The consumer finance industry is currently undergoing significant changes. Leading lenders have shared their insights on evolving trends and challenges shaping the future of the market. These insights offer a glimpse into the key issues lenders face today, including the rise of Gen Z in the credit market, the increasing sophistication of fraud, and the importance of better data integration.
The Quest for a Holistic Consumer View
A prominent challenge faced by lenders is the need for a more complete understanding of their customers. The fragmented nature of data systems makes it difficult for lenders to create a “360-degree view” of consumers. Lenders emphasized the need for integrated data points from sources like credit bureaus and cash flow information. There is also a growing need to verify gig and non-traditional income, which many consumers rely on today.
Unlocking a Wider Pool of Borrowers
Lenders are also focused on increasing their borrower pool by improving their approval processes. One issue highlighted was the unintended rejection of creditworthy individuals due to insufficient data. Many lenders are seeking access to more diverse data sources to enhance decision-making, allowing them to approve more qualified applicants. The desire for a broader and more accurate understanding of borrowers is crucial to expanding access to credit.
The Growing Influence of Gen Z in the Credit Market
Over the past few years, the number of Gen Z consumers with credit files has surged by 76%, reaching 34.5 million by 2024. This demographic is influencing key markets, especially in real estate and auto financing. However, many Gen Z consumers have limited credit histories, making it challenging for lenders to assess their creditworthiness. At the same time, this presents an opportunity for lenders to offer tailored financial products that support these young consumers’ financial growth.
Battling the Rising Tide of Fraud
Fraud continues to be a major concern in the consumer finance industry. With the rapid advancements in AI and machine learning, synthetic identity fraud has seen a dramatic increase. The number of fraud cases increased by 50% between 2020 and 2023. To combat this, lenders are investing in more advanced fraud detection tools. The need for fast, adaptable solutions to detect new fraud patterns has never been more urgent.
Streamlining Operations: Data Integration and Speed
Efficiency has become a key focus for lenders. With the demand for faster data ingestion and quicker adjustments to risk models, the ability to adapt to market changes is essential. Lenders are looking for solutions that allow them to integrate data seamlessly and make faster decisions. This is particularly important in an environment where risks and opportunities change rapidly.
Proactive Risk Management and Consumer Support
Lenders are also increasingly focused on strategies that help consumers manage their payments effectively. A major goal is to retain customers while improving their financial stability. By building more precise decision-making models and improving underwriting capabilities with richer data insights, lenders are working to manage risk while offering better financial products.
Simplifying Data for Smarter Decisions
The volume of data available to lenders is growing, but making that data actionable is a challenge. Lenders are seeking ways to simplify complex data and provide frontline staff with easy-to-understand insights. This will enable quicker, more confident lending decisions that benefit both the consumer and the lender.
Navigating Delinquency Trends
Delinquency trends show generational shifts. Older consumers tend to be more financially stable, with accumulated savings and home equity. In contrast, younger generations like Gen Z and Millennials face greater financial challenges. Non-deferred student loan delinquency has reached 16.78%, and auto loan risk remains high. Lenders are working to understand these generational differences and adjust their strategies accordingly.