• 29 Jul 2022
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    Article summary

    Synctera Line of Credit

    Synctera Line of Credit (Synctera LOC) is a technology product that empowers FinTechs, from startups to large enterprises, to offer unsecured lines of credit to their retail and business customers. To do this, a FinTech partners with a sponsor bank (you); the sponsor bank is the lender of record.

    The FinTech is responsible for all interactions with the borrower and will adhere to all compliance and regulatory obligations as prescribed by its bank partner (you). The FinTech is also obligated to buy all credit receivables generated –minimizing (or even eradicating) any credit exposure to your bank.  

    Benefits of supporting Synctera Line of Credit

    Partner with FinTechs across a wide range of new and growing verticals

    Supporting Synctera Line of Credit allows you to partner with innovative FinTechs serving borrowers across a number of use cases, geography, and credit profile - diversifying your customer base. FinTechs are offering LOC to give their customers financial flexibility, the ability to transact via cash, a linked debit card, or ACH transfer. We estimate that 60% of qualified FinTechs in our pipeline are interested in launching LOCs. We have encountered a variety of use cases across a wide range of tech-enabled verticals, including:

    • A tech-enabled real estate brokerage -  wants to provide LoCs to clients/homeowners for home staging and minor improvements
    • A provider of services to the gig economy - wants to offer LoCs to normalize unpredictable freelance income
    • A provider of services to sports leagues and young athletes - wants to offer LoCs to sports organizations to finance pre-season activities
    • A provider of services to Airbnb/VRBO landlords - wants to offer LoCs for property improvements 

    Even for FinTechs who are not planning to embed LOC in their initial product launch, many are considering adding one down the line.

    Gain a recurring, fee-based, non-interest revenue stream

    Supporting Synctera Line of Credit contributes to your fee-based, non-interest revenue 

    • 50% of the margin on initial setup fees paid by the FinTech
    • 50% of the origination fee (~100 bps) for the line of credit
    • 50% of the margin on other Synctera services consumed by FinTech (Ledger, KYC, etc.) 

    Key features for banks

    • Get complete oversight of compliance and regulated activities. Review & approve marketing materials, disclosures, dispute processing, etc; use Synctera Cases for exception management (identity verification, fraud detection).
    • Manage credit exposure as per risk appetite. Review and approve credit policy, and underwriting model;  minimize credit exposure through repurchase agreements and/or credit enhancements.
    • No integration with your core systems.
    • No servicing overhead. Customer service and LOC servicing are performed by the FinTech and Synctera.

    What are the risks for banks?

    Regulatory and compliance risk

    As the lender of record, your bank has obligations under a number of regulatory requirements including ECOA (Reg. B), EFT (Reg. E),  FCBA, FDPCA (Reg. F), MLA, Privacy (Reg. P), SCRA, TILA (Reg. Z), and UDAAP. The roles and responsibilities section below describes how your bank will have complete oversight of the program, the tools Synctera will provide to facilitate it, and the responsibilities of the FinTech(s) in fulfilling the regulatory obligations.      

    Credit risk

    As originator of lines of credit may expose you to credit risk. This risk can be mitigated through a number of ways, including your review and approval of the credit policy, and you selling all (or most) of the LOC draws on a daily basis.

    From the perspective of the True Lender Doctrine, you may decide to retain a small portion (2%-5%) of outstanding LOC. Mitigating this risk can be discussed as well.   

    Reputational risk

    Synctera is very mindful of the reputational risk that you may be exposed to. To that end, your Bank will have the explicit right of refusal to do business with any FinTech. Furthermore, Synctera will apply qualifying rules for the FinTech. For example, Synctera will not conduct business with FinTechs that charge APRs above a certain level or are involved in money transfer businesses.   .

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