Financial Services: Industry Perspective

Financial Services: Get ready for 2024

Helping customers build trust by enabling them to conduct business more effectively is at the heart of TransUnion’s mission. It’s what drives us and keeps us close to the market so we may better understand, anticipate and support both lenders and consumers’ needs. 2023 was challenging for the financial services industry as we faced higher interest rates and inflation continued to increase. However, we have good reason to believe conditions will improve.

We’re not quite ready to declare victory but the economy does appear to be working its way towards more favorable growth conditions and consumers are still optimistic about their futures. Financial institutions also have reason to be optimistic so, in the spirit of enabling you and your organization, I wanted to share some of our thinking about how to make the most of the coming year.  

2023 in review

A quick scan of the past 12 months reveals few, if any, surprises. Rising interest rates increased the cost of doing business for lenders across the board. Many financial institutions responded by refocusing on core customers, tightening underwriting criteria, and curtailing spending, including marketing.

• Banks saw decelerating originations growth coupled with lower deposit balances, higher revolving card balances and increasing charge offs.
• Personal lending originations were similarly impacted by limited availability and higher cost of capital while delinquencies increased.
• Mortgage faced rising interest rates, limited housing inventory and waning consumer affordability. Several small lenders shuttered their doors or adopted cost-saving measures to stay afloat and “survive until ’25”.
• Ongoing inventory challenges continued to affect auto manufacturers, dealers and lenders.

Winds will shift in 2024 but patience — and readiness — is key

Heading into the new year, economic uncertainty is likely to continue through at least the first half. Inflation should start to decline but interest rates are likely to stay elevated. If unemployment goes up, household incomes will take a hit, likely driving a dip in consumer spending but the second half of the year should bring relief and interest rates will likely decline in response.

As long as consumers continue to face liquidity and affordability challenges, FIs will continue to experience slower originations growth and growing card balances. Delinquencies should be relatively flat with small increases in some sectors. But rates are likely to decline in the second half of the year, which will stimulate origination activity, especially mortgage refinance and debt consolidation as consumers seek to lower monthly payments. And when it starts, momentum will pick up quickly. To be ready, you need to be in front of it.

How to activate your readiness

Expecting — and preparing for — the unexpected is the essence of business continuity planning and preparedness. Applying a similar philosophy and approach to market readiness can be an effective way to attract or reengage consumers searching for credit. Here are a few things you can do to prepare and equip your organization for a dynamic market:

Modernize market engagement strategies

Updating analytics capabilities and technology while using enriched data can help you identify and engage the right consumers, improve and accelerate decision-making, and decrease time to market. It will also help you navigate the cultural transformation of integrating new data techniques, which is quickly becoming table stakes across financial services.

Restart marketing

While some lenders have already started, many have kept marketing on pause until prospects are brighter. Getting back into market sooner may give you the “early bird” advantage over your competitors. And employing a fresh acquisition strategy to reach high-value audiences enables you to increase conversions with more personalized experiences and relevant offers, which can increase marketing ROI.  

Maintain vigilance over your portfolio

As important as originations are, managing delinquency and retaining customers are essential to maintaining profitability, especially in times of economic volatility. A proactive approach to portfolio management — including enhanced collections processes and a thorough understanding of customers and their financial behaviors — can help build portfolio resiliency and customer loyalty while supporting smart growth.

Strive for efficiency

To improve profitability, make every customer interaction and operational process count. A seamless and safe digital experience that meets current consumer expectations and needs is not only efficient unto itself but it can help connect your marketing and portfolio management efforts to deliver omnichannel — and brand — consistency. Targeting consumers who will be profitable, not just good credit risks, can expand the field even more.

We’re here to help you make the most of 2024 — and beyond

TransUnion has a broad scope of products and services to help your business achieve its operational and strategic goals. Plus, reports like our Monthly Credit Industry Snapshot can help guide business strategy with current insights on consumer credit trends. Get specifics about our solutions for financial services or, to discuss how we can help move your business forward, contact your TransUnion rep.

I wish you a healthy and productive new year.