Gambling for Loans Makes the MoneyLion Roar!
Plus, new regulatory hurdles for fintech lenders?
Just last week, I wrote about how the Dave App was using games of chance to entice customers to take out more loans.
Now, it seems that online lender MoneyLion is getting in on the act.
To be clear, MoneyLion’s game doesn’t encourage or incentivize taking out a loan. It does, however, give customers one more chance to interact with their platform. Keeping customers regularly engaged will surely lead to at least some of them doing additional borrowing.
The trend here is clear: Fintech lenders with app-based interfaces want customers to be regularly using their apps. Period. The more customers access the apps, the more information they can collect about the customers and the more likely those customers are to take out new loans.
New loans mean more debt for the customers, but more profits for these fintech lenders.
MoneyLion, you may recall, was forced to give refunds to Minnesota customers after providing loans to customers there at rates up to 650%.
The name of the game in this industry is short-term, low-dollar loans. In the case of MoneyLion in Minnesota, the loans in question were for $250. MoneyLion is banking on customers needing a bit of cash over a short time period — and that those same customers are in such a money crunch they aren’t paying attention to the interest rate.
Once they have customers hooked on that first loan, it seems they’ll go to any lengths to remind the customers of their borrowing options. Heck, they’ll even offer a non-borrowing game of chance just to get a consumer to go into the app one more time.
These games come at a great cost for the borrowers least able to pay, but they mean big money for MoneyLion. As I noted in an earlier piece:
MoneyLion has slightly increased its revenue forecast for 2022, now targeting $330-$340 million in adjusted revenue vs. its $325–335 million forecast from last quarter.
All this easy cash explains why even Cash App is getting in on the low-dollar loan business.
Are Fintechs Facing More Regulatory Scrutiny?
The fintech industry — those high-tech, often app-based financial services — is big business. The industry, though, depends on a merger of smart technology and a banking infrastructure.
Since starting and operating a bank takes a lot of time and requires a lot of attention to regulatory detail, fintech companies often work with existing banks in a “rent-a-bank” or “banking-as-a-service” model.
This allows the tech app to quickly get to market while providing the bank with a new revenue stream.
Of course, as a new territory, it is (or has been) unclear how banking regulators will deal with the challenges of these new financial services players.
Jason Mikula over at Fintech Business Weekly shares the story of Blue Ridge Bank and a recent regulatory action by the Office of the Comptroller of the Currency (OCC). In short, bank regulator OCC is seeking to rein-in Blue Ridge’s offerings. The move is also seen as a warning to other fintech-bank partnerships about what will and will not be permitted.
Mikula takes a pretty deep dive into all the issues in this area, but here’s a short bit of what he says and an explainer on what that means for fintech-bank partnerships and for consumers:
Perhaps the most shocking element of the agreement is the requirement, as part of its third-party risk management obligations, that Blue Ridge receive the OCC’s sign off (“non-objection”) before onboarding new fintech partners or offering new products/services or conducting new activities with existing partners (emphasis added):
“Prior to onboarding new third-party fintech relationship partners, signing a contract with a new fintech partner, or offering new products or services or conducting new activities with or through existing third-party fintech relationship partners, the Board shall obtain no supervisory objection from the OCC.”
That’s a big deal — and it echoes the recent work of the Consumer Financial Protection Bureau (CFPB) relative to customer privacy and data security.
In short, the OCC wants to review proposed new partnerships or activities BEFORE they are in play in the market. So, no more tech-bank activities that go to market without some regulatory oversight.
This is designed to stop the bleeding, it seems. Rather than allowing techies to partner with banks and enter the financial services game and see if something runs afoul of regulations, now, the OCC is aiming to get preliminary insight and prevent missteps before they happen.
Ostensibly, this is great news for consumers — but it may also have the effect of slowing the delivery of fintech products to market.
Time will tell if the Blue Ridge case puts the brakes on other partnerships or has some impact on existing relationships and products currently in the market.