How Financial Institutions are Navigating Change in the Consumer Lending Space
The consumer lending market has seen monumental shifts over the last decade. From the rise of fintechs to new regulatory measures, these changes have reshaped how we borrow and lend. Understanding and responding to trends in the market is crucial for financial institutions of all sizes.
Over the last few months, we've seen an unexpected dip in the uptake of consumer lending—falling by about 15.6 billion since August. This is the most dramatic downturn since May 2020, influenced largely by the rise in high-interest rates that are taking their toll on the home lending sector and other non-revolving lines of credit.
Part of this is due to student loan repayments emerging from grace periods granted as a part of COVID relief efforts—those who were banking on forgiveness are now faced with another monthly expense. The ripple effect is felt across the banking spectrum, from community and regional banks to enterprise institutions. Larger financial organizations have traditionally proven more robust in weathering such financial disruptions due to larger customer bases, technological advancement, and broader balance sheets enabling a more agile approach. Because of these advantages, they’re able to ensure they’re meeting the needs of customers more quickly. Thanks to modern technology, smaller banks are quickly catching up.
“The digitization in the Community and Regional space especially has allowed them to be very agile as it relates to some changes in in the market,” says Law Helie, General Manager- Consumer Banking at nCino. “It's super interesting to watch how they've grown in the adoption of technology to be able to meet those spaces.”
Over recent years, we’ve witnessed how small-scale banks have embraced digitization, a move that has greatly enhanced their agility in response to market changes. Remarkably, the constant need and desire among these institutions to grow their deposit sheet remains.
“Macro environment is also breeding ground for innovation,” says Helie. “We saw that in the nineties. We saw that in the financial crisis. We're seeing it now.”
Today, banks are exploring new ways to leverage technology and automation in transforming their operations. The fintech space provides one such opportunity, as it automates previously manual tasks like the underwriting approval process, allowing for a more streamlined customer experience.
However, the technological evolving landscape also poses the heightened risk of fraudulent activities. Fraudsters, with their creative exploits, are quick to seize new technological advancements for their benefit. The rise of AI-powered fraud such as deepfakes and synthetic IDs pose significant challenges. As technology advances, financial institutions will need to double down on their Know Your Customer (KYC) and Customer Due Diligence (CDD) policies to stay safe.
“There's a lot of innovation with AI and how it can be used for both good and for fraud,” says Helie. “Looking forward, the industry is really going to have to be on their guard and make sure that they're keeping up.”
As technology continues to evolve, the consumer lending sector must continue to adapt and innovate. By embracing change and implementing technology that can address both the needs of the institution and the customer, institutions of all sizes will be better equipped to meet the demands of the lending consumer market and prepared for disruptions. The ever-changing landscape may be full of challenges, but with careful navigation, it can also be full of opportunities.
To learn more, listen to this podcast, where Law Helie joins Jill Malandrino on Nasdaq TradeTalks to discuss challenges in the consumer lending market and how they’re impacting banks of different sizes.
Artificial intelligence (AI) and machine learning (ML) are transforming how financial institutions approach credit decisions and traditional banking processes. By incorporating AI into the credit decisioning process, financial institutions can help create a more inclusive, intuitive, and impactful financial services landscape.
As we continue to witness the exponential rise of Artificial Intelligence (AI) in the financial services industry, it's crucial to understand the inner workings of the models driving these intelligent systems.
Like many businesses across the US, community and regional banks face challenges stemming from economic fluctuations, regulatory reforms, and shifting consumer preferences. To navigate these headwinds, they’re leveraging their unique strengths, such as personalized customer interactions and local market insights.
How do you choose when to buy a solution and when to build your own in house?
Recently, nCino brought together several of our European Corporate and Investment Banking (CIB) clients to discuss industry trends. During the session, we highlighted how our solution supports CIB lenders in delivering personalised experiences from acquisition through to balance sheet and fostering stronger client relationships.
Navigating Economic Volatility with Legacy TechnologyThe current economic environment, driven by interest rate and other inflationary pressures, is impacting profitability and risk management in CIB lending unlike anything we’ve seen in the last decade. Alongside economic pressures, compliance with evolving regulations remains a top concern and shows no signs of slowing down. Policy changes increasingly need to be enacted in real time – something legacy technology is not equipped to do.
These systems, characterised by disparate data and manual processes, are hindering banks' ability to adapt quickly to a changing market, capture and report on data, and gain actionable insights from their portfolio.
