February 2024 | Point of View

Balance efficiency, technology, and strategy to improve consumer lending

Consumer lending is making a resurgence—is your bank prepared?

Balance efficiency, technology, and strategy to improve consumer lending

While today’s rapidly evolving financial landscape has banks focusing on numerous priorities, consumer lending is experiencing significant shifts that demand immediate attention to manage current expenses and position for future growth. 

The Federal Reserve Bank of New York’s Center for Microeconomic Data shows a massive decline in consumer lending in 2023—not surprisingly, most financial institutions responded with dramatic headcount reductions. But new estimates predict this decline has leveled out and soon may reverse, at which point banks will need to be prepared for a resurgence in demand.

Now is the time for banks to reconsider their approach to and strategies for consumer lending, transforming the business lines to serve customers more effectively and operate more efficiently than in the past.

The challenge for many banks is that outdated lending operating models lack the flexibility and tools to meet changing customer demands quickly and easily. The solution, then, has been to hire rapidly and throw bodies at the problem. As FinTechs, big tech companies, the largest national banks, and even big retail companies step in to fill the offering and experiential void and cater to unmet consumer lending needs, loyal banking customers may explore other options and even be lured away—causing a domino effect on deposit pressures for banks that fail to move quickly. 

It's important as ever for banks to proactively invest in their consumer lending businesses to retain (and even expand) market share. This means going beyond today’s efficiency measures to stay afloat and instead seizing this moment to rethink overall lending strategies and enhancing the digital experience for borrowers. The banks that act now will be advantageously positioned when the market turns, similar to the success seen by those who were proactive to fill gaps at the tail end of the 2008 financial crisis.

The revolution of digital consumer lending 

Consumer lending is at a clear inflection point, moving from product to customer-centricity as customers expect easy and fast onboarding, hyper-personalization, real-time decision-making, and data-driven underwriting across credit needs and offerings. This shift poses existential questions about the need for and role of legacy consumer lending models—at a time when banks are already looking to increase the efficiency of their processes and the effectiveness of their products enterprise-wide.  

Digital consumer lending has revolutionized the way people access credit by leveraging technology to streamline the loan application and approval process. This includes: 

  • Hyper personalization: Banks are moving to new marketing platforms that enable customers to build their own products, fostering loyalty and improves retention. 
  • Easier onboarding: Digital borrowers are looking for tech-advanced lending software, mobile friendly applications, virtual advisors, and customer analytics. 
  • Real-time decision-making: Customers expect near-instant responses regarding approval status after filling out loan applications. 
  • Data-driven underwriting: By using advanced analytics, banks can assess a borrower’s credit worthiness through various sources with a greater degree of accuracy. 
  • Embedded finance: Embedded lending will expand to new verticals with new entrants and big retail due to the availability of alternative borrower data, large customer bases, and a high demand for unique offerings. 
  • Alternative lending: Machine learning, big data analytics, and blockchain are disrupting the lending landscape, driving down consumer rates.

While customer expectations are on the rise, there’s also noticeable market evidence indicating significant operational cost constraints. This is exemplified by the growing adoption of automated decision-making in underwriting, the urgency to optimize labor-intensive workflows while meticulously upholding controls, and the gradual shift toward greater utilization of electronic documents and e-signatures. 

This leaves banks facing a myriad of challenges, including lacking a clear vision and strategy around the future of consumer lending, struggling with how digital tools and methods can be most efficiently deployed, and finding the best ways to support consumers’ heightened expectations and demands at reduced costs. 

Outdated operating models, stringent regulations, and legacy systems, coupled with disparate, disconnected data sets, make it difficult for banks to profitably be flexible, stay up to date with compliance, and convert customer data into valuable insights.

How banks can get started shifting their consumer lending approach 

There is immense opportunity amid the challenges banks are facing. Those that can apply the right digital tools, employ the proper workforce (in terms of both skills and location), embrace customer centricity, and develop proper data governance practices will see higher retention and acquisition of customers, increase their competitiveness with FinTechs and other financial institutions, expand their revenue potential, and enhance their risk management. 

By advancing their capabilities through an up-to-date operating model, banks will be able to provide a better customer experience and return on investment, which will help to maintain a positive reputation in the market and improve customer loyalty and retention—all while avoiding the rapid cost run-ups of the past. 

Banks must begin by defining a vision for the future of consumer lending within their institution. Is the goal to attract new customers by scaling existing customer-facing lending capabilities? Is it to simply accommodate existing customers by offering expanded product offerings in the consumer lending space and keep them from looking elsewhere? Or does this represent a greater opportunity to commercialize and create value by developing an offering that makes them a competitive differentiator and service provider to other institutions? 

There are multiple paths to success in the commercial lending space, each driven by a bank’s goals and how they want their product offerings to be internally and externally viewed. 

When determining the proper path forward, ask the following questions: 

  • How well do you understand your current customer base?  
  • Are there particular customer segments you haven’t been able to penetrate? Why not?  
  • Are these segments even the right ones to go after?  
  • Do we have the right products and services to accommodate our customer base?  
  • What are our current cross-sell capabilities? 
  • What are our operational and platform-based strengths and weaknesses? 

Once a vision is defined, banks need to develop digital-first strategies that enhance whatever customer-facing lending capabilities they have decided to pursue. This, however, cannot be achieved successfully without also transforming their internal operations to become more nimble, evolving organizations. Simply cutting headcount and reducing volume in an effort to become “more efficient” is not a sustainable, winning strategy—especially as demand comes surging back. 

Balance efficiency and technology investments with strategic plays that double down on a particular product or customer segment(s) to create stickiness through cross-selling and personalization or growth through acquisition. The tactical path forward is highly dependent on your strategic vision and strategic advantages, so starting without clarity here is a recipe for wasted spend and starting from behind when demand returns. 


Banks that take the time to create forward-looking strategies beyond efficient operations will see outsized returns when the consumer lending market returns. While there are still current problems that require addressing, but banks must also be focused on setting themselves up for the future to achieve success. 


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