Pagaya targets regional banks for personal loan growth

Pagaya

Alternative lending fintech Pagaya Technologies has its sights set on expanding its personal loan offering to regional and super-regional banks while it also builds out its marketing acquisition engine. 

Pagaya currently partners with banks such as U.S. Bank and neobanks such as SoFi to offer artificial intelligence-powered second-look personal loans to consumers who might not otherwise qualify. Pagaya integrates with lenders' loan origination systems and buys the loans it originates from the lenders and sells those loans on the secondary market. It is also active in auto lending and point-of-sale buy now/pay later lending. All in, Pagaya counts 31 lenders as partners. 

Pagaya is in talks with four or five regional banks to help build out or expand their personal-loan offerings, co-founder and CEO Gal Krubiner told American Banker. "There is a new era where people are starting to look at growth, and for the regional banks, personal loan is a good way to grow the franchise and to give solutions and products to their customers," he said.  

Many regional banks look to personal loans to help secure deposit inflows, a trend that Pagaya is hoping to capitalize on when bringing new partner banks into the fold, Krubiner said. 

"From our perspective … working with Pagaya could generate for a mid-sized bank over $1.5 billion of personal-loan origination in less than nine months," Krubiner said, citing U.S. Bank's performance on the platform. 

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Pagaya is also using its integration into lenders' underwriting platforms to offer pre-screened loans to potential customers in another avenue that it hopes will lead to growth, said Sanjiv Das, president of Pagaya. 

"Think about our total market opportunity. We have 31 lending partners. Those 31 lending partners have about 60 million consumers as existing customers. We've only scratched the surface right now with the 3% [penetration]," Das, told American Banker. 

Pagaya is also working to help lenders "bid better" for leads from data aggregators, such as Credit Karma or Experian, Das said. 

The push toward regional banks comes on the heels of solid first-quarter earnings results that beat analysts' estimates across nearly every metric. Revenue jumped 18% year over year to $290 million, ahead of analysts' expected $285 million. Net income landed at $8 million, or 10 cents per share, compared with a $21 million loss in the same reporting period last year and eclipsing analysts' estimate of a $10 million, or 15 cent per diluted share, loss. 

Shares of Pagaya have risen about 26% since the company reported earnings on May 7, according to a research note from David Scharf at Citizens. Scharf attributes the gains to Pagaya hitting positive GAAP net income ahead of schedule. 

"The company continues to see strong unit economics even with its product mix relying less on its core personal loan business," Scharf said. "The company also continues to add new partners on both the lender and investor sides and are seeing significant opportunities in the POS space." 

KBW analyst Sanjay Sakhrani bumped his price target for Pagaya's stock following the earnings report, pointing to pre-screen and affiliate channels as "growth drivers." 

"We believe PGY is well-positioned to shift toward revenue growth across its three loan markets — personal, auto, and POS and deliver profitability. While macroeconomic volatility may introduce risks to funding costs and underwriting capabilities, management's disciplined risk approach and measured appetite provide confidence," Sakhrani said.