Introduction to LoanBillboard
LoanBillboard provides a totally new service for personal and small business loans based on a new form of marketing called “reverse marketing”.
This is where borrowers firstly post their borrowing requirements on an electronic billboard and the banks and lenders come to the site to make offers for these new loans.
A borrower may receive multiple offers for his or her requirements and is able to negotiate with the bank or lender for the best interest rate for the loan based on their higher credit rating and any collateral being offered for the loan.
The Opportunity: The personal and small business loan markets in Australia, UK and US together are massive (see table).
Current scenario: Currently when a member of the public needs a loan, they can find banks and lenders on the Internet and select which lender has the best deal by comparing the interest rates, comparison rates and repayment terms.
Entering a loan application today: Today, it is up to the borrower to go out and find the loans from various banks and lenders and to then fill in multiple loan application forms online, each one subtly different, and all usually lengthy affairs. Today, there is no room for negotiation even if the borrower is otherwise a highly attractive credit proposition for the bank or lender, or has collateral with which to back the loan.
Pressure to lend capital: Retail banks make the bulk of their earnings by taking deposits at one interest rate and lending at a higher interest rate, and then lending the same amount multiple times over (usually 3 to 5 times the actual deposit amounts). Banks and lenders themselves are under pressure to lend as much funds as possible but are limited to only borrowers who have responded to their particular advertising or gone to their Website and entered in a full loan application for them. We can call this “Push Marketing” where the bank is pushing loans out of the door in response to their advertising and marketing.
LoanBillboard is “Reverse Marketing”: What LoanBillboard does, is to turn the process around and make the Banks and Lenders instead respond to the borrower’s individual credit requirements. This is done by allowing the borrower to upload their loan application requirements onto a purpose designed website and then giving the Banks and lenders access to the pool of borrowers currently looking for a loan (see menu item Application above).
Putting the power in the borrower’s hands: The system puts the business control back in the customer’s hands by firstly letting them put their loan requirements on the “LoanBillboard” – the borrower is now in control.
Other features that allow the borrower more control: When customers input the Loan Requirements, they can put in the maximum interest rate they are willing to pay on the loan. This is a negotiation tactic for the borrower that makes the lenders aware of the user’s realistic tolerance before they make an offer. The lender may customise the loan by offering lower their interest rate for that particular borrower, for instance if the borrower has a high credit score and/or is willing to put up collateral for the loan.
Disrupting the loan markets: In banks’ lending to corporates and large institutions there has been a tendency for banks to be as flexible as possible in their terms, including tailoring cash-flows, collateral and other terms to suit the borrower – all in order to get and keep the business. In times gone by it was impossible to broadcast your loan requirements to multiple banks and lenders at the same time – other than ringing around each one from the yellow pages. The Internet has changed all that and now the borrower and customer can now be the new “deal mover”.
Wider audience for borrowers: The borrower can now assume they will have a wider audience for their loan requirements and that they have been seen by more banks and lenders that they, or the loan comparison site they using, may otherwise have missed when they were going out to the different loan websites. They can assume that banks who do make them offers through LoanBillboard are motivated to make their best offer.
Generic single Loan Application: The borrower only has to enter in their loan application details once in the LoanBillboard system. The questions for this will capture enough data to see whether a bank or lender is interested in making an offer to them or not. This avoids the inconvenience of the borrower having to fill in multiple lengthy applications for each bank or lender, which is the bane of getting a personal or small business loan today.
LoanBillboard can be used for both Personal Loans and also Small Medium Enterprise loans where banks currently often negotiate and vary the loans with SMEs including the cash flows, term and collateral, all of which can now be done using LoanBillboard.
Why will the borrowers use it? The success of LoanBillboard depends on a number of separate questions. Firstly, will the borrowers use the site to canvas for loan offers? The Loan Billboard’s sales line to the borrower is “Input your loan application once and then instead of hunting for loans, let the banks and lenders come to you!”. LoanBillboard will likely appeal to a percentage of borrowers who are currently using loan comparison sites (like ratecity.com.au) and LoanBillboard will be a good additional way to search for loans.
Why will the banks use it? Will the banks and lenders want to look at, and respond to, the LoanBillboard database of current borrowers? The usual cycle for Banks and Lenders is to advertise their services and rates and then “wait for the phone to ring”. With LoanBillboard however they can go to a place where there is already a pool of borrowers in the market for loans, without relying solely on their advertising or word of mouth. With LoanBillboard they can also negotiate their interest rates by fine-tuning them for instance for a very eligible borrower (e.g. one with a high credit score) or for one that is willing to give collateral for the loan.
When a Bank’s Relationship manager Geoffrey B., a relationship manager from a large Australian Bank, was asked recently whether he would use such as system if it were available, he responded “We would use anything to get more loan deals! …I cannot believe someone hasn’t done this before”.
“One Size Fits all”: The “one size fits all” for borrowers is changed to the Bank/lender being able to gradually “custom fit” the loan based on the profile of the borrower on the LoanBillboard Billboard. Loan applications usually are met with just a “yes” or a “no”. However in the LoanBillboard system the bank or lender may be able to be more flexible in fitting their loan terms by negotiating a loan deal by adjusting their interest rate, repayment terms and taking on collateral (note taking collateral is the norm with small business loans).
How will LoanBillboard make money? LoanBillboard has two income streams. Firstly it charges the bank or lender 100 basis points (1%) for each loan originated through LoanBillboard. Secondly it charges banks to access the billboard via a LoanBillboard terminal at $999 per month ($11,988 per annum).
Securitised Retail Loan Obligations: In a future phase of the current business plan loans which are originated by LoanBillboard can then be securitised and onsold as investments. Securitising loans has already been done for many large corporate and institutional loans as Collateralised Debt Obligations or “CDO”s. Securitisation the process of turning the loan with its interest and cashflows into a security that can be onsold to an investor – usually carrying a much higher interest rate than those available in the bond and fixed income markets. The opportunity to do this with personal and small business loans is potentially massive future business opportunity following on from LoanBillboard.
A future for loans: The vision of the LoanBillboard system is to disrupt the traditional consumer lending market by creating a new, more transparent loan exchange where borrowers can go and find loans with flexible, customised terms at more competitive rates. The Internet by its nature is putting the power back into the consumer’s hands by opening the channels communication globally and creating a more transparent and efficient marketplace.
So to summarise:
- No other site like it on the Internet for personal and small business loans
- Proven business model
- Massive target markets
- Makes money from day one
- Capacity to grow into a billion-dollar business