There’s no doubt about it, 2020 was one crazy year. We’re talking ups and downs like we’ve never seen before. Some sides of the community financial institution boomed. For instance, the commercial space killed it. Mortgage and refi were also rocking. However, consumer lending definitely had a rough go of it. Sure, deposits increased, but balance sheets saw a major shift with a lot of debt being refinanced at lower rates. So now there are massive amounts of capital combined with super low rates on loans — and margins are completely compressed.
Well, now that things are stabilizing a bit, all eyes are on 2021 and how to increase lending — and decompress those margins. But it’s not as easy as just saying let’s go get some loans. The entire landscape has changed with FinTechs like Quicken, Chime, and others originating an estimated 50% of loans, according to in-house lending experts — with no signs of slowing down. So how do community financial institutions up their loan game? What are some lending strategies that can lead to better balance? First, let’s talk about what is likely on the horizon.
Where are community banks and credit unions headed?
The best way to strategize for the future is to have some predictions of what it might hold. Let’s start with mortgages. All signs point to mortgages continuing to boom. However, with rates starting to creep up, refinancing will most likely decline. And with housing inventory harder and harder to come by, those mortgage numbers should continue to go down as well. So although mortgages will continue to do well, the expectations are that the numbers won’t be like they were in 2020.
As the year goes on, we’ll see even more changes. With vaccines continuing to be rolled out and more and more cities and states opening up, there looks to be a big upside toward the back half of the year. After long shutdowns and limited activity, people are READY TO GO. It’s like someone kinked a hose and this energy has been building up just waiting to be unleashed. Major consumer activity is expected as people start to get out more. Credit card use looks to rebound as people get back to more routine spending.
In addition, the demand to move about is well beyond that of previous years. Travel is expected to make a significant jump as people try to make up for missed vacations and forced confinement. Vacation loans look to be a major growth market in 2021.
As for loans in general, the past year forced most institutions to adapt new procedures to make the process totally remote — which actually made getting a loan much more convenient for borrowers. Also, with so many people having lost their jobs due to the pandemic, some institutions started testing new alternative credit options to help consumers. Although these changes were instituted in response to the effects of the pandemic, they ended up creating a better experience for the borrowers— so you may see them become the norm as we move forward.
Business as usual won’t cut it anymore.
One thing’s for sure, change is the constant — now more than ever. And it’s even tougher now because borrowers have more options and can shop around with ease. Gaining loan volume in 2021 requires a game plan that’s not just about finding loans, but rather deepening relationships.
Many of the changes in procedure that are enhancing the borrower experience have to do with the origination of the loan. Things like not having to come into the branch, less required information, and faster processing all make loans more convenient and easier — to originate. But what about the after-the-fact stage of the loan? What does that user experience look like?
This is where you can deepen relationships with your consumers. A loan experience that’s more convenient after origination can help keep you top of mind. Helping borrowers understand their debt and how they can leverage it to their advantage can help them see you in a different light — not just the place that gave them a loan, but more of a partner. You want to be their primary financial institution and that doesn’t happen by getting them in the door and just forgetting about them. It takes nurturing. Long-term nurturing.
Rethink rather than reconfigure.
A lot of financial institutions out there do a great job of keeping their consumers front and center — asking what they want and how they can help them. Institutions certainly bend over backwards by creating unique products and policies. But all of that occurs in the current space. An institution might reconfigure an in-place product or reshape it to fit the need. So, let’s say the product is a table and the customer wants to sit, the table might be cut down so it can be sat upon. But maybe a couch would work much better.
Look for something that fits the need better. There are options out there. For instance, the Kasasa Loan® is a unique product that leverages the post-origination relationship. It creates a connection between you and the customer by keeping the borrower engaged and making them feel supported throughout the entire life of the loan. This, in turn, can lead to multiple loans from individual consumers, as well as higher loan balances.
By offering products and services that help strengthen your relationship with your customers, you also fortify your position as their primary financial institution. Which can lead to a lot less shopping around from them, and a lot more top of wallet decisions for you.