How Lenders Can Adapt to Consumer Spending and Credit Habits Post-COVID-19
If your bank or lending organization has been struggling just to keep up over the past few months, you are not alone. With millions of Americans out of work and small businesses trying to keep their doors open, banks have been on the front lines of the coronavirus pandemic, handling Paycheck Protection Program loans and providing relief to individuals across the country.
As Americans start to move into a post-pandemic world, their mindsets are shifting when it comes to financial matters. See how banks and lenders can adapt to consumer spending and credit habit changes.
Understanding These Changing Habits
One of the most surprising numbers to come out of the COVID-19 pandemic is the $80-billion decline in credit card debt. For people who were able to keep their jobs and put their stimulus checks towards paying off their credit cards, this time of reduced spending as a result of staying home was a boon.
However, it is also important to remember that many of these individuals currently are able to receive relief from paying other bills, including mortgage and student loans without seeing a change in their credit score. If there is another shutdown or if unemployment continues at a high rate, it could result in high default rates on mortgages and personal loans. You can learn more about that here.
One big change that financial institutions are seeing is a reduction in credit card lending, specifically. Gen Z and Millennials prefer not to take out credit cards since they believe that the rates are too high, and they fear that paying them back will be a challenge. This mindset is increasing the amount of point-of-sale financing happening right now.
How Your Lending Organization Can Adapt
As fewer people take personal loans or open credit cards, it is a good time to consider digitalization efforts, such as point-of-sale financing. This financing method allows borrowers to make interest-free payments, as long as they pay within the allotted timeframe. Younger borrowers prefer this method but, according to studies, Baby Boomers are also open to point-of-sale financing.
Your organization may want to prepare to see fewer people utilizing in-branch banking and consider allocating more assets to online banking or over-the-phone customer service as well. Many people are still uncomfortable being in crowded public spaces and often prefer to take care of banking online.
However, it is important not to close branches altogether since studies show that people prefer to open bank accounts and take out lines of credit in person.
Preparing for Increasing Defaults
Unfortunately, one trend that looks likely to increase in the coming months is the potential to default on large lines of credit. The best thing that your organization can do in this instance is to be proactive. As you begin to tackle digitalization and working with younger consumers, keep in mind that you can also use it to reduce your risk.
Recommending resources for preventing defaults, including credit counseling, can help your bank or lending organization prepare for rising defaults in the fall. Peregrin can help. Find out how by giving us a call at 1-800-231-2493 or contacting us online.