Regions Financial already offers consumer loans through its website, but consumers are hardly flocking to the site apply for unsecured personal loans. More than 90% of the bank's consumer loans are still originated in its branches.
So now Regions is turning to Avant, a Chicago firm that has made more than 500,000 online loans since 2012, to deliver a better user experience for its customers.
"We are essentially outsourcing the technology and the customer experience," said Logan Pichel, head of consumer lending at Regions.
The partnership, announced Thursday, gives Regions better technology for its digital lending platform, and it gives Avant a new source of customer referrals. It is just the latest example of banks and online lenders — often portrayed as adversaries — teaming up to take advantage of what the other has to offer and attract new customers.
Under the deal, announced Thursday, Regions will use Avant's digital-lending platform to approve and fund consumer loans. That behind-the-scenes technology will allow the bank's online customers to see key information, such as their interest rate, sooner in the application process.
The technology will also allow Regions to eliminate some of the more cumbersome aspects of its online application process while still allowing the bank to validate the information provided by applicants.
The website will be cobranded to let customers know that Regions is the lender, while Avant is providing the technology. The $126 billion-asset Regions will continue to set the underwriting criteria and will keep the loans that it approves on its own balance sheet.
This aspect of the Regions deal resembles the much-ballyhooed partnership between JPMorgan Chase and OnDeck Capital, under which the New York megabank will use an online lender's technology but retain the risk associated with the loans.
"Avant has an established online presence that works," Pichel explained. "And so we felt like it's quicker to get to market to work with Avant than it is to build it on our own."
Applicants rejected by Regions will be asked whether they want to be considered by Avant, which specializes in loans to less creditworthy borrowers and generally charges higher interest rates.
Adam Hughes, Avant's chief operating officer, said that Regions typically lends to borrowers with credit scores of 700 or higher. Applicants with weaker profiles will get referred to Avant, he said.
"This is just a customer that banks aren't lending to today," Hughes said.
Numerous banks, including BBVA Compass and scores of smaller institutions, make these kinds of referrals to online lenders. Avant also has a similar arrangement with Social Finance better known as SoFi, a digital lender that caters to higher earners.
The specific financial terms of the deal between Regions and Avant were not disclosed. But Hughes said that Avant will get paid a certain percentage on loans made by Regions, and Regions will get paid the same percentage on loans made by Avant.
For Regions, of Birmingham, Ala., the partnership with Avant represents its second foray into cobranded digital lending. The bank offers online small-business loans with the New York-based Fundation.
The bank's latest partnership is not expected to launch until the second half of 2016. The deal is an acknowledgement by Regions that competing effectively in digital lending requires having more than just a website where borrowers can apply — Regions has been taking online applications for unsecured consumer loans since at least 2007. In order to attract customers today, a lender's website needs to offer an application process that is relatively pain-free.
Pichel noted that loan volumes in the marketplace lending industry are expected to reach $120 billion by 2020, up from just $1 billion earlier this decade.
"It's growing that quickly because marketplace lenders are meeting a customer need," he said.