LOAN GROWTH BLOG SERIES PART 1 — HOW TO ACHIEVE LENDING GROWTH IN AN INCREASINGLY CROWDED MARKET
Lending has become increasingly more difficult in today’s quick-moving, competition-heavy, digital-savvy marketplace.
The main factors driving these lending challenges include:
- Evolving competition
- Shifting consumer demographics
- Increasing loan rates
But while these challenges do exist, they also open up the door to new opportunities for consumer and revenue growth.
There are financial institutions that are very successful in addressing these marketplace challenges and ones that are not.
Those that are more successful tend to take a more aggressive approach to lending to achieve larger yield targets, while at the same time adopting back-end risk management capabilities needed to support this new approach.
Those that are less successful at addressing these modern lending challenges tend to stick to a safer strategy by serving only prime and super prime markets.
As the rates start to increase in the near future, the pool of prime and super-prime borrowers will grow slimmer and slimmer, making loan revenue even harder to attain – unless you take a newer, more aggressive approach.
So how exactly can you take this expanded approach to lending while at the same time diverting the risk?
1. Diversify your loan portfolio
To overcome new lending challenges, you should consider adopting a new loan model that will attract new members, while offering blanket security as you buy outside of your comfort zone. This expanded loan model should include:
- New loan models to diversify your portfolio, such as small business loans, personal loans, education loans, and unique or traditional refinancing options for (particularly for education loans).
- Expanded financing solutions to target a larger market while protecting assets, such as auto and mortgage loan default protection and residual-based financing. Today about 1/3 of new car sales and a growing number of used car sales have residual-based financing.[1] As the loan market continues to shift and vehicle prices continue to increase, it is likely this product will grow even more popular.
2. Invest in third-party risk services
Those institutions that have a risk/reward mentality understand the need to have support on the back-end to help manage their risk & recovery operations, which is imperative as you begin to buy outside of your comfort zone.
Leveraging outsourced collections and collateral protection services is one of the most successful ways to protect your expanded loan portfolio with little-to-no impact on your day-to-day operations.
3. Leverage the right data
Data analytics can help you to build a more accurate picture of your current and prospective consumers, including their predicted level of risk. Access to the right level of data can enable you to expand your underwriting and servicing capabilities to safely and successfully attract new consumers.
Read the Blog: Four Ways “Big Data” Can Enhance Your Lending Program
The outdated FICO model doesn’t accurately paint a picture of where the risks and opportunities lie with consumers, which leaves a lot lending (or refinancing) opportunities on the table.
Adopting this expanded approach to lending will likely result in all of the following outcomes for your lending institution:
- Increase in marketplace visibility
- Growth in yield
- Protection from risk
- Expansion of coverage
Access the following resources to learn more about safely evolving your loan program to remain competitive and successful:
Read the next installment of this blog series: How to Build a Loan Program that Appeals to Millennials & Baby Boomers Alike
Read the final installment of this blog series: Four Ways “Big Data” Can Enhance Your Lending Program
Download our White Paper: How to Step Away from Traditional Lending
Contact us to ask what programs we offer that can help you expand your lending program.
[1] 2018 Big Wheels Data Report. Auto Finance News, 2018.