CEO Club Briefing

Consumer Lending

Excerpt from remarks to Boston College Chief Executives Club  

March 22, 2018


After 148 years, we’re going into a consumer lending business. Why would we do that? How could that be? And people—the press say, oh my goodness, you’re going into this. You’re looking for things to—it’s not so much that we changed as that the opportunity changed because of technology. Because originally, if you think of lending—consumer lending—you know, Bailey Savings and Loan, look into people’s soul. You make 500 loans, you have to know the character. You have stories, and people come in and they pour their story and you tell them their story. If you make 500 loans, that’s what it is.

But if you make 50 million loans, it’s math, it’s algorithms, it’s digital distribution, it’s risk management—all core strengths of ours. And every time you put down a credit card, somebody’s making a loan to you. They’re not asking you a lot of questions there. In a heartbeat, less than a heartbeat, they’re making a credit decision. That’s a core strength of ours. It wouldn’t have been before. And there’s obviously a consumer experience element at the other end of the computer, and we have to import that and develop and grow some new muscles. Service centers—we have a service center we wouldn’t have had before.

But it now behooves us to be deposit-takers, which we did by buying a platform from GE, and growing our own consumer business markets. These are muscles that we never exercised before, didn’t have. So that’s a change in our business. And for us, there was an evolution here, because we became a bank holding company over a weekend, and we were finding assets we could put into it, because we are a wholesale business. We don’t do a lot of bank-like activities that could even be in a bank.

So, we were looking around that tune—what would we put in a bank to give it some heft, so it would be a bank? And the second go-around then, 2.0, was, gee, there’s a cheaper source of funding that comes with a bank. Why don’t we take advantage of it and take other activities and put those in a bank that don’t have to be in a bank, but we can put them in a bank? [Step] 3.0 was, gee, we’re a bank. Should we be doing stuff we wouldn’t have ever considered doing but now can do because we’re a bank? And the answer is yes.

And in this consumer business, for us—just to give you our mindset—is a lot of what we’ll be doing is refinancing credit card balances, which is a gigantic market. There are a lot of people in the world who finance themselves. Statistically, I don’t have it at my fingertips, but a huge percentage of the country couldn’t pay a $200 bill to a dentist without taking out a loan. Most of us don’t live in that world, but that is the world. People run up constant credit card balances.

And as you know—or may not know, because I’m sure you all pay your credit cards off the second you get the bill, people are paying rates of 21, 22, 24 percent. Those institutions, which in normal banks have no incentive to offer people consumer loans at 10, 11, or 12 percent—we are either cursed or blessed with no consumer business, no legacy operations. If we had one, it would be the best part of our business, the highest returns, but we don’t have that. The normal folks who would disrupt that business, the Silicon Valley crowd, aren’t bank holding companies and can’t take deposits to fund them. So, you get—and some of you know the names—have been out there doing it. Those don’t work that well, because they have to package them and on-sell the loans. They can’t be flexible because it doesn’t sit on their balance sheet. It has to be packaged and sold to people who take all the margin from it.

So, we’re kind of a weird place. We are a bank with no legacy bank businesses—normal bank businesses. And that’s a very odd place to be. So, we could be our own disruptor. Now, historically, we’ve always been very tech-oriented. We promote our CFO, who’s a former head of technology—we have a lot of technologists in our company. A lot of the platforms that people take for granted—ARCA, ICE—all these platforms came out of Goldman Sachs and spun off. So that’s us.