Inside First National Bank of Omaha’s launch of a digital consumer loan
- The largest privately-held U.S. bank recently launched a digital loan product.
- To do so, it partnered with digital lending specialist, Upstart.
Marc Butterfield is senior vice president of innovation and disruption at First National Bank of Omaha. I also think Marc’s the first person we’ve had on the podcast with ‘disruption’ formally in his job title, but it does speak to his role at the $23 billion bank.
FNBO recently launched a digital loan powered by Upstart and Marc and I discuss the process through which his firm launched that product. We talk about early metrics behind the launch and what the bank plans to do with Upstart in the future. More broadly, Marc describes his role and the challenges and opportunities in traditional FIs to make positive change.
Helping lead innovation in a traditional FI
My role is to help the 165 year old organization enable innovation within its groups and to transform the culture to one of innovation. It’s also to identify disruptive threats to the business models for the largest, privately held bank in the U.S.
I’ve been at the bank for 18 years. I don’t feel like I’ve been here that long because I’ve held four very different roles. We also have a card issuing business. I started there, managing product strategy. Then I moved into marketing and new customer acquisition. Then, I did something totally different and moved over to manage our credit risk organization for consumer credit. Then I moved back into product and helped create a consumer lending business. The last two years, I’ve been in this role.
Friend or foe?
The advantage I have of being here so long is that I’ve developed a lot of networks. That trust factor opens — and keeps open — doors within the organization. That said, having ‘disruption’ in my job title keeps a tension with people who may question what I’m trying to do and how I’m trying to change the status quo. I do create anxiety when I go to meetings and talk about doing things differently. At the same time, they know me and trust me.
Launching a digital personal loan
We wanted to expose our senior and executive management to what’s possible and real out there. We do have a consumer lending business today but it’s based on how a bank would launch such a business. It isn’t digital. It’s very belt and suspenders from a risk approach. It’s a very good business for us.
Once or twice a year we take a few executives on a fintech excursion that looks at how a firm could help the bank in a very meat and potatoes way. In 2018, we met with Upstart. Our team resonated with the fintech lender. It created a positive catalyst for change internally as we question how to best work with a firm like this.
Comparing a digital lending business to a traditional one
We officially launched a digital consumer loan in July 2019 and finished a test in November. We wanted to get enough loans on the books so we could compare our digital loans powered by Upstart to our traditional lending business.
Upstart does all the marketing. They solicit the customers and based on our basic risk criteria, they get displayed a FNBO offer. If the customer accepts the offer, they go through Upstart’s workflow and approved and adjudicated by Upstart. We only have basic credit criteria in there — it’s their underwriting, alternative data, and machine learning. If the applicant is approved and accepts the loan terms, she becomes a First National Bank customer.
Benchmarking a digital lending business
For our current business, a full automation rate is essentially zero because customers call in and talk to a loan specialist. It’s a really good process but it’s all manual. Upstart wants to get to full automation. With this new digital process, we were just under 80 percent.
Our Net Promoter Score is in the low eighties, 10 to 15 points higher than Upstart’s traditional NPS. There’s a bank making this offer and that speaks to the power of this partnership.
Internally, we are more interested in what’s to come — the power of Upstart’s machine learning model. Can it more accurately price to risk? Can it include more borrowers given our risk appetite? Can it provide a better experience for borrowers overall? You need at least 6 to 12 months of loans on books to really track this.
The components of an innovation program
It’s a newly created role and team — we formed in August two years ago. We had to train the team on agile/lean design concepts: focus on the customers, the problems they encounter, and how to solve them for them. At the same time, the team needed to research technology trends and identify how to link them up with doing customer research.
There are six of us now. We started with a small group focused on the commercial side and one or two people on consumer. Another person is focused on fintech engagement. So, we have a head of fintech to do things like our yearly excursions and also to categorize all the fintechs that we were meeting. We created a library.
Now, we’re more focused on macro themes, like improving automation and efficiency in the bank. Then we have an item around leveraging blockchain technology. We have another person focused on improving our advice and guidance — customers want their bank to be more helpful and engaged. It all revolves around thinking about the customer.
Build, partner or buy
If you draw a Venn diagram, we think about investing, partnering, and building. We have examples internally of all three of those. I can say that we’ve invested a significant amount of money in the investment part of that. Upstart is one of those fintech investments we’ve made. We didn’t build a separate VC arm but we do invest in strategic partners.
For building, we’re working on a couple projects we’re co-developing with startups on the commercial banking side of the business around bockchain and cashflow optimization.