Garnet Capital Advisors Blog

September 14, 2017

Consumer Confidence Rising

Excerpt: U.S. consumer confidence was up in August, providing positive signs for household spending in the fourth quarter. Learn how Millennial borrowing is different and the ways that banks can use collaboration for future gains.

A popular measure of U.S. consumer confidence rose in August, which is a positive sign for household spending heading into the latter part of the year. According to the University of Michigan's Consumer Sentiment Index, confidence is up 3.4 points over July's numbers and shows a jump of 7.8% over the August 2016 index. The Consumer Expectations Index also rose 7.2 points to 80.5 in August.

Even though the Confidence Index in August fell slightly from its mid-month figures, the index has been higher in the first eight months of this year than in any year since 2000. In short, consumers are feeling more favorable towards their personal financial situations, which is likely helped by high employment figures, record gains in the stock market, home price gains, and low interest rates. As consumers are more likely to buy and borrow, how they are going about this has taken an interesting shift.

Consumer confidence is rising, which is good news for firms looking to originate or purchase loans.

Unique Characteristics of the Millennial Borrower

According to reports from TransUnion, Millennials are less likely to use credit than their parents did when they were the same age. However, when they do take out loans, their borrowing habits also take a different path. Granted, the needs remain essentially the same. Millennials want cars, houses, and education loans similar to the generation before them. What has changed is the way that they access those funds.

Now more than ever, Millennials are accessing the cash they need through financial technology, or FinTech, companies. These FinTech firms such as LendingClub, Prosper and SoFi deliver private student loans, auto loans, and personal loans in a way that was not available just a decade in the past. The instinct of big banks initially was to compete with these FinTech firms for business. Now, that sentiment appears to have shifted to a more productive strategy.

The way that Millennials borrow money requires a shift in how banks do business.

How Traditional Banks Can Access Millennial Borrowers

It's no secret that FinTech firms are now competing in the lending space, giving Millennials more options to fund major purchases. FinTechs provide faster loans than some banks and also cater to a wider range of credit risks. Instead of being at odds with FinTech companies to compete for loan business, some banks are finding success with collaboration instead.

Banks that partner with FinTech companies can access the advanced technology that many of these firms employ for such things as loan and payment processing. In exchange, FinTech companies can appropriate some of the brand name recognition, funding advantage and legitimacy of large banks. One roadblock that many FinTech firms face is that consumers still don't fully trust them, so a partnership with a well-known bank is the perfect answer to this objection.

Use an Experienced Loan Sale Advisor

As your bank gains additional business due to a boost in consumer confidence and an influx of business from Millennials, you may need a whole loan broker to either buy or sell loan portfolios. Garnet Capital Advisors specializes in loan portfolio management, with senior management having more than a century of combined experience in the loan sale advisory business. Sign up for our newsletter for the latest market news and insight into how you can increase your organization's bottom line.