Beyond doubt that digital expansion has changed the way how bank clients engage the traditional services with their banks, those financial giants have no choice but sought to catch up by improving user experience and product coverage in the digital way. Digital channels nowadays, provide customers with a wider range of access to banking services, while non-digital interactions decline across the banking industry. Examples like customers pay less and less visits to bank branches, instead, they use online banking to solve their problems with even higher satisfaction, also the services are performed with much more time and cost efficiency.
Based on a PwC Customer Experience Survey done in early 2019, it suggests that customers are willing to pay up to 16% more for similar products or services with superior tangible experiences. Furthermore, 32% of customers are likely to seek alternatives after one bad experience and nearly 60% will leave after multiple negative encounters. While today’s consumers place a high value on convenience, come very naturally that digitization has a higher chance to facilitate better customer experiences and to drive higher engagements.
It is then making good sense that the traditional bank clients are taking tech-ways into consideration when they are seeking for solutions, including loan engagements. It is noted that Americans are turning to fintech companies instead of traditional banking options to pile on debt, results in a rapid growth in consumer loans. Based on TransUnion’s Q4 2018 Industry Insight Report, Fintech companies now make up 38% of the consumer loan market up from just 5% five years ago.
Consumer Loan Balance – by Loan Originator
Source: TransUnion Q4 2018 Industry Insights Report
We would like to move on to look at the demand for consumer loan in the US as well. According to the FED’s Beige book published in March 2019, the economic activity in the US continued to expand in late January and February, even with the government shutdown had led to slower momentum in some sectors. Employment and wages also continued to increase across the nation. US consumer spending, echoed by increasing to an all-time high of US$ 13.04 trillion in the fourth quarter of 2018 from US$ 12.95 trillion previous quarter, demonstrates a 0.7% growth. Meanwhile, the latest print of University of Michigan’s consumer sentiment was above January’s near two-year low of 91.2 due to an improvement in consumer expectations from earlier this year,despite that the overall level of confidence remains diminished, it is still quite positive.
US Consumer Sentiment and Consumer Spending
Source: Trading Economics
Based on the result of Surveys of Consumers by University of Michigan for February 2019, among 1/3 upper income households anticipated a 3% gain in incomes in the US, a gain well above those with incomes in the bottom 2/3. This meant that real income expectations among upper income households rose to the highest level in history, further indicates that personal consumption expenditures will grow by 2.6% in 2019 and the strength in consumer spending will mean that the expansion is expected to set a record length by mid-year, 2019.
Expected Change In Real Income(Three Month Moving Averages)
Source: Surveys of Consumers, University of Michigan
While we are looking at an organic growth in 2019 in US consumer spending, we can expect an expansion in consumer loan as well given the high correlation in terms of the trends of the two consumer activities. As the marketplace lending in the US has been recognized as both a convenient and simple way to secure funding online, we could expect marketplace lending being a key driver of the bandwagon of the US consumer loan growth in 2019.
US Consumer Loan Balance and Consumer Spending
Source: Bloomberg, Federal Reserve Bank of NY, Bureau of Economic Analysis