As retail banks gradually digitalize their activities, they’ve focused largely on the most frequent customer transactions, such as checking a balance or remote deposit. Much of the lending arena, with the exception of credit cards, has taken a back seat. Recent analysis by Bain & Company and SAP Value Management Center finds that most banks have digitalized fragments of the process for marketing, selling and servicing loans. For instance, banks can handle only 7% of products digitally from end to end.

That sluggish pace of modernization leaves banks vulnerable as lending comprises more than one-third of retail bank revenue. New digital entrants, ranging from financial technology start-ups to incumbent retailers and telecommunication providers, have spotted the opportunity, and are attacking thin slices of the lending profit pool. Many of these financial technology insurgents, or fintechs, provide a better experience by focusing on the needs of specific customers—often an underserved segment. CommonBond, for instance, started with loans to lowrisk students, and OnDeck offers loans to small businesses without a long track record. These insurgents often can offer a lower price through a combination of a lower cost base to originate and service loans and better targeting and adjudication of specific risk profiles.