Fifth Third’s millennial play: Helping them refinance student loans

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For many millennials, student loans aren’t just another monthly bill to pay, but an albatross around the neck.

That was a message Fifth Third Bancorp consistently heard in surveys, focus groups and in-home interviews with its customers. So the Cincinnati bank decided to partner with the fintech lender CommonBond to offer its customers student loan refinancing.

“It’s the emotion attached to the debt that’s really striking,” said Ben Hoffman, Fifth Third’s head of fintech and co-head of strategy. “We would hear people say they were depressed and didn’t see a path forward. It was a social burden to them in the dating scene. Once we got to that point, it was just a question of how and when. Not whether.”

They should do the real version of millennial dating...
One or both live at home, have no money.. talk about crippling student debt and don’t know how to cook.#TheBachelorette

— Sarah Kool (@mhmkool011) May 29, 2018

Dating in 2018 the hottest thing you can say is you don't have any student debt

— George Schramm (@SchrammGeorge) August 10, 2018

Re-downloaded a dating app after like, a 2 year hiatus. Am very weirded out by this new trend of people announcing their student debt in their info?

— jersey devil 👹 (@judgementali) October 27, 2018

Student loan debt totals $1.4 trillion nationwide and represents the largest category of consumer debt after mortgage debt. While some of the very largest banks are interested in getting into student lending themselves, others are exploring ways to help customers and employees alike pay down that debt. First Republic Bank in San Francisco, for example, offers student loan refinancing through Gradifi, the fintech firm it bought after using its services for its staff.

By helping customers pay down their student loans faster, Fifth Third hopes they will stick around for the long haul, eventually turning to the bank for needs like mortgages, credit cards and deposit accounts.

It is the first such relationship that CommonBond has forged with a bank. Several banks, including the $142 billion-asset Fifth Third, have taken equity stakes in the fintech. CommonBond has referral partnerships with companies in other industries, but Fifth Third is its first bank referral partner, said CEO David Klein.

“We have always had an open posture to banks,” Klein said. “We believe that banks have a lot of positives to offer, and we think that fintechs have a lot of positives to offer. The right kinds of partnerships, where you take the best of both worlds, are a win. That’s what we think we’ve done with Fifth Third.”

The partnership is a good example of how banks can work with fintech firms to provide a product that might otherwise be tough to offer on a bank’s legacy systems, said Lane Martin, a partner in the banking practice at the consulting firm Capco.

It is a good “defense mechanism” against losing customer relationships in the long term as nonbanks proliferate, he said.

“Looking out for an existing customer base, particularly as banks get more and more digital, is a long-term brand-viability strategy,” Martin said. “That’s going to create long-term brand loyalty.”

CommonBond’s borrowers are typically in their early 30s and gainfully employed, Klein told American Banker. Borrowers refinance on average around $70,000 of student loan debt at rates ranging from around 2% up to 7%, depending on the terms and the borrower’s credit history.

The partnership with CommonBond is not Fifth Third’s first crack at the student loan issue.

Last year, the bank launched a student loan repayment app called Momentum. The app links customers’ student loan account to their Fifth Third checking account and rounds up every debit card purchase up to the next dollar. Momentum then makes a weekly payment toward the customer’s loan once the balance hits $5.

Since Fifth Third launched Momentum, its customers have paid down roughly $1.5 million of student loan debt through the app, which boasts around 50,000 downloads.

The partnership with CommonBond is a strict referral relationship. Fifth Third will market CommonBond’s student loan refinance product to its customers — through its digital channels, direct mail and in its branches — and the loan is refinanced onto the fintech’s balance sheet.

Fifth Third receives a flat fee for each referral, but Hoffman characterized it as “nominal” and said the bank sees the greater value in the long-term customer relationship.

“All of our research — and this has been true for years — suggests that if we’re there for our customers in those very emotionally laden moments, we will have won loyalty for their day-to-day financial needs,” he said. “We spend a disproportionate, or maybe appropriate, amount of time on those moments of truth.”