Lending Approval Process: Keeping Pace with Next Gen Borrowers, Part One
There’s a changing of the guard, but it’s not at the palace. Millennials are pushing Baby Boomers out of the top spot for most coveted consumer demographic as this latter group ages and shrinks in size.
Millennials Enter Peak Earning Years
Traditional lenders tend to think of Millennials as youngsters with a carefree attitude, but the majority are entering their peak earning years. Many are in their 30s, and a sizable portion is closing in on that 40-year milestone. Their children are moving from middle school to high school, which means one of their chief financial concerns is college funding. This “always on” generation is demanding, especially when it comes to digital delivery systems. And the dividing line between personal and professional is often blurred. As a group their buyer behaviors don’t change, regardless of whether they’re looking for a personal or business loan.
Traditional lenders and community banks, who are out of step with Millennials’ digital preferences, risk going the way of the dinosaur; but fintech lenders better stay sharp. The leading edge of Generation Z is already starting the second year of their first professional position.
It’s All About – Fast, Easy and Personal
Gen Z will be even larger than Millennials. In our 2018 Lending Outlook — Top 5 Trends we speculated that upcoming generations would likely view voice-only buying and banking the way Millennials view mobile-only transactions. Fast, easy and personal is not a luxury reserved for early adopters or preferred business accounts. It’s a necessity that will make or break a high speed, online sale. And don’t expect any brand loyalty. The Financial Brand recently quoted a Forrester brief saying, “…one-third of all customers say all banks are basically the same.” Their research shows younger prospects view banking products as commodities and bank brands as interchangeable. This perspective is supported by Microsoft Financial Services. Their report shows consumers value four features of their banking relationship over actual products like loans and checking accounts. The first feature is easy banking. The second is options for how they bank. And the third and fourth are more responsive customer service plus more individual attention. The findings seem counterintuitive until we remember these consumers believe banks all offer the same interchangeable, commodity products.
Gen Z – Out of College, In the Workforce
Gen Z is graduating from college and starting their first jobs. They’re an interesting group with a refreshing perspective. Hipsters are out, and Young Urban Creatives (Yuccie for short) are in. They consider a corporate position a short-term learning experience. A springboard they’ll use to launch their own business, which will be an enterprise that’s both profitable and socially conscious. They admire new business models like Ustocktrade. An online alternative trading system (ATS) that funnels profits to an education foundation whose mission is to build schools for vulnerable, underserved children. According to Ustocktrade founders the online trading platform is actually a non-profit fundraising vehicle in disguise, because it provides evergreen funding for the foundation. It’s a financial pipeline that replaces traditional fundraising activities, which can be inefficient and expensive to administer.
Next generation prospects like Millennials and Gen Z don’t look anything like Baby Boomers.
Should these demographic differences change the way lenders do business?
Focus on the Fundamentals
At TurnKey Lender we believe the fundamentals of lending will stay the same. We’ll continue to establish credit criteria based on the objectives set by our business model. Use smart marketing segmentation to attract high quality prospects. Collect personal information from applicants. Evaluate credit worthiness. Determine credit line and account pricing. Transfer funds. Process payments. And then manage the portfolio for maximum return with credit line increases, price adjustments, additional products, etc.
However, the tactical delivery of our products and services will change dramatically. And in our next article we will share how are exactly we are going to change, and what challenges we anticipate. Stay tuned!