Year-to-year, community financial institutions have become more conservative about consumer lending. So as to not open themselves up to additional risks, many of these institutions tend to only service consumers with prime and super prime credit. However, consumers with non-prime credit make up a solid portion of the consumer lending market, so this desire to stick with “safer” loans leaves quite a few loan opportunities on the table. And when many community financial institutions are dropping their rates to as low as 0% in order to compete with large national lenders for prime and super prime consumers, missing additional revenue opportunities for your loan portfolio is not a small matter.
To compound the challenge, Millennials – who present a massive lending opportunity for financial institutions – are often considered non-prime (due to having little-to-no established credit or having outstanding student loan debt.). So while fear of unwarranted risks keeps community financial institutions from supplying loans to these “risky” consumers, new non-traditional lenders are stepping in to swoop up these untapped loan opportunities. Market disruptors like retail lenders (i.e. Costco), mobile lenders (i.e. AutoGravity), and peer-to-peer lenders (i.e. Lending Club) are finding ways to bypass the existing banking system, credit bureaus and financing requirements to lend to this highly sought after demographic.
If your community financial institution is avoiding non-prime consumers you are likely creating three major problems for your business:
- You are missing out on an opportunity to vastly expand your loan portfolio
- You are isolating some of your key demographics
- You are losing out on new streams of revenue
The best way to drive loan yield is to expand and diversify your loan portfolio, so you are not missing out on any major opportunities. A whole host of solutions have surfaced in the consumer lending marketplace over the past decade that offer to help community financial institutions adjust their lending policies and criteria so they may begin servicing a greater portion of the borrowing population. These offerings primarily consist of collateral risk protection programs, expanded loan channels, add-on consumer offerings and digital engagement tools.
Once you’ve adopted a number of these solutions, you can begin to experiment with various packaging and marketing strategies to differentiate you from your competition, attract new borrowers and generate much sought after non-interest income. The options to take advantage of are ever-evolving, and the opportunities offered through these solutions are endless. If you want to attract new loan customers, you have to set yourself apart from a growing list of competitors. The only way to do that is to offer the entire marketplace something other competitors cannot: end-to- end service, at the low cost only a community financial institution can offer.
Contact Brian Timson to learn more about how you can expand and protect your consumer lending portfolio: firstname.lastname@example.org.
Interested in learning more strategies for competing with traditional and non-traditional lenders? Read our white paper on “Stop Handing Over Auto Loans to Your Competitors”.
Interested in learning more about effective marketing strategies? Read our white paper on “Consumer Engagement Channels: How and Where to Get the Most Out of Your Communications”.