It's now six months after graduation and 2018 grads will have to start paying back their college loans. The average student will graduate with $39,400 in college debt, up 6 percent
over last year.
Customers of Fifth Third Bank will get some help as the Cincinnati-based firm has introduced student loan refinancing. The product was launched after the bank analyzed how its customers were coping with student loan debt.
“We travelled around our footprint and sat at kitchen tables to conduct ethnographic research with our customers,” said Ben Hoffman, head of fintech investing and partnerships and co-head of strategy for Fifth Third Bancorp.
“It became very clear that there's a pervasive need to address student debt. People lean on family and friends. It's tough.”
Making it happen with CommonBond
To offer student loan refinancing, Fifth Third turned to CommonBond, an upstart student lender which has helped originate and refinance over $2.5 billion in loans for tens of thousands of people.
One major issue to tackle was the branding on the joint offering. There haven't been many bank-fintech partnerships in student loan refinancing.
“This is the first time since the financial crisis that a bank and a fintech have teamed up to provide bank customers a better way to pay down student loans,” said David Klein, CommonBond co-founder and CEO.
To start, the firms opted to go with a co-branded experience, playing off both brands' strengths and expertises versus a white label solution. "What we realized is that leveraging the benefit of both brands is what will likely most get consumers to act, thereby saving customers up to thousands of dollars on their student loans," Klein said.
The current form of the customer experience works like a referral relationship. Fifth Third handles distribution and CommonBond originates the loans. Fifth Third web users can access information about student lending on the bank's website. To sign up, they click over to a landing page hosted by CommonBond.
Fifth Third has trained staff in its branches and call center to identify a customer need and explain how student loan refinancing works. The two firms have set up a dedicated phone number to transfer clients over to the CommonBond call center. The firms have also set up an inside help desk to help Fifth Bank staff with tough customer questions.
Buy, partner, or build
Fifth Third's collaboration with CommonBond goes deeper than this partnership. Fifth Third, like a number of banks, invests in private companies. A few years ago, it decided to deploy this capability towards a fintech strategy it calls 'buy, partner, or build'. Given how much money flows into fintech, the firm decided it couldn't survive on its own home-grown technology.
So, investing became a strategic advantage for the bank. Over the past three years, Fifth Third has made 10 investments in financial technology. The approximately $100 million it has invested has gone into a couple of dominant themes: consumer lending and consumer payments. After making an investment, Fifth Third looks for opportunities to introduce its portfolio companies to its customers.
Analyzing the student loan refinancing market, it became clearer to Hoffman that CommonBond was the right partner. He believes the fintech firm has very strong technology capabilities that result in strong customer journeys and origination.
"In fintech, you'll find companies that are 99 fin
and 1 tech
and others that are 1 fin
and 99 tech
," said Hoffman. "CommonBond has a good blend of fin
, which is rare."
But Hoffman cites CommonBond's corporate culture as what sets it apart. Molded by Klein's leadership, the firm remains the only financial company with a dedicated social promise
. As a result, CommonBond has given significant money and leadership time to charity, way ahead of profitability.
Fifth Third invested in an equity round earlier in 2018 and has been working on this partnership in its wake.
An interesting feedback loop
Both firms are learning from the feedback generated by the partnership. Without a lot of exposure to student loan refinancing, customers actually have a lot of learning to do.
“Since we launched the partnership, we've seen something pretty amazing happen - a good amount of customers calling our Care Team to open up the conversation about their student loans. They just want to talk," said Klein.
"Our goal is to help people make smart decisions about higher education finance, and we’re seeing this partnership crack open the conversation about people's student debt - which ultimately leads to finding a solution."