Growing a financial institution’s loan portfolio is an ongoing priority for bankers. But reaching those lending goals is more challenging than ever, as banks and credit unions grapple with a financial industry that, having survived the financial crisis, is now being transformed by technology, the imperatives of big data, and the emergence of new and non-traditional players on the lending landscape.
As a result, loan marketing has changed considerably just in the past few years.
- The financial crisis of 2008-2009 was a major inflection point surrounding the level of trust consumers place in traditional financial institutions. The crisis helped open the door for smaller companies to serve businesses and consumers who may not have previously trusted “startups” with their money.
- Alternative lenders, notably in the technology sector, were able to take root and begin taking real market share in loan origination. And it started eroding the traditional model of using one bank or credit union for all financial needs, something financial institutions have relied on to drive revenue and maintain competitive advantage.
- Thousands of new non-traditional startups are challenging banks and credit unions by innovating on both price and service — using data and analytics to provide “always on” targeted loan offers to more consumers at competitive prices.
Financial institutions have regained their footing in terms of performance, with loans playing a major role. But continued growth of loan portfolios is not a given.
- On the consumer side, today’s lending environment is more dynamic and competitive than ever. The lending marketplace is active again after years of low demand. After the financial crisis and the banking retrenchment and recovery, banks and credit unions are operating from a position of strength and eager to be active players in the lending market.
- Current changes to the tax code will free up capital to be invested in loans and the economy. When it comes to home equity and mortgage loans, the tax changes to interest deductions may confuse customers or discourage them from borrowing.
- However, there are some signs of underwriting caution amid intense competition from both traditional banks and credit unions and online lenders that are making this market more challenging.
- While the cost of compliance is significantly higher than before the financial crisis, potential rollbacks to parts of the Dodd-Frank Act, such as those approved by the House of Representatives in May 2018, are welcomed news for community banks and credit unions, who have struggled to meet many of the same requirements as their larger counterparts.
Even prior to these developments, though, a look at financial institutions’ balance sheets reveals that consumer lending has shown renewed strength.
How Financial Institutions Can Succeed in the Future
Financial institutions have regained their footing in terms of performance, with loans playing a major role. But continued growth of loan portfolios is not a given. The consumer lending outlook is positive for banks and credit unions that can manage both growth opportunities and potential headwinds. The total number of consumer loans issued by banks and credit unions has risen in every quarter since mid-2013, with more than 20 million consumer loans added to the books from the fourth quarter of 2016 to 2017, with loan balances also rising.
But consumers, having experienced the digital revolution in other industries, expect their banks and credit unions to step up and meet their evolving preferences. Across the board, financial institutions are expected to invest in digital solutions that drive loyalty and engagement.
Incumbent lenders and traditional financial institutions are not on the verge of mass extinction. For financial institutions to succeed in tomorrow’s consumer lending marketplace, the answer is mass adaptation. Adaptation and success come in the form of a new model, or paradigm, for loan marketing, using the latest in technology and data analysis to automate, target and assess risk, allowing banks and credit unions to be in the loan marketplace continuously, with the right value proposition for the right audience at the right time.
Overall, the consumer lending outlook is positive for banks and credit unions that can manage both growth opportunities and potential headwinds.
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