Vince Passione

COLUMN: Examining the future of consumer lending

Traditional banking is one of the latest industries to be impacted by digital disruption.

Marketplace lenders began entering the market initially just after the onset of the Great Recession but didn’t start gaining noticeable market share until a few years ago. Their disruption has had little impact to-date on the earnings of traditional lenders, like banks and credit unions, but they have had a major impact on customer expectations in the lending process and their impact on future earnings could be significant.

As 2018 begins, banks and credit unions are able to harness the power of technology to effectively compete with these new competitors that are disrupting the industry.  This new technology not only provides a better customer experience but also creates profitability in a segment of unsecured consumer lending that bankers haven’t enjoyed in years.

Vince Passione

The Disruption and Digitization of Lending

The majority of marketplace lenders have enjoyed the advantages of operating without intensive regulation or scrutiny.

Without stringent oversight, they are able to quickly ramp up new products and adapt to customers needs at a faster pace compared to their traditional lending counterparts. This agility to react quickly to market demands has allowed them to repeatedly iterate new and better customer experiences in an extremely short period of time.

The change in customer expectations that these digital disruptors have been able to cultivate could threaten traditional lenders that don’t adapt or focus on customer experience.  Banks and credit unions that focus on consumer lending may find it more difficult without the help of technology partners to bridge the gap in today’s customer experience demands.  If they don’t, they may see market share begin to diminish not only in assets like mortgage and auto, but also wealth management and insurance products, all of which are mature industries currently being focused on by disruptive new entrants.

Looking ahead 

When looking at the current state of digital banking, banks and credit unions can utilize the power of strategic partnerships and adoption of technology to easily create seamless, intuitive digital experiences appealing to millennials. Rather than spending valuable time and limited resources on building an online platform from the ground up, and then to continually maintain and improve upon to meet customer expectations, banks can instead decrease both their costs and time-to-market by partnering with technology providers that enable them to lend digitally.

Moving forward, traditional lending institutions must prioritize investing in the online experience new generations of consumers seek, along with seamless back-end support, such as customer service and regulatory compliance.

In 2018, we will see banks of all sizes continue to prioritize their digital offerings. A strong online lending platform will enable smaller banks to re-establish their market share of consumer lending and grow their younger customer base, especially in unsecured assets like student loan refinancing.