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Consumer credit outstanding topped a record-breaking $5 trillion in November of 2023, putting growth at a 5.7% annual rate—the biggest gain since November 2022. Nonrevolving credit, including auto loans, increased at a 1.5% rate. To keep pace with the quickly evolving landscape, credit unions, community banks, and regional banks may feel like they’re doing a tightrope walk.
Maintaining and growing your share of the consumer lending market means harnessing the ability to deliver loans efficiently and at competitive rates. And you must do that while also balancing the seemingly contradictory goals of adhering to cooperative values and maximizing profitability.
This year marks a pivotal point where merely keeping pace is not enough. The financial institution (FI) leaders must navigate 2024 with a proactive and visionary approach. This blog aims to provide functional leaders with strategic insights and advanced tools essential for decisively carving the future of your institution’s lending practices.
The Indirect Lending Advantage
Indirect lending, where a financial institution contracts with merchants (like auto dealers, for example) to originate loans at the point of sale, poses unique advantages for community banks, regional banks, and credit unions. Beyond the surface benefits of expanding their customer base, this approach presents a new, simplified consumer channel that allows FIs to diversify their loan portfolios.
An indirect lending strategy can also enhance competitiveness. Financial institutions that deliver a seamless indirect lending experience can position themselves as preferred lenders for merchants and dealers. By offering a refined lending experience supported by cutting-edge technology, FIs have the opportunity to foster trust and cultivate mutually beneficial relationships with dealers and merchants. These relationships, when nurtured, have the potential to expand and contribute significantly to long-term growth.
Using Technology to Boost Consumer Experiences
Seamless, intuitive application processes in today’s technology-driven market are paramount for customer satisfaction and retention. This experience can be the crucial differentiator for FIs that want to become preferred lenders, cementing relationships with dealers and merchants.
For example, straightforward and smooth integration with your loan origination software holds great appeal for merchants lacking the time or resources for expensive and intricate setups. Their attention is sharply focused on the user-friendly application submission process, the overall processing duration, and how quickly funding can be disbursed.
In order to execute a successful indirect lending strategy, dealers and merchants must have the ability to effortlessly submit digital applications, along with any necessary supporting documentation. Mobile convenience and responsive design are equally crucial, ensuring that your services remain accessible at all times and from any location—catering to the modern consumer’s expectation for convenience and speed.
Operational Efficiency for Market Expansion
Operational efficiency strengthens market expansion, and decision speed is a critical competitive factor. When coupled with a seamless, intuitive digital application process, the lightning-fast decisioning significantly elevates the consumer experience.
With the right technology, you can streamline loan origination workflows to quickly move applications through reviews by applying sophisticated decision rules that consider credit policies, compliance, and applicant data to offer a decision in moments. Even in cases that merit conditional approval or require additional information, automated workflows make it simple to quickly submit additional documentation through the digital interface, reducing delays and enhancing the customer experience.
Most importantly, FIs must be able to offer flexible, adaptable loan offerings that can meet market demands. Optimized, automated internal processes and workflows that utilize the right data allow FIs to respond to the market quickly and with ease.
Strategic Use of Consumer Data
Consumer data is at the heart of personalized offers and accurate risk assessments. With the right data—and deep analytics capabilities—you can implement tailored marketing campaigns by consumer segments. This can include preemptive offers and pre-approvals that speed up the lending cycle and put the right products in front of the right people at the right time. You can also expand the relationship with additional financial products and services that may be relevant, building long-term relationships that extend beyond the life of the original loan.
By harnessing detailed analytics, institutions can achieve a granular understanding of consumer behavior, enabling better risk assessments, personalized loan terms, and the creation of targeted offers and pre-approvals. This streamlines the lending process and ensures that your products precisely align with consumer needs. Implementing predictive analytics and machine learning algorithms can further refine your lending strategies, enabling a more proactive approach to customer engagement.
Preparing for Market Evolutions
Staying ahead in the lending industry requires an anticipatory stance toward market changes and consumer trends. This includes constant market analysis, consumer research, and agility in product development.
The banks and credit unions that I see innovating faster, that are really making change and impact in the industry, are the ones starting with the questions: What is the desired customer seeking? Who am I targeting and what kind of experience do I want to give them? And when they start with that, they look inwards, and it really drives a lot of change.
Chief Product Officer, MeridianLink®
Adopting a proactive approach ensures that your lending services are not just reactive but can support sustainable growth. The financial returns resulting from sustainable growth are the bedrock of delivering products and services that meet consumers’ needs. Innovating with new loan products, exploring untapped market niches, and adapting quickly to regulatory changes are all part of staying ahead in the fast-evolving lending ecosystem.
Strategic Integration of Technology for Indirect Lending Success
MeridianLink® DecisionLender® is technology that redefines excellence in indirect lending, empowering financial institutions and financing companies to outpace competitors with proactive lending strategies and digital, customer-centric loan solutions to fuel robust growth. Our comprehensive, cloud-based solution automates the loan origination process for both direct and indirect installment loans through:
- Automated processes for many loan types.
- Streamlined capabilities to instantly update processes and workflows.
- Flexible, configurable platform that adapts to market changes.
- Intuitive, streamlined flow for an optimized consumer experience.
Implementing automatic pre-approvals upon digital credit application submission enhances consumer experiences and expands market reach. DecisionLender’s user-friendly interface not only streamlines the approval experience with minimal strain on valuable IT resources but also complements the essential elements of operational efficiency, enhanced consumer experience, and the strategic application of consumer data—setting a new standard in lending software solutions.
In essence, MeridianLink DecisionLender is an indispensable asset for institutions aiming to thrive in the competitive landscape of modern lending.
Your Future-Proof Lending Strategy Starts Here
To emerge as an assertive lender driving aggressive growth in 2024, FIs must fortify strategic indirect lending initiatives with the power of technology and data to elevate consumer experiences, achieve operational efficiencies, and effectively adjust to market shifts. Forward-thinking tools like DecisionLender play a pivotal role in executing these strategies seamlessly, offering a potent mix of automation, efficiency, and adaptability crucial for achieving and sustaining aggressive growth.
The future of lending is here, and it’s time for institutions to innovate and compete to win.
Check out more of our blogs to explore ideas on how to elevate your lending practices, or schedule a demo with the form below for insights into our data-powered, digital lending solutions.
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