2021 Trends in Personal Lending
Personal lending rebounds in 2021 and lenders looking to take advantage must find ways to address industry trends.
Early projections show Q2 2021 with a 62.3% year-over-year increase in personal loans; a much needed rebound after the decreased lending volumes of 2020, but this growth will not impact all lenders equally. Financial institutions looking to take advantage of this rebound will need to meet the changing expectations of customers, update processing methods, and prepare to address new risks.
Customer preferences constantly evolve and often vary from generation to generation, but COVID-19 led to a rapid and sudden shift in customer expectations. Customers now expect to have the ability to choose from a wider variety of communication channels and to have an experience with less friction.
Financial institutions can make informed decisions on how to tailor their services to meet the new expectations of customers using the data at their disposal. Though when using this data, it’s important to keep in mind its timeliness, which is to say any post-COVID decisions should ideally be made with post-COVID data.
For example, though seniors are often perceived as less technologically inclined (and the data shows that a decade or so ago there was a sizable digital gap across generations) the gap had almost closed prior to COVID, and during COVID, 61% of seniors reported to having embraced technology more. Using pre-COVID data, in this instance, may lead to mistakes regarding the preferences and expectations of older generations.
Methods of Processing
The move towards increased digitization in lending has been underway for years, but due to the increased availability of relevant technology and the previously mentioned changes in consumer expectations, 2021 is expected to see increased implementation of methods to minimize friction in the lending process.
Though options exist to automate many aspects of banking, more than 50% of banking tasks are still performed manually, which uses employees’ time less efficiently and can hold up the lending process. For example, loan approval is an area where holdups often occur but is one of the most problematic times for inefficiency, since delays in loan approval mean delays in the lender seeing revenue and the borrower accessing funds.
For financial institutions looking to add more automation to their processing method, implementation may range anywhere from online application forms to digital lending software.
In 2020, the move towards more online services came with plenty of benefits (including saving lives by allowing for more social distancing) but it also came with increased instances of fraud. According to the FTC, there were about 1.4 million instances of identity theft in 2020, about twice as many as the previous year.
Limiting the risk of fraud is an ongoing struggle for financial institutions, but new technologies exist to help financial institutions flag potentially fraudulent instances and apply the appropriate strategy to higher-risk customers.
Moving towards a more technology-based approach can also help lenders limit risk by minimizing opportunities for errors because the more tasks completed manually, especially when multiple teams collaborate, the higher the chance of inconsistent information.
Meeting the new expectations of customers, decreasing friction in the lending process, and minimizing risk all require digitization and automation. If lenders hope to remain relevant, they must embrace technology that helps them address these industry trends.