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Plastic Just Keeps Going

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Six Major Trends in Lending for Financial Marketers this Year

The forecast for most forms of consumer credit is good. Lending volume, growth in balances, and overall performance look upbeat for the year ahead. Banks and credit unions will try new marketing strategies, explore new products, and experiment with new technologies. Over the past six-weeks, we reviewed major trends in consumer lending that financial marketers should watch closely.

#6 Plastic Just Keeps Going

“More consumers than ever before are carrying a credit card, as issuers provide greater financial inclusion,” TransUnion reports. Card credit saw seven quarters of significant growth into 2018. Part of this reflected a balancing by issuers, according to Paul Siegfried, SVP and Leader of the credit card line of business. The lenders were granting cards to more subprime borrowers, but managing the credit limits more tightly. In 2019, TransUnion expects more emphasis on issuing cards to prime consumers, to fine-tune credit quality.

Marketers will have their work cut out here, both in promoting cards as well as other kinds of consumer credit that can compete with cards.

Today’s card product designers can twirl pricing, rewards, and payments dials to vary the offers made for new card accounts. As a result, “consumers have more choices today than they have seen in a couple of decades,” says Siegfried.

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Point of Sale Lending

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Six Major Trends in Lending for Financial Marketers this Year

The forecast for most forms of consumer credit is good. Lending volume, growth in balances, and overall performance look upbeat for the year ahead. Banks and credit unions will try new marketing strategies, explore new products, and experiment with new technologies. Over the next six-weeks, we’ll review major trends in consumer lending that financial marketers should watch closely.

#5 Point of Sale Lending

Building a marketing plan for digital lending has multiple facets. One early decision that Martin says lenders must make is who their ideal personal loan candidate is. Another key aspect is building repeat customer business. For that, attention must be paid to the post-approval digital experience.

According to Martin, another wrinkle is that traditional lenders are exploring ways to put their products right at the point of sale, embedding them in some fashion with the purchasing process. A model being looked at is that of Affirm, which makes installment loans for purchases at the digital point of sale. (Affirm works with fintech ally Cross River Bank, which books the loans.)

Martin says additional firms have started up in this space. One is Bread, which also works with Cross River Bank. Another is GreenSky Credit, a fintech which specializes in point of sale home improvement and healthcare finance, among other needs, in partnership with multiple banks.

“Co-branded deals like that are hot,” says Martin.

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Unsecured Personal Loans

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Six Major Trends in Lending for Financial Marketers this Year

The forecast for most forms of consumer credit is good. Lending volume, growth in balances, and overall performance look upbeat for the year ahead. Banks and credit unions will try new marketing strategies, explore new products, and experiment with new technologies. Over the next six-weeks, we’ll review major trends in consumer lending that financial marketers should watch closely.

#4 Unsecured Personal Loans in Digital Channels 

Unsecured consumer lending has had growing appeal to banking providers, and more of it may be executed through fintech partnerships. In late October 2018, for example, HSBC Bank announced that it would use Amount, a tech platform from online lender Avant, to lend to consumers digitally.

“The U.S. unsecured personal loan market is growing at 20% annually, surpassing $125 billion in balances,” says Pablo Sanchez, Regional Head of Retail Banking and Wealth Management for HSBC for North America.

Sanchez says that millions of consumers need loans for unexpected expenses, debt consolidation, or home improvements. The Avant platform can get funds to approved borrowers as soon as the next day.

TransUnion predicts that unsecured personal loans from all types of lenders will rise to an all-time high of $156.3 billion by the end of 2019.

“Originations will remain at healthy levels across all risk tiers due to more lenders participating in the personal loan market,” says the credit bureau.

“We see the continued benefit of lighter-touch regulation,” says Jason Laky, SVP and Leader, Consumer Lending. “Personal loans have reemerged as a staple of the American consumer’s financial portfolio.” Laky says that many of these unsecured loans are offered by non-bank fintech lenders that make it much easier for consumers by offering an online application processes.

Lane Martin, Partner at CAPCO, who recently headed a report on the subject, says the speed of obtaining credit also appeals to consumers. In addition, unsecured loans can sometimes be cheaper than credit cards. For traditional lenders, using digital lending to build connections to consumers can pay off in later cross sales, the report points out.

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Auto Lending

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Six Major Trends in Lending for Financial Marketers this Year

The forecast for most forms of consumer credit is good. Lending volume, growth in balances, and overall performance look upbeat for the year ahead. Banks and credit unions will try new marketing strategies, explore new products, and experiment with new technologies. Over the next six-weeks, we’ll review major trends in consumer lending that financial marketers should watch closely.

#3 Auto Lending: More Informed, Less Understanding

A mix of economic trends will impact auto lending. Rising tariffs and a preference for SUVs and hybrids will bump up pricing and impact affordability. Low unemployment and rising Gross Domestic Product will support continued growth and positive credit performance.

Overall, the auto finance market continues to show signs of health and growth in many ways.

Auto shopping and auto lending processes have grown more transparent as more and more resources can be accessed on the web. But some of the information consumers think they are armed with is misleading or plain wrong. For example, the credit score methodologies used by auto lenders and auto dealers differs from many of the scores that consumers obtain from websites. This confuses the process. Clearing up that confusion is another job for bank and credit union marketers.

Another new factor is alternative credit data — tapping nontraditional sources of payment information to help judge creditworthiness. Use of utility bill payment patterns and the like is becoming more common among lenders, especially non-bank auto finance companies.

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Tap Home Equity Loans

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Six Major Trends in Lending for Financial Marketers this Year

The forecast for most forms of consumer credit is good. Lending volume, growth in balances, and overall performance look upbeat for the year ahead. Banks and credit unions will try new marketing strategies, explore new products, and experiment with new technologies. Over the next six-weeks, we’ll review major trends in consumer lending that financial marketers should watch closely.

#2 Tap Home Equity to Replace Slumping Mortgage Lending

Rising home prices and rising interest rates have depressed mortgage applications and originations in the last couple of quarters.

CoreLogic reports that U.S. homeowners with mortgages have seen their home equity increase by 9.4%, year over year, as of the third quarter of 2018. That comes to $775.2 billion that can be tapped via home equity lending. CoreLogic says that the average homeowner gained about $12,400 in equity in the first three quarters of 2018.

HELOCs and home equity loans are a business that institutions can build on top of their mortgage portfolio, making it easier to find prospects. For those who can qualify, home equity credit is typically the lowest-rate way to borrow.

However, one result of the past financial crisis, according to Joe Mellman, SVP and Leader of TransUnion’s mortgage line of business, is that “we have a half-generation of consumers who have little knowledge of home-equity credit.” Between lower levels of equity and tightened credit standards, for many, he explains, home equity borrowing wasn’t an option.

So herein lies a challenge — and opportunity — for bank and credit union marketers. “There’s a ten-year gap in education about home equity credit,” says Mellman, “and it’s going to take a while to get filled.”

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AI Powered Lending

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Six Major Trends in Lending for Financial Marketers this Year

The forecast for most forms of consumer credit is good. Lending volume, growth in balances, and overall performance look upbeat for the year ahead. Banks and credit unions will try new marketing strategies, explore new products, and experiment with new technologies. Over the next six-weeks, we’ll review major trends in consumer lending that financial marketers should watch closely.

#1 AI Powered Consumer Lending

Fintech lenders are making inroads into banking markets by harnessing advanced analytics and non-traditional data as they automate and fine-tune underwriting processes. There’s no reason traditional lenders can’t follow suit, using artificial intelligence and data analytics to find prospects, evaluate creditworthiness, and monitor and manage the loan portfolio.

While trying not to interfere with marketplace forces bringing evolution of financial services, regulators have concerns as AI assumes a larger role. Regulators will be expecting to see the appropriate controls in place to be sure that AI doesn’t produce unintended consequences for lenders or borrowers.

AI has the potential to expand the availability of consumer credit by evaluating factors that go beyond traditional credit metrics. AI also has the potential to allow creditors to more accurately model and price risk, and to bring greater speed to decisions.

AI approaches are not free of bias simply because they are automated and rely less on direct human intervention. Algorithms and models reflect the goals and perspectives of those who develop them as well as the data that trains them and, as a result, AI tools can adopt the biases of the society in which they were created.

Financial marketers can help avoid such problems through the insights they have on their institutions’ markets and outreach.

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AVS Confidence Stalling

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According to the 2019 Global Automotive Consumer Study conducted by Deloitte, consumer interest in self-driving vehicles lags the pace of investment in advanced vehicle technology.  In this study, they examine consumer interest in advanced automotive technologies, including autonomous vehicles, and compare and contrast automotive consumer trends in markets worldwide.

In the United States, 50 percent of survey respondents do not believe Autonomous Vehicles – AVs will be safe—nearly the same as last year’s 47 percent but drastically different from 2017, when 74 percent voiced safety concerns. Consumer confidence in AV safety also plateaued in China, Japan, South Korea, India, and Germany.

Monetizing Car Data

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A massive amount of data is being generated as privately owned vehicles continue to use sensors and become increasingly connected to each other and to an external infrastructure. Yet while gathering such data is now routine, actually identifying insights that can be monetized is still in its infancy. McKinsey Automotive & Assembly published an interesting report called  Monetizing car data.  They analyze consumer perspectives on the prospect of accessing car-generated data, and identify the value and requirements of possible car data-enabled use cases. They predict that the global revenue pool from car data monetization could be as high as $750 billion by 2030. Check it out here.