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"Moneyball" in Commercial Lending

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"Moneyball" in Commercial Lending

From Art to Science in Pricing

Boston Consulting Group,

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Banks can add revenue by using statistical analysis to determine the right rate for every loan.

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Editorial Rating

8

Qualities

  • Innovative

Recommendation

Fields as disparate as advertising, law enforcement and sports now rely on analytics to make decisions and set prices. Yet commercial lending remains an exception. According to Boston Consulting Group professionals Deepak Goyal, Sumitra Karthikeyan, Vikrant Kulkarni, Victor Noguera and Ian Wachters, a new analytics methodology could help banks capture greater profits. Aside from the authors’ error in identifying Billy Beane as the coach of the Oakland Athletics rather than the team’s general manager, their advice is flawless. getAbstract recommends this article to commercial bankers and borrowers interested in a new approach to setting lending rates and fees.

Summary

As dramatized in the movie Moneyball, Billy Beane of the Oakland Athletics baseball team devised a new way to evaluate players based on statistics rather than scouting reports. The technique, considered unorthodox in 2002, is widely used in baseball today. In a similar vein, many businesses now apply analytical techniques to adjust pricing. In commercial lending, however, relationship management and negotiation still hold sway. This entrenched approach leads to inconsistent pricing for comparable loans and frequent “fee waiving.”

Banks could increase revenues by 7% to 10% by using analytics to set loan rates...

About the Authors

Deepak Goyal et al. are professionals with the Boston Consulting Group.

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