CEO and PresidentGregory Garrabrants said he expects newly formed digital lenders to struggle withacquisition costs, creating an opportunity for the bank to offer similar products.Separately, Garrabrants also fielded a question about an ongoing lawsuit allegingwidespread fraud at the bank.
Speakingduring an April 28 conference call to discuss the bank's results for its third fiscalquarter, Garrabrants was asked for an update regarding what the bank has calledits "universal digital banking model." The CEO said the bank plans toretain complete control over the technology platform it presents consumers and expandits product offerings into areas covered by the new breed of digital lenders suchas LendingClub Corp.
Withoutmentioning any digital lender in particular, Garrabrants said he thinks the industrywill face problems soon.
"Wethink that a lot of the fintech companies that are more monoline ultimately willhave acquisition costs that are too high in order to sustain their models. So, aspart of what we're doing, we're building the verticals that allow us to have thoseproducts," he said.
He saidthe bank's digital project has already reformed the bank's customer enrollment process,lowering costs. But he did not offer a specific timetable for new product offeringsbeyond calling the digital project a "multiyear" process.
"Wehave a great prototype for one of the product verticals that I'm not going to talkabout yet, but it looks fantastic," he said.
Garrabrantsemphasized that the digital project will allow the lender to offer a personalizedbanking experience. As a specific example, he said the platform could issue debitcards to parents and children while allowing the parents special control over theaccounts via a mobile platform.
He suggestedthe bank would be willing to wade into the unsecured consumer space with underwritingthat looked at factors other than credit scores, similar to the digital lendingindustry.
"Wesee those products as being most suited for cross-sell personalization opportunitieswhere the ability to sell a consumer installment product would be based on an understandingof the customer's history of direct deposits with the bank as well as an understandingof what the credit bureau said," he said.
Separately,Garrabrants continued to face questions about a lawsuit filed by a former internal auditor alleging widespreadfraud, pushing the company up the list of mostshorted banks. An amended complaintcontained new allegations, including that the bank relied too heavily on a singleappraiser who inflated values.
In response,Garrabrants said that the allegation that a single appraiser handled the majorityof transactions was "not close to being correct." And he defended thespecific appraiser, Brendan Flynn, mentioned in the lawsuit.
"Heis well-known in the market as an incredibly conservative appraiser. And the appraisalsthat were mentioned in that frivolous suit are demonstrative. Not going to giveout confidential information, but it is public information that that property thatthey were quibbling about the appraisal value in the lawsuit sold for $33 million,and you can look that up. That was within 18 months of an appraisal that was 60%lower than that value."