As competition in the credit and lending space intensifies, financial institutions are seeking ways to differentiate themselves through personalization and unique product offerings.
In this episode of the Banking Transformed podcast, host Jim Marous dives into the future of lending with Jonas Ng, chief operating officer of Laurel Road, a digital banking platform and KeyBank brand focused on providing tailored financial solutions for healthcare professionals, and Colton Pond, chief marketing officer at LoanPro, a platform focused on modernizing core infrastructure for loan servicing, managing and collections.
They share how their organizations are bringing innovation to the marketplace and emphasize the critical role of modernized infrastructure in enabling the creation of unique and personalized products.
The Evolution of Laurel Road within KeyBank
Q: Can you discuss how Laurel Road fits within the KeyBank family of services?
Jonas Ng: About five years ago, KeyBank had been acquiring a number of startups, fintechs and small companies that had specialized capabilities, unique value propositions, a brand that targeted a particular customer base and so on. Laurel was one of those acquisitions.
KeyBank, unlike in the past, when if you acquire a firm, you bring it into the overall company, you kind of bring it into the mothership a little bit. And sometimes, in the past, the danger and the risk there was that you kind of destroy a little bit of whatever made it unique.
Five years ago, the bank decided to leave Laurel Road largely alone. And whatever it was doing — anything touching the customer or the value prop, the products, the pricing, the servicing, et cetera, the technology — we left it intact.
Q: How does LoanPro work with financial institutions to stimulate innovation and partnerships?
Colton Pond: One of the biggest things that we’re doing is modernizing the core infrastructure of banks and credit unions today. Many of it is 40, 50, sometimes 60 years old that we’re building on and innovating. What we’re doing on the lending side is modernizing the core infrastructure within loan servicing, management, and collections.
How do you drive greater operational efficiency to service your customers more efficiently? How do you collect more efficiently on your lending or credit portfolio to decrease credit losses? And then how do you launch new, first-of-its-kind credit and lending products that typically on legacy infrastructure would take 12, 18 or 24 months in three months, bring those to market, and be competitive?
Q: How did Laurel Road differentiate itself so that price didn’t matter as much?
Ng: There is a hard truth. Not every doctor is the same. Not every doctor is actually at the same stage in life. So, for example, a doctor who just came out of med school and is actually a resident, I’m sure they are living a very different life. They don’t make a whole lot. They are, at that time, doing a residency for two years, maybe three. They may make 40, 50, $60,000. They’re about to make $440,000, but for those two years, it’s actually very, very difficult.
Personalizing Financial Products for Healthcare Professionals
Q: How does Laurel Road tailor its products to different stages of a healthcare professional’s career?
Ng: Five years after that, you can actually start saying that they’re right about that trajectory, that pivot point where they’re starting to ramp, they’re getting established, they get out of debt. Now, they’re starting to think about building wealth, getting into a house, growing their family and so on.
But the point there is that, that fifth P even in the medical or the healthcare world, you have to target doctors in very different ways depending on where they are in life.
Pond: What I love about that is a lot of people talk about personalization in that select segment. Okay, doctors are my segment. And Laurel Road could easily say, “Go after doctors.” But what you’re digging into is it’s much deeper than that.
Q: What lending innovations have you seen that stand out?
Pond: There’s a credit union out there servicing teachers and they offered them personal loans. And what they found is during the summers, teachers generally don’t get paid and their default rates ticked up. So, they’re like, the CEO is like, “Oh, business problem — how do we fix this? What do we do?”
They came out with a personal loan product focused on teachers who don’t get paid during the summer, when there’s a nine-month payment cycle. During the summer, there are no payments; they resume payments in September, nine months and then forget payments. There were larger payments.
Q: How does Laurel Road’s credit adjudication process differ for its specialized customer base?
Ng: One of our secret sauces is that we’re not just underwriting based upon what you are at that moment in time. What we’re trying to underwrite is towards what you will be. This is a basic premise; every bank does this in terms of lending.
We have to assess your ability, stability and willingness to pay — a pretty basic formula. But the ability and willingness to pay are very, very different if you are in med school right now but are about to become an anesthesiologist.
The Role of Infrastructure in Enabling Innovation
Q: What do financial institutions need to do today regarding infrastructure improvement and modernization?
Pond: Across the industry, I am seeing folks say, “Okay, let’s relegate our core banking infrastructure to the ledger source of truth and innovate at a layer above that.” And let’s find best-in-class vendors that can do things like origination, servicing and collections.
And like I mentioned, there’s real ROI to automating more of your loan servicing actions. If you can reduce your loan servicing team from 200 people to 100 and repurpose the other a hundred people, you can improve your margin significantly.
“One of our secret sauces is that we’re not just underwriting based upon what you are at that moment in time. What we’re trying to underwrite is towards what you will be.”
— Jonas Ng, Laurel Road
Q: How does open banking potentially impact your products and funding mechanisms?
Ng: This has actually become one of the hardest questions that a bank is struggling with these days. The conventional wisdom used to be that I wanted that customer to have a relationship with me and my brand and everything that they got from me was a KeyBank product. KeyBank auto loan, a KeyBank mortgage, a KeyBank checking account.
With open banking, the corollary argument is that you need to meet your customers where they are. For example, in a gaming app, do I just want to be the rewards of a gaming app, but I am white-labeled behind that?
Pond: You do. And if you think about embedded finance and embedded lending and what these organizations are doing, they’re embedding financial products where the consumers are and spend their time. And my view is the banks that, or the banks and credit unions that are shortsighted and say, “Nope, it has to be our brand. It has to be our way,” eventually, will miss out on that market share because the consumer today is there and that’s where they want to engage and have their experience in aggregate, financial included.
Q: What’s your primary recommendation for financial executives around lending innovation?
Pond: Understand your customer. If you understand your customers, the customers you want to go after, understand what they want, understand the jobs to be done that they are trying to solve in their life and how you more efficiently create and launch a product, whether it’s lending credit or deposit or wealth for that customer to fix their problem and their need.
Ng: I think the one thing that kind of encapsulates to me in my previous life, we used to say that any customer interaction regardless of if you’re selling or you’re giving them a loan, you’re servicing their phone call. Every interaction is to know me, hear me and help me.
Navigating Challenges: Balancing Innovation with Regulation
Q: How do you balance innovation with regulatory requirements and traditional banking practices?
Ng: Every bank that everyone in your audience does have to contend with regulatory and statutory requirements. We have a half a dozen government regulatory bodies that are in our building on any given day and we must adhere to the law.
We have to manage the safety and soundness. These days, we also have to manage to disparate impact, disparate treatment. You’re not allowed to discriminate against gender, race, even age, background and so on.
The data scientist in me would say though that if you could use all those different data elements and they are predictive, then I’m in the business to try and give the right loan to the right people at the right time.
“There’s real ROI to automating more of your loan servicing actions.”
— Colton Pond, LoanPro
Pond: What we’ve seen a lot of, if you operationalize and you improve your loan servicing collections efforts, you can reduce your credit losses to where you can expand your credit box more.
This balance between innovation and regulation is crucial. As Ng points out, the use of data and predictive models can help expand access to credit, but it must be done within regulatory frameworks. Pond adds that operational improvements can lead to better risk management, allowing for more inclusive lending practices.
The challenge lies in explaining these innovative approaches to regulators. As Ng notes, “The explainability of personalization is still something that we have to work on. How do I explain that I approved Colton, but not Colton’s brother? Not sure how I would explain that, but that’s what we have to worry about.”
Dig deeper:
- Financial Advice Boosts Customer Satisfaction. But It’s Got to Be Personalized
- The Personalization Paradox: Can Banks Delight Customers Without Creeping Them Out?
- 6 Critical Trends in Marketing for Bankers to Know
The Future of Lending
Q: How can banks maintain strong customer relationships in an increasingly digital and embedded finance world?
Ng: You are being compared to other experiences and people are asking a very basic question, “How do you not know me? I have given you my money. I have been banking with you for 20 years. How do you not know I have this house? I live in East Cleveland, I have two children and so on.”
If you don’t know me, how can you possibly help me? How do you not realize I don’t have to worry about college? I don’t have to worry about paying for college for my two kids. They’re going to be probably pumping your gas in New Jersey.
Pond: There’s one other thing I do want to bring up and I talked about it a little bit, but I had a conversation yesterday, actually, with Alex Johnson at Fintech Takes. We’re riffing back and forth on stuff, and we’re like, “Hey, how do you differentiate in lending and credit?”
We broke it up into three categories and I was like, man, “This is perfect. It really sums up our conversation.” One is the origination category, where I think most banks and credit unions have spent the most time. Rates, what data do you look at? How do you look at it? They focus there.
But the other two that have been missed talk about what you’re talking about: building products and launching personalized and not just generic products. And then, what is your customer experience servicing experience like?
For a longer version of this conversation, listen to “Achieving Growth with Personalized Digital Offering”, a podcast with Jim Marous, available here. This Q&A has been edited and condensed for clarity.
Justin Estes is an award-winning writer, strategist, and financial marketing expert with expertise in banking, investments, and fintech. His clients include the NYSE, Franklin Templeton, Credit Karma, Citi and, UBS, and his work has appeared in Forbes, Barrons and ThinkAdvisor as well as The Financial Brand.