Record swells in consumer debt are opening up an opportunity for banks.
Several software providers that offer debt aggregation and repayment tools are ramping up partnerships with financial institutions with white-labeled web and mobile experiences. Typically, the end customer will input two to three pieces of information, such as their phone number and birth date, to access an overarching view of their liabilities and pay them back according to a plan they devise or the system suggests. Sometimes, the partnered financial institution will pitch consolidation or refinancing options to save them money in the long run.
Citi Ventures, a strategic investing arm of Citigroup, has not yet poured money into what it calls consumer debt aggregators such as Spinwheel, Method and Payitoff. But the sector is on Managing Director Luis Valdich's radar.
"There hasn't been an elegant way until now to aggregate your consumer debt, where you could see real-time balances outstanding and other information, including interest rates, and make decisions on how to optimize all that," said Valdich.
In turn, the financial institution can retain customers who are grateful for the help navigating tricky situations. They can glean insights about customers' financial health and debt pay-down habits that can feed into their underwriting processes. In some cases, the financial institution or lender can offer low-interest home equity lines of credit or personal loans or 0% balance transfer offers as a solution to their customers.
Consumer debt is a pressing issue. High interest rates and high inflation have nudged
"There is a large array of complicated financial decisions for which most people are too busy to spend a lot of time getting right," said Jonathan Parker, a professor of financial economics at the Massachusetts Institute of Technology. "It's helpful to have guidance from a trusted source."
Valdich sees more promise in business-to-business debt aggregators than direct-to-consumer apps, because they won't face the same challenges in raising capital or the expense of acquiring customers.
"I believe that banks and fintechs that provide financing to consumers should have high interest in partnering with these companies as opposed to trying to build it themselves," said Valdich.
The app Debbie has a direct-to-consumer component sponsored by financial institutions, where users can track their debt and earn rewards for meeting their financial goals. It also has a B2B side, where
Meanwhile, the app Tally is transitioning to a B2B model, and will fully sunset its direct-to-consumer app when it launches its first client, a nonbank financial services provider, in June.
Tally CEO and founder Jason Brown decided it was more efficient and economical to extend its services through institutions with a built-in audience.
"The core experience to consumers has been exceptional and retention is fantastic, but the cost of convincing individual customers to download another app is more than if we partnered with large institutions," said Brown.
Some tools are focused squarely on one sector of consumer debt. In Tally's case, that is credit card debt.
In its consumer-facing app, Tally lets users connect their credit cards and a checking account via a proprietary layer it calls its "external financial data aggregation system," which routes a connection to the user's cards via the aggregator, such as Plaid, Finicity or Yodlee, it deems best for that bank. The app would then detect whether users were "transactors," that is they don't carry a balance or accrue interest, or "revolvers," where they revolve their balance. Either way, the app would create a payment plan and allocate cash based on checking account transactions or a low-interest line of credit according to the strategy the user selects. For instance, people who do not carry a balance may want to maximize their credit score, whereby Tally would enable payment before the statement closes. People who do carry a balance may prefer to pay off cards with the highest APRs first to reduce their amount of interest, or the smallest balances first to knock out debt from a single card entirely.
Tally is now targeting fintechs, financial institutions and digital commerce sites with financial products, where it will customize solutions and connect its software via application programming interface or software development kit so banks can run Tally as a white-labeled experience in their own apps or websites. Bank partners will be able to offer their own low-interest loans to users and spotlight their own credit cards for users in the app so they could, for example, point out the bevy of rewards a user would have received had they applied their spending to that card.
Tally's advantage over traditional bill pay is the intelligence, said Brown.
"Bill pay is like sort of a dumb one-way street — you go in and make payments," he said. "This is connected to your cash flow. It's helping you figure out how much to pay and when, and it pays it for you."
Payitoff, meanwhile, is not limited to one form of debt, but its primary go-to-market strategy has revolved around
"It's where the most demand is right now," said Bobby Matson, founder of Payitoff.
Its clients include financial institutions and financial wellness organizations, which can embed the Payitoff experience in their apps; customers will key in their date of birth, phone number and ZIP code to connect and view their debt accounts. Clients can also link to a co-branded Payitoff portal via their websites, or customize the experience using APIs.
The next step for users is figuring out what to do next.
"What makes us special is not the aggregation, but the guidance layer," said Matson. With student loans, for example, Payitoff might identify a federal income-driven repayment plan for which the user is eligible and enroll them in-app.
U.S. Bancorp is one customer of Payitoff. Its latest figures show that customers using Payitoff save an average of $340 per month.
Method, which launched in 2022, does not make recommendations on how to strategize debt; instead, it gives end users information to make their own repayment decisions. It works with banks, credit unions and fintechs, including SoFi Technologies, Bilt Rewards, lending marketplace Splash Financial and personal loan provider Happy Money to white-label web and app experiences.
For most clients, Method's APIs let end users access their liability data in real time and give consent to see their balances, APRs and due dates. Financial institution partners can also issue lines of credit or loans to these users as a way for them to pay down debt without leaving the experience. Bilt's model is different, in that Method lets users connect credit cards to Bilt's rewards platform and pay their rent to receive points on the card of their choice.
Michigan State University Federal Credit Union is partnering with Debbie, a Miami-based fintech that helps consumers break free of delinquency and correct bad spending habits, to strengthen its financial education tools and build its deposit base.
A fourth company, Spinwheel, also provides APIs to its clients so they can build experiences in their websites and apps. The company, which launched in 2019, works with banks, lenders, personal finance management apps and employer benefits providers; finance app Qapital is one customer. The end user keys in their phone number and date of birth, so Spinwheel can authenticate them using multiple data sources on the back end. This also lets Spinwheel summon real-time balances, original loan amounts, interest rates and the status of the account for traditional forms of debt such as mortgages, credit card and student loans, as well as for buy now/pay later. Depending on the institution partner, consumers can make payments; strategize repayment according to their goals (for instance, improving their credit score or reducing interest) with Spinwheel's artificial intelligence-enabled algorithms; consolidate; or refinance these loans directly within the app. Spinwheel has a network of lenders, but banks can also offer their own refinancing options.
"We're like the plumbing and infrastructure on the back end that enables these capabilities for consumers to manage, understand, optimize and pay their debt," said Tomas Campos, CEO and founder of Spinwheel.
Some of these companies have built in safeguards to ensure their software's usage remains consumer friendly. For instance, Mit Shah, the co-founder and chief operating officer of Method, says the company does periodic audits to ensure its clients are following the use case they have been approved for. Campos from Spinwheel says the company does a full evaluation of its partners' programs, including their mission and how they make money, with a 62-question questionnaire. As a company, Spinwheel says it does not work with companies with predatory or misleading debt and lending practices, and can suspend or terminate its services if it determines that a partner is engaging in predatory practices or is putting the end user at risk.
"The aggregation of consumer debt is fundamentally consumer friendly," said Valdich. "Even if someone were not to refinance, but just take stock, it would benefit them from a budgeting standpoint."
