The Evolving Landscape of Consumer Finance: Key Insights From Leading Lenders

We recently interviewed more than a dozen leading consumer finance lenders about the state of the industry and their goals and challenges for 2025 and beyond. The insights were invaluable. It's clear the industry is navigating a complex landscape, driven by evolving consumer behaviors, technological advancements, and the persistent challenge of fraud. Here’s a look at the biggest trends and challenges reported by these industry leaders:

The Quest for a Holistic Consumer View

A recurring theme was the need for a greater understanding of the consumer. Lenders are struggling with fragmented data in their systems, making it difficult to gain a "360-degree view" of customers. They expressed a strong desire for integrated data points—from credit bureaus to cash flow information—that can provide insights throughout the entire loan lifecycle. Another challenge reported was an urgent need to verify more types of gig and non-traditional income.

Unlocking a Wider Pool of Borrowers

A significant insight emerged around the challenge of inadvertently declining creditworthy individuals. Lenders shared concerns that current internal processes and guidelines, often hampered by insufficient data, might be preventing them from identifying and approving a broader pool of qualified applicants. The collective desire was access to more data to expand approvals confidently and responsibly. 

Gen Z's presence in the credit market has exploded. Over the past four years, the number of Gen Z consumers with credit files surged over 76%, growing from 20 million in 2021 to 34.5 million in 2024.¹ This booming demographic increasingly influences key markets like real estate and auto. However, many of these young consumers have thin credit files, creating both a challenge and a significant opportunity for lenders aiming to support their financial journeys and expand their borrower pools.

Battling the Rising Tide of Fraud

With the rapid advancements in AI, identifying sophisticated fraud has become a significant hurdle. In fact, synthetic identity fraud saw a 50% increase between 2020 and 2023 and its threat continues to grow as new technology emerges.² Lenders are on the hunt for faster, smarter tools to detect and prevent fraudulent activities. There's a particular appetite for solutions that can quickly adapt to new fraud patterns.

Streamlining Operations: Data Integration and Speed

The demand for efficiency is palpable. Lenders are looking for streamlined data ingestion and quick adjustments to risk models. The ability to adapt swiftly to market changes and evolving risk profiles is paramount in today's environment.

Proactive Risk Management and Consumer Support

Many lenders are heavily focused on strategies to help consumers manage payments effectively while retaining their business. The goal is to build more precise decision-making models and enhance underwriting capabilities through richer data insights.

Simplifying Data for Smarter Decisions

With an abundance of data available, the challenge lies in making it actionable. Lenders want to simplify complex data and translate it into clear, concise insights for their frontline staff. The ultimate aim is to streamline lending decisions by providing easy-to-understand information that enables quicker and more confident approvals.

Navigating Delinquency Trends

Discussions also delved into delinquency patterns:

• Generational Shifts: While Gen Z and Millennials have historically held the highest delinquency rates, Gen Z has shown the most significant improvement in both dollar and unit delinquency rates compared to pre-pandemic levels.
   

• Recent Growth: All generations have experienced a steeper climb in delinquency growth since May 2024, although overall levels remain below pre-pandemic highs.
   

• Mortgage Performance: Encouragingly, overall first mortgage dollar and unit delinquency rates have seen notable decreases between January 2020 and January 2025.

The insights from these consumer finance leaders clearly highlight the pivotal challenges and promising opportunities facing the industry. From strategically integrating AI into lending operations to simplifying complex data for smarter lending decisions, it's evident that the sector is relentlessly seeking innovative ways to achieve sustainable growth and empower consumers to live their financial best.

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Sources:

1 Equifax Market Pulse Webinar, January 2025

2 Fraud Trends in Banking Report - Equifax and Consumer Bankers Association