00:03:51 · S3, Terry O'Neil, Oliver Smith
[00:03:51] S3: Wow. [00:03:51] S1: Go back to 2013, yeah, 40% of loans were underwritten by banks. So fintechs really didn't create the market, they were meeting an unmet need. And I think why it's so important for our banking partners to meet a consumer's need when they're asking for it, is because of that moment of truth. You have an opportunity to build trust and you have an opportunity to build that relationship. You met them where they needed you to meet them at a moment in time where they had that need. And what we've seen is particularly if you're their primary banking relationship, you have an opportunity to retain all of their other relationships, whether it be a checking account or a savings account or an investment account, but you also have the opportunity to build on that relationship, right? The personal loan that the consumer needed can actually become an entry point to continue expanding that relationship with the consumer. [00:04:40] S0: Super interesting. Because yeah, as we've seen, like fintechs have used their lending as the kind of sharp edge to win customers and then build that relationship. So this is about giving banks the opportunity to sort of fight back against that. Where does part where does Pagaya fit into the bank's existing lending journey? Where do you guys kind of slot into the solution?
00:04:40 · Oliver Smith, Terry O'Neil, S3
[00:04:40] S0: Super interesting. Because yeah, as we've seen, like fintechs have used their lending as the kind of sharp edge to win customers and then build that relationship. So this is about giving banks the opportunity to sort of fight back against that. Where does part where does Pagaya fit into the bank's existing lending journey? Where do you guys kind of slot into the solution? [00:04:59] S1: Yeah, I think what's beautiful about it is we're behind the scenes. Okay. We're the intelligence inside the bank's underwriting strategies. So we embed directly via API conductivity into the bank's normal onboarding process, their application system. What ends up happening is when a bank is going to decline a consumer, they pass that decline to us. We help expand the aperture a little bit. If we're going to approve that consumer, we send an approval back. [00:05:23] S3: Okay.
00:05:23 · S3, Terry O'Neil
[00:05:23] S3: Okay. [00:05:24] S1: The consumer gets underwritten and approved within the bank's own application process. All of the loan docs, the truth and lending docs, are all handled by the bank. The loan is booked by the bank. And then we buy that from the from the bank and move it to our institutional investors. So from a consumer's perspective, it's completely transparent. Yeah. The consumer believes that they have been approved and underwritten by the bank. By the bank. Yeah. The customer's relationship stays with the bank and the bank continues to service that loan. So what's really, I think, unique about it versus other forward flow strategies or decline monetization strategies is that from the consumer's perspective, the bank approved the loan and the bank is continuing to service the loan. From the bank's perspective, in addition to not holding the risk on their balance sheet, they can continue to integrate and engage with that customer. They continue to cross-sell that customer. They can continue to build out that customer's lifetime value with the bank because it's a completely seamless transaction for the customer.
00:06:24 · Oliver Smith, Terry O'Neil, S3
[00:06:24] S0: So if I said Pagaya to the borrower, the consumer, they would have no, they would, they would believe the relationship is still there with the bank. That's right. Amazing. Um, okay, so debt consolidation drives so much demand for personal loans. That's what a lot of people are looking to do. Why is being able to say yes at that particular moment so important for banks trying to deepen their primary customer relationships, especially with debt consolidation? Tell us why that's so important. [00:06:50] S1: I think it comes down to a couple of things. If, you know, if if our banking partners take a look at what loans consumers have off them, balances that they have with under other institutions, they're going to see that there's a significant amount of loan balances that are not held by their primary bank. [00:07:07] S3: Yeah. [00:07:07] S1: Um, so first and foremost, the consumer has a stated need to borrow. I think as it relates to debt c consolidation, as we were talking about earlier, there's a moment in time need where the consumer is making a decision to improve their finances, to get to one lower monthly payment or a better cost of credit for the consumer so that they can better manage their debt. [00:07:28] S3: Yeah.
00:07:28 · S3, Terry O'Neil, Oliver Smith
[00:07:28] S3: Yeah. [00:07:29] S1: If you're the institution or the or the bank that can solve that need for them, you provide a very real and tangible service that they need at that point in time. Yeah. And because you do that, you build trust with the consumer and then build the relationship from there. A lot of times it's a catalyst. If a consumer is thinking about debt consolidation, thinking about managing their monthly expenditures or the cost of their credit, they're often thinking about how do they get all of their other finances in order or in a better position or they might be planning for something. If you're the bank that helps them do that beyond the checking account, beyond the savings account, beyond the credit account, you can think about starting to expand that relationship into maybe a mortgage, into maybe investments. So it really helps you bring that whole relationship together and build the relationship with the consumer. [00:08:17] S0: Yeah. It's quite an emotional sort of moment, I think, for consumers going through that. And for their traditional bank to say no at that moment is kind of like heartbreaking. And that's why I think fintechs have had that advantage in the past because they've been the ones able to say yes in that moment. Yes. But this is now allowing banks to say yes. Um, we you've you've talked about the opportunity uh in the applications that traditionally bank scorecards would decline, the kind of reject pile. How does Pagaya identify credit worthy borrowers within that group rather than simply taking on more risk?
00:08:17 · Oliver Smith, Terry O'Neil
[00:08:17] S0: Yeah. It's quite an emotional sort of moment, I think, for consumers going through that. And for their traditional bank to say no at that moment is kind of like heartbreaking. And that's why I think fintechs have had that advantage in the past because they've been the ones able to say yes in that moment. Yes. But this is now allowing banks to say yes. Um, we you've you've talked about the opportunity uh in the applications that traditionally bank scorecards would decline, the kind of reject pile. How does Pagaya identify credit worthy borrowers within that group rather than simply taking on more risk? [00:08:51] S1: Absolutely. So we're able to expand the aperture. We're able to look at other data to uh to assess the consumer's credit worthiness. So it's not a binary decision. It's not a decision based on a FICO score. It's not we won't take anybody under 640 or anybody under 620. We're looking at additional cues so we can find those consumers across the credit spectrum that should be underwritten and could be underwritten. And I say that we're still very prudent, right? Even though we look at uh millions of applications a year, we uh we approve about 1% of them. And we do that very intentionally to ensure that we focus on quality over quantity. Yeah. But what really enables us to open the aperture are the additional data sources that we can look at to get a better view of the consumer's creditworthiness. [00:09:40] S0: Can you tell me anything about those data sources? Is this alternative data? What do we what do we look at?