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Innovating with Liability Management. Jonathan Zinman Professor of Economics, Dartmouth College Scientific Director, US Household Finance Initiative. PopTech. September 17, 2013. Innovating with Liability Management. Consumer pain point (general): How do I find the best loan for me?

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Innovating with Liability Management

Jonathan Zinman

Professor of Economics, Dartmouth College

Scientific Director,

US Household Finance Initiative


September 17, 2013


Innovating with Liability Management

  • Consumer pain point (general):
  • How do I find the best loan for me?
  • Whom can I trust to help me?
  • Design strategy:
  • Make loan shopping easy
  • Offer solutions at the right time
  • Build trust with a credible business model (fee-for-service)
  • Business case could work because:
  • Huge asset management industry
  • But debt is where the money is for most consumers
    • Hundreds of basis points on trillion of dollars
  • Two ideas along these lines…


is there really money to be made
Is There Really Money to Be Made?
  • Focus just on overpaying. Take a household that:
    • Has $10k in credit card debt and pays +500bp
    • Has $20k in student loans and pays +200bp
    • Has $20k in auto loans and pays +100bp
    • Has $200k in mortgage and pays +100bp
  • This household is paying >$3,000 in excess interest per year
    • Annuity value of $15,000-$100,000, depending on discount rate
    • Could get just a piece of this-- e.g., just auto loans– and be viable

Liability Management Segment 1:

Auto-Pilot Refis

  • Consumer pain point: When should I refinance?
  • How do I find the best loan for me?
  • How do I get the timing right?
  • Whom can I trust to help me?
  • Product innovation: Putrefis on autopilot
  • Allow borrower to set a refinancing rule at origination
    • Like a limit order in asset management
  • Delegate mechanics to liability manager
    • Manager shops and negotiates on borrower’s behalf
    • Manager handles paperwork
      • Maybe even signing off under power-of-attorney
  • Business case could work because:
    • Paying for value; only pay if the transaction will save me money
    • Liquidity not an issue: fee can come from loan proceeds


liability management segment 2 personal loan shopping
Liability Management Segment 2:Personal Loan Shopping
  • Consumer pain point: how do I find the best loan/card for me?
  • Product innovations (viz limitations with existing shopping engines):
  • Improve personalization (key for risk-based pricing)
  • Expand coverage: a single site/app/service rarely credibly covers all (low-cost) providers in the market
  • Improve credibility: move away from kickback/eyeball business model…


making liability management work will borrowers pay how
Making Liability Management Work:Will Borrowers Pay? How?
  • “People won’t pay out-of-pocket for value-added financial services… they expect freebies”
    • But people do pay out of pocket for credit report management, identity theft protection, tax prep, etc.
    • People will pay when they are liquid, and feel like they’re getting value (tipping the teller at the check-cashing window)
  • Pricing Models that have worked in other contexts
  • Upfront lump-sum
      • Natural for cash-out refinancing?
      • Otherwise paid by credit card?
  • Monthly subscription
      • Teaser?
  • Periodic “debt under management” fees


pricing liability management unlocking borrower willingness to pay
Pricing Liability Management:Unlocking Borrower Willingness-to-pay
  • Behavioral research offers some insights…
    • Willingness-to-pay depends a lot on framing, timing
    • E.g., on marketing and choice architecture
      • Content
      • Timing of offer
      • Ease of take-up (on-ramping)
    • Effectiveness can vary across contexts
    • So R&D needed to successfully apply these insights to autopilot refis
      • To liability management more broadly
      • To financial product development even more broadly