With so many choices available to consumers, enabling the frictionless experience, digital engagement and access to credit consumers demand is essential to remaining competitive, especially with so many choices available to them. Financial institutions (FIs) are tasked with meeting these high consumer expectations for a superior customer experience as well as maintaining consumer information and privacy in an increasingly digital world.
In the post-COVID economy, two key factors are at play. The first is that disposable income is down – influenced by everything from rent price increases to inflation and soaring gas prices. The consumer credit profile thrived during the pandemic with stimulus and payment accommodations in conjunction with a savings mindset, debts were paid down, and credit scores rose in an unprecedented way. With rising household expenses, consumers will need credit, and we’ll likely continue to see delinquencies rise in at-risk segments. The second factor takes into account international conflicts unfolding, leading to heightened market uncertainty. This means consumers want safe, fast access to money and credit, while increasingly relying on digital transactions.
Amid economic uncertainty – and with so many external factors at play – banks and financial institutions must not only balance these consumer demands but also drive their own growth along the way. There are a few ways banks and financial institutions can balance consumer expectations with competitive pressures to ultimately drive smarter outcomes.
Identify new customers by adopting practices that help FIs ‘Say Yes to More’
Increasingly, banks and financial institutions are adopting practices that promote greater financial inclusion and those that do not risk falling behind. Approximately 7.1 million U.S. households are unbanked – meaning they rely on alternative financial services, such as check cashing services, money orders and payday loans, rather than traditional financial services such as bank accounts and credit cards – according to the Federal Deposit Insurance Corporation (FDIC). Banks and financial institutions that only look at a consumer’s credit score when making lending decisions could be missing out on a new market of financially viable consumers.
It takes more than one measure to fully understand ability to pay, and while traditional credit scores certainly remain a strong indicator, alternative data sources can supplement credit files and help paint a broader picture of a consumer. Many consumers with subprime credit saw large score increases and qualified for credit opportunities that may not have existed for them before. By leveraging alternative data, such as income and employment data or utility/telco data – and layering that data with traditional credit scores to get a holistic candidate view – banks and financial institutions can drive growth by tapping into consumer bases that may have historically been overlooked.
Reduced disposable income means that consumers may have a heightened need for access to credit. These data can inform if there is negative payment behavior on previously accessed financial services that are not on the credit file. Incorporating alternative data sources into the lending decisioning process can help banks and financial institutions say ‘Yes’ to more customers – helping meet the need for credit on demand and access to credit while also helping to avoid consumers taking their business elsewhere. Portfolio monitoring will also benefit from these frequent refreshes of changing data.
Harness digital enablement to improve security and reduce friction
The risk of fraud is top-of-mind for consumers and banks alike, as current events have heightened the tension between consumer freedom and safety when transacting. For example, the conflict between Russia and Ukraine is just one of the global crises that fraudsters are using to attack. Meanwhile, fraudulent tactics such as synthetic identity fraud are on the rise, and consumers are increasingly aware of such risks.
While not a new concept, digital enablement is the answer to meeting consumer demand for both banking on demand and “complete” safety in an increasingly digital world – and needs to be top-of-mind for banks and financial institutions looking to stay competitive. This means leveraging real-time consumer verifications and authentication, as well as the ability to build identity trust into every interaction across the customer lifecycle. By working with a third-party expert to fully harness digital enablement, banks and financial institutions can point to robust fraud prevention and identity security as a key differentiator.
Foster existing relationships and grow share of wallet by leveraging data and segmentation
To provide a superior customer experience – and stay competitive with more new and emerging players than ever before – banks and financial institutions also need to ensure they are meeting the evolving demands of their existing customers and meet consumer expectations, while looking at those customers as opportunities for growth. This starts with looking at how they can increase share of wallet with strong performing existing customers, while also identifying customers that may have additional assets and growth potential.
By working with a third-party vendor that examines portfolios and leverages data to help better understand consumers, banks and financial institutions can uncover areas they might be missing out on and also control for unknown risks that are emerging. Tapping into data-driven insights can enable them to find and target lower risk customers with high growth potential, while better meeting their demands for a more personalized experience by understanding how they prefer to invest. Then, by leveraging data-driven insights and solutions, banks and financial institutions can also segment existing and potential audiences to realize new opportunities – and develop messaging and offerings better tailored to new and existing customers’ constantly-evolving needs. Even in the midst of rising uncertainty in the credit environment, it is definitely possible to maintain and expand substantial and smart growth trajectories while surpassing consumer expectations.