In the first half of our lending webinar, we addressed the four main factors driving lending changes and highlighted our guest, Forrester’s, predictions for banking in 2023.
In the second half, I continued to host the conversation with Tim Poskitt, Director APAC at Envestnet® | Yodlee®; Steve Brown, Head of Scoring Solutions and Strategic Accounts at FICO; and guest speaker, Zhi-Ying Barry, Senior Analyst at Forrester. We discussed what lenders can do to successfully position themselves in our current economic environment. Access the on-demand webinar, here.
What’s one word to describe the current lending scene?
On the webinar, Zhi-Ying described the lending scene as dynamic. As loans are the bread and butter of many financial services firms, there will still be a demand for them in 2023 despite tougher economic conditions, but it’s just a matter of where resources will be shifted to. If there is an increase in personal auto loans, for instance, resources will be very quickly shifted there.
Steve Brown from FICO called the lending space challenging. Rising interest rates are arresting growth in the economy, which will challenge existing borrowers. Meanwhile, consumer expectations haven't changed, and new tools will enable borrowers to make more informed choices and be less loyal. Conversations that used to be based on customer acquisition and originations are now much more focused on understanding customers and how to retain and look after them.
Tim Poskitt from Envestnet | Yodlee defined the lending scene as evolving. He agrees there are numerous opportunities for existing lenders this year with large volumes of fixed-rate mortgages expiring and consumers needing sustainable access to capital. “I think it is all about retention,” he says, and notes recent stats show big banks have experienced some of their largest growth lately with cashback offers to retain existing customers. “So there’s going to be a bit of an inflection point in terms of alternative lenders trying to get market share,” Tim says.
Who is best positioned to win in terms of the evolving market?
While the big players with deep pockets and access to capital – typically the big four banks in Australia – are well-placed in our current environment, FICO research shows that consumers are looking for value for their money, and are interested in easy-to-use digital products that make the loan application process easy. So to the extent that challenger brands can deliver an easy-to-use product that makes it easy to apply for loans, they can win.
Panellist Steve Brown notes, “It's a challenging environment where big banks will be leveraging their strengths. And I think it's up to the challengers to flex their muscles around agile tech stacks and smart use of data to create really, really great customer experiences.” Zhi-Ying said, “If I look at personal loans in the US or across Europe, we're not talking about huge sums of money anymore. We're talking about maybe a couple of hundred dollars that can be paid over 10, 20, or 30 days. So a lot of loan products will be bite-sized and given to their customer at the right moment just to tide them through,” she says.
What can lenders do to protect consumers and better serve them?
For banks and financial services firms, it’s about how we help our customers navigate this tough time, and the tools and experiences we empower them with. So that at the end of it, they’re better positioned to pay off their debts and expenses and manage them in the short to medium term. According to Zhi-Ying’s presentation, technology can help consumers manage their money and do things like schedule predictable payments, set up a budget, invest spare cash into their mortgage, and more.
Access to live credit bureau scoring transactional data is giving financial providers a real-life understanding of someone's financial position in order to be able to better serve them. Credit scores are also enabling consumers to get a perspective on creditworthiness and affordability, and many lenders today are making these scores available and visible to their customers, typically at no charge so that their customers can start to improve their score and their financial wellness.
“If you can educate your customers, that's a tremendous step forward. It means the lender needs to be much less of an interventionist and much less in a position of telling rather than helping the customer understand their position,” says Steve.
Steve also mentions we can't escape the regulatory dimensions of interest rate buffers. Many banks and lenders haven’t built in enough buffers, and are investing a lot of time and energy into identifying the customers are who will be rolling off fixed-rate mortgages onto potentially higher variable mortgage interest rates.
“I think this is really an issue that is going to require enormous focus from lenders to really understand who affected customers are, and how they can help the customers manage this challenging environment with very sharp interest rate increases,” says Steve.
Many customers aren’t well-versed in understanding their current financial position. Lenders don't want to be investing in a whole lot of extra headcount to have those conversations. And many customers don't want to have those conversations either, notes Steve. Instead, customers just want to know what options are available and simply have access to the assets that the lender has created, which could include videos or web landing pages that talk about hardship options.
How can we use tech to provide better and more relevant solutions for hardship?
Envestnet | Yodlee is currently innovating in the lending market, providing broader open banking services through Consumer Data Right (CDR) and non-CDR data sets. We just announced a partnership with Experian, which will enable lenders to draw on open data sources to better enable lenders to more effectively understand customers’ financial positions, help to proactively manage financial hardship, and provide more personalised support to customers at this critical time of inflationary pressures.
What do lenders do with the loans that they’ve worked so hard to write? What should they do with tech? Is there something they should do with product?
“When it comes to trying to work out how do I retain my customers, one of the first things to do is to understand those customers better. And the transactional information is an incredible asset that can help lenders achieve that objective,” says Steve.
“Understanding what your customer’s position is, who is likely to want to move away, who's got a more challenging financial position, whose circumstances have changed… all of that data is available,” he says. Lenders can use AI machine learning technologies and digital data and decisioning platforms to ingest this data at scale to identify who is likely to move, opportunities to better identify potential customers, and more.
While we couldn’t share every piece of insight from this presentation and panel discussion, we hope you’ll view the webinar in full to learn more about how emerging technology is being used to create more insightful and supportive lending experiences.
We’d be glad to tell you more about Envestnet | Yodlee’s open banking APIs, Credit Accelerator in Australia, and other digital solutions for lenders – just reach out to us in Australia and New Zealand, Europe and Africa, or North America.