Lending, an indispensable component of the economy, stands at a crossroads marked by unprecedented global shifts, especially in the wake of the unforeseen challenges posed by the pandemic. Grappling with the profound impacts of these changes, businesses worldwide are still undertaking extensive transformations to adapt to the evolving landscape.
The lending industry, no exception to this paradigm shift, is recalibrating its internal mechanisms, revisiting marketing strategies, adjusting pricing models, and, in some instances, redefining target audiences. As we approach 2024, businesses, including those in the lending sector, are in uncharted territory, and there’s a need to navigate the probable uncertainties with a mix of caution and anticipation.
The Significance of Lending in the Economy
Lending constitutes a fundamental pillar of any economy, influencing individuals, businesses, and the overall financial ecosystem. In the context of the United States, CBS News reports that the average 30-year fixed-rate mortgage stood at 7.83% as of October 11, 2023. This figure is an important metric, reflecting the prevailing interest rate dynamics that impact borrowers and lenders alike. It is worthy of note that experts think that there may be a decline in mortgage interest rates in 2024, although it may not be at a speedy rate.
Simultaneously, UK Finance’s forecast predicts a 15% decline in mortgage lending in 2024. It is also projected that an increase in unemployment, along with the challenges of rising living costs and higher interest rates, can exert additional strain on certain households. The impact of this pressure may become evident through a rise in mortgage arrears, and it can escalate into 2024.
Beyond mortgages, the lending industry in 2024 is expected to be impacted by the trends in personal loans and consumer loans in 2023. Medical bills account for the first reason many Americans declare bankruptcy, and this is backed by student loans.
What are Lending Predictions for 2024?
Anticipating future trends is integral for lenders to formulate effective strategies. Experts foresee a potential downward trend in mortgage interest rates in 2024, offering relief to borrowers. However, the cautious prediction by UK Finance regarding a 15% reduction in mortgage lending suggests that economic uncertainties and global factors may continue to shape lending landscapes.
The Mortgage Bankers Association‘s optimistic forecast of a total origination volume of $1.95 trillion in 2024 implies a resilient lending market, potentially fueled by economic recovery and increased demand for housing. Furthermore, Industry analysts predicted that lending and mortgage businesses would sustain their robust performance, continuing the positive trend established since the 2007-2008 economic crisis.
The previous success can allude to unemployment hitting record lows. Also, an increment in tax cuts and higher fund rates by both banking and non-banking lenders boosted profits— And as of the close of 2018, the return on capital reached 18%, with 1.5% support from the return on assets. According to the report by Deloitte, the total assets in the United States witnessed a 3% increase, reaching a substantial US$ 16.5 trillion.
The report also mentioned a decline in interest rates in the first half of 2024, depending on the lender and the location. Drawing an inference from the 2023 interest rate, which reached its peak but will now face a decline, a credit score will be critical in securing a low interest rate come 2024.
“These challenges will result indivergent and sporadic economic growth. Some economies will face a brighter future, while others will still be fighting stickier inflation and low growth.”
The big question is, how can lenders survive these predictions and ensure a great business year in 2024? Let’s look at some strategies lenders can consider.
Strategies for Lenders
The report by Deloitte hinted that there is a potential for industry disruptions stemming from political and climate events to slow down the loan industry growth.
“In terms of loan growth, we expect demand to be modest given the macroeconomic conditions and high borrowing costs. Banks will also likely continue their restrictive credit lending policies. According to the recent bank lending surveys conducted by the Federal Reserve and the ECB, many banks have already tightened credit standards across all product categories. They anticipate further tightening due to a less favorable economic outlook and likely deterioration in collateral values and credit quality.”
This points to why lenders need to begin strategizing on staying on top of the lending landscape come 2024 with proactive measures. As a lender, you can derive actionable insights from market trends and predictions, which can inform you in making strategic decisions.
Emphasizing excellent customer service and fostering strong client relationships becomes paramount because they serve as a foundation for long-term success—hence, innovation, both in product offerings and services, positions you competitively. Additionally, you must embrace digital lending solutions as they emerge with transformative strategies that promise efficiency gains and enhanced customer experiences.
5 Strategies to Help Lenders Scale in 2024
Attend to customer inquiries and issues promptly: To effectively address customer concerns, you should resonate with the three distinct waves identified by Accenture as to how the impact of the pandemic manifests for lenders. First, there is an anticipated increase in foreclosures, reflecting the economic challenges borrowers face. The second wave involves heightened outbound collections efforts, as you may proactively be engaging with customers who may be facing financial difficulties. The third wave entails the necessity for loan modifications and liquidations as you need to adapt to the evolving financial landscape. In each scenario, customers are likely to reach out to their lenders. This outreach may be driven by a need for guidance on navigating financial hardships or seeking reassurance amid economic uncertainties. Establishing clear communication channels and responsive customer support mechanisms is paramount for you to address inquiries, provide assistance, and foster a sense of confidence and trust among your clientele during these challenging times.
Employ Automation: By automating all processes, you not only save valuable time but also cut costs significantly. This approach enables banks and financial organizations to streamline their operations comprehensively, encompassing tasks such as customer information collection, organization, and analysis. Automation is a powerful tool to assist your existing employees, boosting the overall efficiency of your financial institution. Notably, implementing automation doesn’t just involve adopting new technologies; it includes a fundamental shift in how tasks are executed. Mundane, repetitive tasks can be seamlessly handled by automated systems. This will free your skilled workforce to focus on more complex and value-added activities. This not only enhances productivity but also contributes to job satisfaction, as employees can engage in tasks that require critical thinking and creativity. Moreover, the streamlined operations resulting from automation can lead to a more responsive and agile organization. Rightfully so, quick and accurate processing of customer information allows for improved decision-making, ultimately enhancing the overall customer experience.
Identity verification services: Identity ID Verification Services play a pivotal role in digital financial solutions and are anticipated to witness substantial growth, reaching an estimated $18 billion by 2027, according to Forbes. Integral to the fabric of Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, these solutions are indispensable for ensuring compliance with regulatory standards. Beyond regulatory compliance, the emphasis on ease of use and efficiency in ID verification processes is crucial to not only meet these standards but also to exceed customer expectations in every interaction. Recall that there is a prediction that credit scores will be integral contributors to securing a low interest rate in 2024. The close association of AML and KYC regulations and creditworthiness underscores the importance of accurate and efficient identity verification. You should strive to navigate a delicate balance, ensuring compliance with regulatory frameworks while delivering a seamless and user-friendly experience to your customers. Hence, the efficiency of ID verification processes becomes a critical factor in achieving this delicate balance, as it directly impacts the overall customer journey. In essence, as the ID verification services sector continues its substantial growth trajectory, optimizing these processes becomes a crucial step for you as a lender. It not only ensures compliance with regulations but also helps in your decision-making, and in fostering long-term relationships and mitigating potential risks associated with fraudulent activities.
Change your processes: Transforming your processes is an essential step for navigating the challenges of 2024 successfully. A prominent and transformative trend in the lending landscape is the accelerating shift toward digitization. While this transition won’t occur overnight, it will unfold gradually. Embracing digitization presents a valuable opportunity for you to streamline your operations comprehensively, particularly in areas such as customer information collection, organization, and analysis. Accenture’s insights highlight a noteworthy aspect of the current state of banking processes — more than 50% of tasks are still performed manually. This underscores the immense potential for improvement and efficiency gains through the adoption of technology. In North America alone, the projected savings for banks by leveraging digitization and automation technologies is estimated to surpass 70 billion USD by 2025. By incorporating technology into your operations, you can not only enhance efficiency but also reduce the likelihood of errors associated with manual processes. Automation becomes a strategic ally, enabling existing employees to focus on tasks that require human ingenuity and decision-making while routine and repetitive functions are seamlessly handled by digital systems.
Digital transformation: Digital transformation represents more than just keeping up with the latest tech trends; it signifies a fundamental shift that lays the foundation for your organization’s long-term success. As you embark on revamping your processes to embrace digitization, view it as a strategic investment in enhancing the agility, competitiveness, and sustainability of your lending business. One powerful tool available to facilitate this digital evolution is Configure, powered by Evolve Credit. This all-encompassing core banking suite operates as a 3-in-1 solution, accelerating various facets of your lending operations. It particularly focuses on expediting the loan origination process while seamlessly handling disbursement and collection workflows. By leveraging Configure, you position your lending business at the forefront of technological innovation, streamlining traditionally time-consuming processes. The suite’s comprehensive capabilities not only enhance operational efficiency but also contribute to a more responsive and customer-centric approach. Accelerating loan origination, simplifying disbursement, and optimizing collection processes are pivotal steps toward achieving a more agile and competitive lending operation. Configure doesn’t just automate tasks; it empowers your organization to navigate the complexities of the modern financial landscape with greater ease, ensuring that your lending business remains adaptive, competitive, and sustainable in the long run.
As the lending industry braces for changes in 2024, staying informed, prioritizing customer-centric approaches, and embracing technological innovations are key. While predictions provide valuable insights, you must remain agile in response to dynamic economic conditions. Also, predictions are not absolute, they can change. With these in mind, you must evaluate your expenses and cut costs to the minimum. A report from PWC emphasized focusing on your “needs” and not your “wants.”
Integrating digital lending solutions will likely come in handy in 2024. It will not only streamline processes but also position you at the forefront of a rapidly evolving industry, ensuring resilience and competitiveness in the face of change.
Lastly, this article is a guide for you and other lenders in the financial sector, emphasizing the importance of adaptability, innovation, and strategic planning in the years to come.
By Olayemi Jemimah Aransiola
November 23, 2023
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