Garnet Capital Advisors Blog

Banks are starting to look towards riskier borrowers as a means of expanding their loan portfolios.

Banking to the riskier under-banked demographic. It's a concept that may have been foreign for traditional big banks just a couple of decades ago, but it's becoming a reality.

The banks of today are dealing with tighter budgets than ever before, and they've endured an extended low-interest climate since the economic debacle of 2008.

Yet at the same time, banks must continue to offer top-notch products and provide stellar customer service, all while ensuring that they adhere to stringent regulations.

While it's become more and more challenging for banks across the US to be profitable in the loan department, it's imperative that they still are.

But rather than putting all their eggs in the commercial or big-business basket, they're starting to turn towards the average consumer when it comes to their loan portfolios.

More specifically, it's the under-banked and millennial demographic that is getting more attention, despite the potential risks that are associated with this particular group.

Banks Responding to the Rapid Emergence of Digital Technology Lenders

Over the past few years, financial technology firms have been popping up all over the place. They've identified a growing need among the underbanked demographic, and swooped in to satisfy that need.

Offering convenience, speed and an enhanced user experience in the world of lending, fintech firms have been able to offer many consumers what they simply haven't been able to get from traditional banks.

Of course, banks aren't in the business of handing out loans to risky borrowers for obvious reasons. But alternative lenders have been gambling on this group, and have grown exponentially over the past few years as a result of their ability to fill the financial void that millennials had been experiencing.

Considering the fact that millennials are the first generation to grow up with the internet, it's no surprise that they expect - and demand - that their banking and borrowing be done online and via mobile devices.

Targeting Millennials to Secure a Profitable Future

Millennials in particular make up a hefty proportion of the underbanked borrower population. They tend to have a ton of debt and lack of adequate cash flow. And to top it all off, they've got limited financial knowledge and experience.


Specialized credit cards are one way that banks can tap into the underbanked market.

The fact that millennials make up the largest generation in the US today means that there's a huge chunk of Americans out there who potentially have a tough time obtaining the loans that they seek. That also means there's a big part of the population that banks can possibly target in order to grow their client base.

Considering the sheer size and influence of this demographic, banks simply cannot afford to overlook the potential business they can generate from this group by offering products specifically geared towards them. And an increasing number of banks and financial institutions are doing just that.

Take Discover Financial Services, for example, which started marketing a specialized credit card to consumers who otherwise cannot qualify for a card the traditional way. The card offers many of the conventional features that are typically associated with Discover's prime cards, yet it requires a $200 security deposit.

It's a great way for the company to reach new customers and expand its loan portfolio, considering its profits have declined over the past few months. And at the same time, this new product will help consumers improve their credit scores and access credit without having to resort to high-interest payday loans. It's a win-win.

The truth is, banks need to embrace digital technology in the way they do business in order to remain on the competitive forefront. While the banking expectations that mobile technology has brought about pose a challenge for traditional banks, it also presents new opportunities for banks to take advantage of in order to expand their business.

Garnet Capital - Helping Banks Seize Opportunities to Grow Their Loan Portfolios

In order to seize a greater share of the market, banks need to evolve past their traditional products and deliver what consumers want. And that includes providing more affordable products that are more easily accessed through a revamping of strategies to accommodate digital technology.

As banks increasingly reach out to the underbanked demographics with more cost-effective products that were previously only made available in the subprime market, Garnet Capital can provide the much-needed guidance required to ensure this transition is a profitable one.

At Garnet Capital, we can help banks expand their client base by targeting unconventional consumers, including millennials. While new and innovative banking products can help individuals improve credit and move up to prime products, banks can simultaneously improve the profit levels that their loan portfolios can bring.

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