Analysis Featured

Innovation in the established bank-tech companies

bank marketplace lenders

Since the financial meltdown of 2008, regulators have cracked a whip on bank lending. So far, however, there are no such regulations on crowdlending platforms. To counter this, banks (Goldman Sachs is the prime example) have set up marketplace lending (MPL) platforms in silos, which are completely separate entities.

As a result of the aforementioned financial crisis, banks vacated many business segments due to regulatory issues and a shortage of capital. Marketplace lenders have taken advantage of this and captured many of these areas. The financial software publisher Misys realized that banks need to recapture this space for long term feasibility and has launched a white label crowdlending platform for the banking sector.

The initiative was born out of Fusion Reactor, its own innovative engine where new ideas are brainstormed. The idea for the SaaS solution came from French engineer Jean-Cédric Jollant. From inception to launch took less than two years.

Company History

Misys was founded in 1979. Over the years, they has managed to carve its niche in the financial software industry with roots deeply engraved in lending and have developed products like Loan IQ, which has been present in the financial industry for over 25 years and used by most banks. Around 43% of all syndicated loans all across the globe are processed through Loan IQ.

Misys started as a computer systems supplier to insurance companies but has emerged as a financial services software provider through multiple mergers and acquisitions. Recently merged with payments technology firm D+H, Misys has a presence in 125 countries and has over 2,000 customers. Their team of experts are able to address industry requirements at both a global and local level.

Location and Manpower

Misys is headquartered in London, UK and has offices in the major financial hubs of the world (New York, Paris, the Philippines, and Plano, Texas). Its biggest technology office is in Bangalore, India. The company has 5,000 employees of which 2,000 are developers. Around 500 are based out of Paris Another 150 are in Plano. The rest are evenly spread in all other centers.

FusionBanking CrowdLending

A cloud-based lending platform available as an enterprise solution, Misys plans to run alongside its other array of products as an SaaS. Banks have been losing customers to marketplace lenders (MPLs) because they do not offer a large enough variety of products to compete. Banks either offer prime loans that range from 3%-6% or credit cards that range from 15%, hence leaving a huge gap between 6%-15% interest rate for MPLs. Considering there is a huge population in the near prime category, it is necessary to address this unattended potential customer base.

The Idea Behind FusionBanking CrowdLending

The majority of MPL lenders are not actual lenders but more like intermediaries. MPLs act as a bridge between existing bank customers, bank investors, and existing bank services. In actuality, all three sources are originating from the banks.

Even though MPL lenders don’t have lending capabilities, servicing, or recovery services, they still are managing to put a hole in the bank market. More importantly, banks are on the verge of losing relationships with customers and the revenue generated from those relationships.

Misys came up with FusionBanking CrowdLending to stop the hemorrhaging of clients and help banks service the digital-first millennial generation. Also, the company has combined LoanIQ and CME, an origination software, into a white label platform.

Progression

Since banks are the cheapest source of lending, customers will obviously go to them first. But banks have a high rate of rejection as per their lending guidelines, and those applications are wasted or go to online lenders. For example, Standard Chartered in Asia declines 80,000 SMBs per year on average. Therefore, rather than giving over the relationship to MPL lenders, using Misys’ solution, banks can put this business back on their own platforms.

Revenue Model

Misys charges 2% of whatever they process. Apart from that, the company does not charge hidden,  upfront, or license fees. They charge a one-time customization fee, and the 2% fee is lowered after they cover costs. The main motive is to make the platform profitable for banks as soon as possible and help banks retain 99% of the revenue from their relationships. The company plans to target smaller banks first to have a proof of concept for larger banks.

Conclusion

Until recently, traditional banks believed they had two options, either throw in the towel or enter into partnerships with MPLs. Goldman’s Marcus has changed the narrative. Now, banks believe they have the tools to compete. But, instead of building on their own or buying a platform (which is not sustainable for smaller banks), partnering with Misys makes sense.

Misys has opened an avenue for banks to monetize their relationships digitally Creating a bank-owned lending platform allows for all participants to remain in the bank’s ecosystem.

Author:

Written by Heena Dhir.

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