deloitte on consumer lending

8/8/2019 Deloitte on Consumer Lending

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The Next Chapter inConsumer Lending

A new way forwardHighlights from a survey

conducted by the Deloitte Centerfor Financial Services



Deloitte Center for Financial Services 1

Select Findings:

Deloitte’s Consumer Lending Survey We have entered a new phase in the evolution of U.S.

retail banking. As banks face unprecedented

pressures from a combination of tough economicconditions and pervasive regulatory reforms, will we

see the emergence of a new paradigm for consumer

lending?

To determine the scale of the challenge facing the

banks and to find out how consumers have been

reacting to these developments, the Center for

Financial Services sponsored a survey conducted by

Harris Interactive between August 12, 2010, to

August 30, 2010, to obtain a national sample of U.S.

retail banking customers. According to our survey of

5,142 respondents, many consumers are still dealing

with the aftermath of the financial crisis and recession

of 2007 - 2009. The Center for Financial Services will

further investigate this consumer lending paradigm

among three dimensions: first-time defaulters, crossselling, and customer satisfaction.

The emerging “first-time defaulter” market segment We see a new segment emerging as a result of the financial crisis. We call this group of

consumers the “first-time defaulters” ― individuals who have gone through at least one

serious negative credit event in the last two years for the first time in their lives.

According to Deloitte’s survey, 22% of Americans with bank accounts experienced aserious negative credit situation during the last two years. For fully 11%, this was anew experience — the first time in their lives they fell into delinquency.

Unemployment and reduced income were the principal reasons why theseindividuals have failed to meet their credit obligations.

Many first-time defaulters rated their interactions with lenders during their negativecredit event as “poor.” This dissatisfaction may strongly encourage them to lookelsewhere when borrowing in the future.

If not for the economic recession, which has affected millions of households inAmerica, many of the first-time defaulters might have remained in good credit standing.

The care and attention shown to these first-time defaulters now — and when they are on the path to becoming creditworthy customersagain — may well determine who they do business with in the future. Lenders could benefit from having more effective ways to identifyand differentiate the temporarily credit-impaired from those more seriously affected for the long term.

* Total exceeds 100% as respondents could pick more than one response.

2%

6%

8%

9%

12%

13%

14%

14%

29%

43%

58%

Been delinquent on child support payments

Foreclosure

Charge-offs, meaning bank has forgiven all or…

Legal judgments

Three or more times when you were more than…

Bankruptcy

Been delinquent on taxes



Been delinquent on medical bills

Contacted by collection agency

Exhibit 2: Negative credit experience during the last two years (first-time defaulters) *

How Do We Define a First-TimeDefaulter?

First-time defaulters are those who, forthe first time, have had a negative creditexperience such as delinquency,foreclosure, bankruptcy and/or charge-offs, among others, in the last twoyears, since the peak of the economiccrisis is September 2008. (To be

categorized as first-time defaulters, theywould have had to experience at leastone of the 11 events listed in Exhibit 2.)

11%

10%

12%

66%

Exhibit 1: Credit experience segments

First-time defaulters - Those whoexperienced a negative credit event last two years for the first time-11%

Those who have experienced a negacredit event more than two years agalso during the last two years-10%

Those who have experienced a negacredit event more than two years agnot during the last two years-12%

Those who have never had a negati

credit event in their past-66%

Figures may not add due to rounding

Contacted by collection agency

Been delinquent on medical bills

Three or more times when you were more than 30 days late on a credit card bill

Three or more times when you were more than 30 days late on a mortgage

Been delinquent on taxes

Bankruptcy

Three or more times when you were more than 30 days late on a loan other than your mortgage

Legal judgments

Charge-offs, meaning bank has forgiven all or part of a loan

Foreclosure

Been delinquent on child support payments



Deloitte Center for Financial Services 2

Can cross-selling efforts become a reality?Consumers seem to be open to having an expanded relationship with their primary bank. The survey findings indicate that the opportunity is

there, but, given past attempts by banks to achieve broader relationships via cross selling, this is going to require some fresh, creative efforts

by service providers.

Consumers in our survey exhibit high preference to use a single bank for many of their needs; however banks will be challenged to takeadvantage of this latent need.

More than three-quarters of customers surveyed saw convenience as a significant reason to focus their banking with a single provider.

With a single bank, survey respondents want better fees and service — but don’t expect they will get it.

Also in our survey, not all consumers wishing to obtain a loan product in the next two years expect to use their primary bank. Might this bea short-term opportunity for banks?

More than 80% of the customers surveyed named lower fees as their main reason for having or wanting a single provider. Given thestrong level of loyalty and support among customers of community banks and credit unions, this might reflect the power of strong personalrelationships at the local level to minimize fees and deliver value for money. Banks generally appear to have limited pricing power.

In order to increase their share of wallet, banks may need to be more consistent and connected across distribution vehicles to appeal tothe multi-channel consumer.

Bank customers’ satisfaction and loyalty

Despite banks’ efforts to improve their customer relationships over the last two years, overall satisfaction levels have remained almost

unchanged.

Satisfaction levels among customers of large and mid-size banks were significantly lower than those for community banks and creditunions.

Customers are quite receptive to new services that encourage loyalty and personalization.

However, more than half the respondents said they expect banks to start charging more fees for their services.

Most respondents have seen little change in their banks’ lending process.

Historically, there has been strong customer inertia in retail banking, with many remaining loyal for lengthy periods even though they mightnot be completely satisfied. As banks respond to the current environment by changing their services and prices, consumers might breakthis cycle and consider moving to other providers in large numbers.

Are price increases inevitable across the board given regulatory pressures and the need to make up for shortfalls in traditional sources ofrevenue such as overdraft fees and debit interchange fees? For those banks l ikely to increase fees and reduce service levels, the surveysuggests that customers may look for alternatives

16%

11% 10% 9% 9% 8% 7% 6% 6%4% 4% 3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Higher feesassociated

withloans/credit

Denied acredit cardapplication

Lower rateson loans

High rateson loans

More offersfrom

differentlendersthan I

expected

Morepaperworkinvolved

whenobtainingcredit/loan

Denied aloan

application

Feweroffers from

differentlendersthan I

expected

Offered ahigher loan

amountthan I

wanted

Lesspaperworkinvolved

whenobtaining

credit/loan

Lower feesassociated

withloans/credit

Offerelower l

amouthan

wante

Exhibit 3: Credit experiences since September 2008



There’s more to learnDeloitte’s Consumer Lending survey offers insights into how consumers are dealing with the aftermath of the financial crisis and recession of

2007 - 2009. The highlights discussed here are just a small sampling of the data points and trends that were unearthed. Deloitte is currently

sharing these insights with clients and helping them to strategize on how the survey results can help their businesses. If you are interested in

learning more, go to www.deloitte.com/us/cfs.

If you would like to learn more about the dozens of findings from Deloitte’s Consumer Lending Survey, please contact:

Justin Edmondson

Senior Marketing Manager, Center for Financial Services

Deloitte Services LP

+1 212 436 5571

[email protected]

For press inquiries, please contact:

Chris Faile

PR Manager

Deloitte Services LP

+1 212 436 5170

[email protected]

Insights. Research. Connections.

Headquartered in New York City, the Deloitte Center for Financial Services

provides insight and research to help improve the business performance of banks,private equity, hedge funds, mutual funds, insurance and real estate organizationsoperating globally. The Center helps financial institutions understand and addressemerging opportunities in risk and information technology, regulatory compliance,growth, and cost management. The Center brings a financial services integrated view to Deloitte and its network ofmember firms, each of which is a legally separate and independent entity thatprovide audit, consulting, financial advisory, risk management, and tax services toselect clients.

With access to the deep intellectual capital of 169,000 people worldwide, Deloitteserves more than one-half of the world’s largest companies, as well as largenational enterprises, public institutions, locally important clients, and successful,fast-growing global growth companies.

To learn more about the Center, its projects and events, please visit us aswww.deloitte.com/us/cfs.

This document contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this

presentation, rendering business, financial, investment, or other professional advice or services. This document is not a substitute for such professional advice

or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may

affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss

sustained by any person who relies on this presentation.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal

structure of Deloitte LLP and its subsidiaries.

Copyright © 2010 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

http://www.deloitte.com/us/cfs



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