is auto approved with VERY little underwriting with Fintech. The issue you may run into is loan amount. The consumer most likely will not be interested in a loan less than $500, and sometimes the amount of fees will drive them away. But I would most definitely always reach out to them. Sometimes a local company makes them feel more comfortable, and you can close the deal. Regardless, a lead that sells for greater than $50.00 is a very good lead and most definitely worth your time to reach out.”

Going further with the assessment: pull the last (3) months of denial reasons, break that out by month, by store.  Look at what the largest set of denial reasons is per store.  Perhaps loosen up in one of the largest areas of denial.  Maybe go one or two layers on the 2^nd and 3^rd most common denial reason and.  Loosen slightly implement the lever move with the lowest perceived risk.  Might that lever be “too many loans out” if the income is there? How far will you go on a negative balance?  Also, per the comments above, go back and look at the leads that have sold over the last (3) months over $50 to study again and see what patterns exist.   

Would love to hear from our clients, TOFSC members, and industry friends on this.   Send feedback where you can!

See below for a recent email sent out to OCCC stakeholders:

“On December 9, 2019, at 2:30 p.m., the OCCC will hold a stakeholder meeting on credit services organizations and attorney general opinion KP-0277.

A stakeholder meeting notice is available at: https://occc.texas.gov/publications/attorney-general-opinions. On this webpage, click the link labeled “Stakeholder Meeting Notice.” The meeting notice provides additional details and questions on which the OCCC is seeking input.

Stakeholders are invited to attend the meeting in person at the Finance Commission Building, or to listen and participate through an online webinar. To listen or participate online, please follow the instructions available at: https://attendee.gotowebinar.com/register/3659168503230489611

The OCCC will accept comments and suggestions on the questions in the meeting notice until December 12, 2019, at 5:00 p.m.”

OCCC is asking stakeholders for comments and suggestions on the topics below:

1. Does the opinion’s analysis affect the regulatory landscape for CAB transactions (i.e., deferred presentment transactions and motor vehicle title loans)?

2. Must persons engaged in non-CAB transactions comply with all requirements of Chapter 393 other than those that apply specifically to CABs (i.e., Section 393.201(c), Subchapter C-1, Subchapter G)?

3. Are persons engaged in non-CAB transactions subject to the enforcement authority of the attorney general under Section 393.502?

4. Are persons engaged in non-CAB transactions subject to local ordinances and the enforcement authority of local governments?

5. Are persons engaged in non-CAB transactions subject to federal law and the enforcement authority of federal agencies (e.g., the Consumer Financial Protection Bureau, the Federal Trade Commission)?

6. Sections 14.101 and 14.201 of the Texas Finance Code give the OCCC authority to investigate and enforce violations of Chapter 393 with respect to a credit access business. What is the proper role of the OCCC in light of the opinion?

7. Section 393.602 of the Texas Finance Code says a person may not use a device, subterfuge, or pretense to evade the application of Chapter 393, Subchapter G. Under the opinion, what would constitute a device, subterfuge, or pretense to evade the application of Chapter 393, Subchapter G?

8. Section 393.303 of the Texas Finance Code says a credit services organization may not charge or receive from a consumer valuable consideration solely for referring the consumer to a retail seller who will or may extend to the consumer credit that is substantially the same as that available to the public. Under the AG opinion, what would constitute a violation of Section 393.303?

9. Does the opinion’s analysis raise other significant policy issues? 

10. Should the OCCC and the Finance Commission engage in rulemaking related to any of these issues? If so, what is the statutory basis for the rulemaking?

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

We are nearing the end of the Holiday Season’s high demand period that coincides with the beginning of Tax Season.  Many CAB Consulting clients and TOFSC Members offer Tax Preparation services, and some will be doing it for the first time this year.   I know many who are ready to get after it so let’s go!

Here are some things every business needs to know about 2020’s Tax Prep Season:

• IRS is expecting more than 150 million tax returns expected to be filed.
• W2’s are already going out, all must be out by end of January.
• Tax filing season is Monday January 27th through Wednesday April 15th.
• Refund advances are happening already.
• Expect heavy loan payoff trends to start mid-February.  
• In 2019, we saw largest payoff week of entire year fall on the week of February 24th to March 2nd which was the exact week when the Earned Income Credit consumers got their refunds and paid off.
• Earned income credit / additional child tax credit – consumers who seek these credits will get their refunds later.
• In 2020, this means that refunds for these consumers will not happen before February 15th.  In, 2019 it was February 27th so it is good that it is 12 days sooner.
• This is the 4th year where there has been a delay on tax refunds for those where the “PATH Act” applies (Protecting Americans from Tax Hikes Act). 

With the key information above you should be able to forecast where loan volume will go, when demand will wane, etc.  The Tax Prep market is very competitive but if you are committed it is a nice way to expand services to your existing customer base and grow an attractive additional revenue stream for your business.  If you have interest in adding these services, reach out to CAB Consulting for assistance!

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

Why should Texas CABs keep an eye on FinTech Lending?  We need to watch and learn, let’s evolve our businesses by watching their successes and failures.  Where you can, implement their techniques that work, into your CAB’s capabilities! Think marketing, underwriting, process flow, etc..

These recent OCCC MSA report statistics show that FinTech now owns the Texas loan market which was not the case a few years back.

Q2 2019 OCCC Report said:

12 out of state online CABs did 67% of all single payment loans.

26 out of state online CABs did 49% of all installment loans. (comes out to $1.3 million per month in loan volume for those 26)

3 years ago the OCCC Q2 report said:

10 out of state online CABs did 50% of all single payment loans.

15 out of state online CABs did 28% of all installment loans.

Wow – just 26 CABs are now doing half of all installment loans executed in Texas.  Consumers are having their voice heard and it is saying “we love FinTech lending!”  Make changes that will mirror your FinTech competitors and tap into a massive market that you may be missing.

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

Lending to Green Dot Card Customers – is this a good or bad idea?  Many feel these and other pre-paid card accounts carry too much risk because the card holders are not as “married” to the card versus the commitment assumed is had with a traditional bank with local branches. 

We had one TOFSC member call about working with Green Dot consumers and it was brought up that another well-known East Texas operator has been doing it with a high degree of success.  So TOFSC asked this former “CAB of the Year” and “TOFSC All-Star” to share his experiences with this so far. 

Below are some excerpts from the conversation…

Positives:

·         Accepting Green Dot has been viable for (4) years now.

·         Green Dot is loadable at a lot of places – this is good for customers because each load location really acts as a bank.

·         Green Dot cards have a routing #, acct #, bank statement, username, password.

·         Takes direct deposit, SSI, etc.

·         Some customers get paid 2 days early.

Negatives:

·         They offer a “vault” where vendor access to funds is blocked…so cardholders can turn card off / on.

·         Direct Deposit hits at 2am, sends alerts to customer that alert them to debit attempts.

·         You will lose all disputes on chargebacks.

Many storefronts may not be seeing many pre-paid cards as their system is pre-programmed to automatically deny applications with most of the common pre-paid card brands entered into the bank account field.   If you are ready to experiment with Green Dot (largest card brand in the US) then remove that filter and move forward with caution as you learn this niche of potentially higher risk applicants. 

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.