Financial institution technology has not kept pace with the changes in the global economy. Consumers now expect the business apps they use to feel like their social media or other consumer apps, which has led to the cannibalization of the banking business by fintechs. But in the last few years, a new group of fintech companies has emerged to supercharge the capabilities of chartered financial institutions.
These partnerships can take many forms, but one of the most interesting is combining expertise to grow a financial institution’s book of business in new asset classes. This concept applies broadly across “new markets,” including the rapidly expanding arena of building energy upgrade loans for rooftop solar and heat pumps.
More and more home improvement loans are financed not by traditional home equity loans, or HELOC, but by more expensive point-of-sale financing. Both the installation company salesperson and the borrower want the convenience of instant or near-instant decisioning for the project. However, this fast decision-making and small ticket size make it difficult for banks and credit unions to play into this space, even though this is a ripe market, with potential mortgage customers or even current mortgage customers shopping outside of traditional banking institutions for financing.
To grow in this space, financial institutions should look for a fintech company with an end-to-end solution managing the entire process, from customer acquisition through underwriting, approval boarding and servicing. The first few years after the installation of a building energy upgrade may require additional operations and maintenance (O&M) expertise, in addition to further communication with the installation company.
Some fintechs, if they are experts in their particular asset specialty, can acquire new customers for the bank at essentially zero cost, while simultaneously strengthening relationships with existing customers looking to make home upgrades. This partnership brings profitable new business to the bank and solid growth opportunities for the fintech without them needing to get lending licenses or leverage their own balance sheet. The borrower wins with a low-cost, fintech-style convenient loan product, and the installation company provides an overall better financing option to their customers.
| What the Bank Gives | What the Bank Gets | What the Fintech Gives | What the Fintech Gets |
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More than 1 million homeowners in the US are adding solar to their homes each year to save on electricity bills, increase the value of their homes and make them more weather resilient. This is a perfect place for community financial institutions to step in and access these operational efficiencies in customer acquisition, embedded underwriting, decisioning and cost-effective servicing.
A well-developed and well-run lending partnership between a financial institution and a fintech can create significant benefits for all parties, such as prudent underwriting for banks at the speed of business, new market opportunities for startups and additional savings for borrowers from their trusted local bank.
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