Eight years after the economic crisis, lenders still are feeling its effects. New regulations, shifting demographics and increasing reliance on self-service capabilities are challenging lenders to find new ways to help people finance homes, cars, education and small businesses.
In this post-election market, lenders may struggle to determine where their focus should be. Certainly they must continue to attract and retain customers, while maintaining profitability. Lenders must also consider how the latest trends affect their portfolios and their borrowers, in the both the short and long term.
This year, we learned that 53 percent of borrowers had negative feelings about the loan process, including 33 percent who said it made them anxious, according to Expectations & Experiences quarterly consumer research from Fiserv.
Borrowers' needs and expectations are increasingly diverse – a continuing challenge for lenders with limited operational budgets.
Borrowers' needs and expectations are increasingly diverse – a continuing challenge for lenders with limited operational budgets. As options for online and mobile loan origination and servicing grow, keep in mind that of those uncomfortable with online loan origination, 65 percent say it's because they prefer working directly with bank personnel either to help them with a specific question or guide them through the entire process.
That's where the market is, but where is it going? To offer a road map for 2017 and beyond, The Point sought analysis from three lending experts at Fiserv.
Let's start with demographic changes. Millennials – roughly those ages 18 to 35 years old – are now the largest living generation in the U.S. They are digital natives, and compared with previous generations, have greater levels of education and are far more diverse. As they form households and further move into adulthood, they're exhibiting financial behaviors, such as delaying or eschewing buying cars and homes, that are affecting today's lending market.
Forty-eight percent of early millennials (ages 18 to 24) feel lost when trying to manage their finances and are especially likely to seek advice and research financing options. Lenders should meet millennials halfway, offering products that fit their lifestyles. That might include shorter-term financing, financial analysis tools, portable loans and financing that takes into account what's in their credit files.
As you'd expect, millennials are more comfortable using an online or mobile platform to research and apply for loans, according to new consumer research from Fiserv. However, if you're expecting millennials to come to you simply because you have a website, you're going to be waiting a long time. Millennials, in particular, expect new and engaging experiences – and a digital hand to hold. They also expect those experiences to be individualized in meaningful ways.
What I hear from lenders is that it's increasingly difficult to juggle investing in the experience the digitally enabled customer expects while responding to increasing regulation. Regulators want access to loan data as it's happening, and they're starting with mortgages, which is one of the most complex lending transactions. The focus is on transparency and the real-time exchange of information between all the parties involved – borrowers, lenders, title companies, appraisers and ultimately investors and insurers.
Increasing regulatory pressure, including a push toward faster data exchange and access to information, extends to all lending verticals – not just mortgages. Expect lenders' continued focus to be on managing this hurricane of data exchange, including reconciling it and ensuring its accuracy. In addition, lenders must work to maintain profitability while providing a compelling customer experience.
There's also an ongoing drive toward borrower self-service for origination and servicing, but for that to work, we're assuming a certain level of knowledge. Think about online shopping. The reason people are confident they're getting good quality at a fair price is because of the plethora of product information in the marketplace. But when it comes to lending and finance, there's not always similar, trustworthy sources of information.
Online and mobile platforms satisfy the need for anytime, anywhere access, while also cutting lenders' costs. That's an attractive value proposition, but there needs to be a baseline of information in order to conduct any sort of self-service. I think we'll begin to see more incorporation of experiential learning within the context of the online and mobile lending experience. That shift will empower consumers and set up financial institutions as trusted sources.
The more things change in the lending process, the more they stay the same. Consumers are still borrowing – the average household has two loans, topped by mortgages (45 percent), auto loans (36 percent) and student loans (19 percent), according to the Expectations & Experiences survey. And borrowers continue to rely on lending professionals to help them make life-changing purchases. To be successful, lenders should build on that trust through the inevitable changes in demographics, regulation and technology.