If you're still banking in person - walking into a branch to make a deposit or withdrawal - you may be part of a vanishing generation. While passbooks and deposit slips haven't gone the way of the pager or the cassette tape just yet, they are well on their way. That's because today's consumers increasingly rely on technology for their banking needs. Online and mobile banking are now mainstream, and not just for standard savings and checking accounts, either. Nowadays, more sophisticated forms of transactions, including loans, mortgage management and more, are all being handled in virtual space.
For lenders specializing in smaller personal loans, this trend will almost certainly continue, especially as those institutions which are currently pioneering online loans prove just how appealing and rewarding the practice can be. Giants like Citigroup (NYSE: C), for example, are testing the waters with subsidiaries like OneMain Financial - a contemporary institution, with a national network of physical branches along with an online component. Meanwhile, smaller, more specialized lenders are quickly establishing themselves solely in the digital arena. One such company is IEG Holdings (OTCPINK: IEGH), which goes to market under the Mr. Amazing Loans brand.
This innovative loan originator has proven itself as an exclusively online institution, with all of its services available to borrowers at the click of a mouse. While this online-only approach may still be relatively uncommon among lenders, it is better established among online banks. In fact, many will recognize similarities in IEGH's business model to Bank of Internet Holdings (NASDAQ: BOFI), an online bank with $3 billion in assets but without a single branch location. Both enterprises leverage the low cost of internet and mobile distribution channels, eliminating the need to pay rent, facility costs and other expenses associated with traditional brick-and-mortar facilities.
In addition to savings and efficiencies that come from a purely virtual existence, IEGH's Chairman and CEO Paul Mathieson also notes that customers value the experience of an online loan transaction. "Who wants to travel to a branch and line up to get a loan if you can apply for a loan quickly and easily in the comfort and privacy of your home or using the convenience of your smart phone?" he explains.
The Tech Transformation
Certainly, brick-and-mortar facilities will continue to serve a purpose, but as the sophistication of online systems, mobile technology and personal computing power grows, they will become significantly less necessary for the majority of borrowers. Already, we see this happening: in 2012, nearly two bank branches closed for every one that opened - 1,149 openings compared to 2,267 closings, according to SNL Financial.
Look for that pace to continue as consumers - already largely comfortable conducting retail transactions online - become increasingly confident turning to online providers for less tangible services. The more that shoppers make use of online resources for their accounting needs, stock purchases and legal concerns, to name a few, the more natural the concept of online lending becomes.
Consumers are also encouraged by online lending systems that offer the same security, safeguards and seamlessness they would expect from in-person loan transactions. IEGH, for example, ensures that all documents are properly notarized as needed, that a borrower's identity is properly and fully verified, and so on - all without ever having to sit in front of a live banker. Of course, borrowers do occasionally need human assistance, so IEGH matches their online systems with a team of customer care personnel who are trained to address all of the common - and less-than-common - concerns that arise from time-to-time.
It's a combination of autonomy and support that is specifically calibrated to meet the expectations of today's small personal loan consumers - generally younger borrowers who have come of age in the time of Amazon, Google and Facebook. These are consumers who expect access when they want it and responsiveness that doesn't follow banker's hours. Moreover, they often prefer conducting business in relative anonymity, especially where discretion may be preferred - and in today's still-challenging economy, that's an all-too-common sentiment among those who need a small sum to help them through a rough patch.
Why Online Lending Works: The IEGH Example
To be a successful online lender, it's not enough for a company to offer borrowers access to forms online and provide a "submit" button. Lenders need to build a fully interactive infrastructure that enables borrowers to do everything virtually that they would otherwise do in person. That means offering a well-developed systems architecture and intuitive functionality, so users don't get frustrated and abandon the process mid-way.
Savvy lenders also keep users engaged by going a step beyond pure convenience, adding competitive advantages that would make them favorable to standard lenders even if all other factors were equal. IEGH, for example, offers highly competitive rates while exercising responsible lending practices that are consistent with the FDIC's small dollar loan guidelines.
That's not to say that all follow such scrupulous practices. Some payday lenders such as AmeriLoan, Mobiloans and Splash Cash Advance use interest-rate exemptions that are made possible through relationships with Native American tribes, exempting them from Federal oversight. By doing so, they can collect interest and fees that go well beyond what non-tribal lenders can provide. But in the process, they run the risk of increased scrutiny by authorities and legislative challenges that can impact their ability to continue doing business. Prominent tribal lender Western Sky Financial, for example - known for triple-digit interest-rate personal loans - announced that they suspended operations and ceased funding loans in early September as a result of ongoing legal clashes in multiple states.
IEGH has taken a different approach, choosing to operate in compliance with FTC regulations, including the Truth in Lending Act and the Fair Credit Reporting Act. They are supported by the Consumer Financial Protection Bureau and are fully compliant loan provider in Arizona, Illinois, Florida and Nevada.
Consumers aren't the only ones who find IEGH's approach attractive. The company's recent targeted promotional campaign - launched in July 2013 and executed through search engines such as Google (NASDAQ: GOOG) - has generated results that are catching the attention of investment professionals, as well. The company reported more than 1,000% growth in online applications and loan volume through its cyber platform. Revenue also grew as customer acquisition costs associated with online advertising fell from approximately 10% to 6%. Website enhancements, the deployment of common keywords, search engine optimization and the identification of additional sources of online advertising are expected to contribute to continued operational and revenue improvements.
All of these efforts are aligned toward the company's goal of gaining market share by building awareness of online lending as a general category and by promoting their specific advantages over other, less customer-focused operators. More information about IEG Holdings and Mr. Amazing Loans is available at
ABOUT IEG Holdings (OTCPINK: IEGH)
IEG Holdings Corporation (OTCPINK: IEGH) provides unsecured consumer loans under the brand name "Mr. Amazing Loans" via its website mramazingloans.com. After lending approximately $48 million to over 11,500 borrowers in Australia, the Company Founder and CEO Paul Mathieson moved to the U.S. market in 2008. IEGH now operates online in the USA covering all of Nevada, Arizona, Illinois and Florida with advanced plans to expand to other states. The company launched advertising for its online loan origination platform in mid 2013, partnering with top lead generators in the United States. The company's loans range in value from $2,000 to $10,000 and have a term of three to five years with a 19.90% to 29.97% APR. Significant growth is expected from the online loan origination business, which has the potential to scale much more rapidly and at a higher net margin than the previous brick-and-mortar business. For more information visit investmentevolution.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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