Market Trends
Millennials, now the largest generation in the United States, are taking longer to establish credit than earlier generations of young people.
The numbers are staggering: more than $1.2 trillion in outstanding student loan debt, 40 million borrowers, and an average balance of $29,000. With Millennials exiting college and buried in debt, it’s no surprise they are postponing marriage, having babies, home purchases and other major life events. While the student loan issue has been looming for years, the magnitude is now taking center stage. All of the 2016 presidential contenders have an opinion, and many are starting to propose solutions – some going as far as to call for “debt-free college.” The issue has also caught the eye of the Consumer Financial Protection Bureau (CFPB). In its 2014 report, the CFPB stated one in four recent college graduates is either unemployed or underemployed. They also stated when faced with the inability to repay their debt, students lack payment options and are unclear as to how to resolve their debt. There is a bright spot. Experian reported new findings stating that among adults 18 to 34 years of age, the average credit score of those who had at least one open student loan account was 640, 20 points higher than others in their age group. So, if paid in a timely manner, student loans can help younger people establish a decent credit history before they go on to buy things like homes and cars. Still, education is key. Today, only 24 U.S. states require some form of financial literacy to be included in their high school course work, with only four states (Utah, Montana, Tennessee and Virginia) devoting a full semester to a personal finance course. Education is needed before students start diving into the student loan scene, and also after they graduate, to ensure they understand their repayment options and obligations. The CFPB is calling on all parties (universities, colleges, private lenders, advocates, policy makers and even family members) to get involved. Providing financial education, financial literacy, repayment options, deferral methods and income calculators are all needed to tackle this growing problem. The Great Recession and slow recovery brought home the importance of a college degree in today’s economy for many Americans. Bachelor’s degree recipients fared much better than their counterparts who only finished high school. The question becomes how to fund it, and make sure students who rely on loans understand the finances attached to this milestone investment. Learn more about Experian’s student debt trends and credit education in The Increasing Need for Consumer Credit Education: A Review of Student Debt.
Last December, American Banker named online marketplace lending its innovation of the year as a result of the “industry’s rapid growth and evolution.” Meanwhile, in 2015, millennials scored headlines in nearly every publication imaginable – industries, politicians and academics all trying to understand and articulate how the now largest-living generation will influence how we work, live and lead. So perhaps it’s no surprise the two hot topics have collided this year. Gen Y is tech-dependent and Internet-enabled. They have increasingly grown to expect the tools and services they use to be available online, including anything and everything in the financial services space. Marketplace lenders are ever-so eager to sweep in and serve. Online and mobile solutions are certainly one thing, but Experian’s latest research reveals this generation is also very receptive to “non-bank” lenders for the ease, speed and accessibility they provide. 47 percent of millennials said they are likely to use alternative finance sources in the near future 57 percent reported they are willing to use alternative companies and services that innovate to meet their needs 13 percent said they’ve already taken out a loan from an alternate or non-bank lender As they come of age, hitting those big milestones – college graduations, marriage, starting families, making home purchases – Gen Y is wading through its financial options. Research and logic suggest millennials will without a doubt have a greater openness toward nontraditional banking, representing a huge market for online marketplace lenders. For the millennial entrepreneurs especially, marketplace lending is proving to be a good fit. “They are on the earlier curve of their small business ownership and entrepreneurial paths,” David Solis, sales performance manager at Bank of America, told CNN Money. “It makes sense they’re going to be pursuing alternative forms of lending.” Affluent millennials are another segment open to alternative financial services. A 2015 LinkedIn study on this specific target stated affluent millennials are particularly likely to envision a cashless, sharing-based economy in the future, where banks no longer serve as their primary financial institutions. Nearly seven out of 10 affluent millennials are likely to consider such offerings outside of the traditional financial services space, compared to just 47 percent of affluent Gen X’ers. The millennial generation may not fully understand all products traditional banks offer, since they rarely set foot in “brick-and-mortar” establishments, but they are a prime market for online investing and lending services. They’re more experimental, more digital, less loyal. In short, they are looking for financial services that are as tech-savvy as they are; those who don’t keep up may get left behind, and online marketplace lenders are certainly positioning themselves to win over this generation. To be most successful in capturing this highly sought-after generation, online marketplace lenders will need to continue to innovate both in terms of differentiating their product offerings and getting more sophisticated in their targeted marketing approach. As the online marketplace continues to expand with more players, heating up with increased competition, segmentation strategies will be key in finding the right borrowers and matching them with the right offer. As we head into 2016, there is no doubt many will continue to monitor the financial services trends emerging. Chances are online marketplace lenders and millennials will likely be attached to many of the headlines. For more information, visit www.experian.com/marketplacelending.
It’s official. Millennials have surpassed Baby Boomers in population size, according to the US Census. And while they are quick to adopt the “selfie” and all things social, they have been slow to embrace the world of credit. Sure, there’s been increased regulation over the past decade, and coming into adulthood in the midst of the Great Recession hasn’t helped. But don’t count Millennials out of the credit game just yet. A deeper, more segmented view of this digital-dependent generation shows a very diverse population with plenty of opportunity for lenders. Plus, their sheer size in numbers and $200 billion in annual buying power demand financial institutions evolve to accommodate this massive market. As Gen Y comes of age, there is growing evidence they are open to building and growing their personal credit history. But if financial institutions wish to capture the attention and business of this demographic, they must adapt, leveraging deeper segmentation insights with more effective prospecting strategies to reach them. Experian's data reveals key trends in terms of how this generation is utilizing credit, tips and tools to find the most credit-ready individuals, and strategies to grow the thin-file Millennials as they come of age. “Given the significance millennials play in financial services and the credit marketplace, it is crucial to understand this influential consumer segment and how they use credit as a tool,” said Michele Raneri, vice president of analytics and business development. “While this generation may not look like they are on the right track financially, it’s important to keep in mind that credit scores are built on credit experiences, and while this generation has been slower to use credit, they have plenty of opportunities to build a positive credit history.” To learn more about Millennials and credit, visit Experian.com/millennials.
The Responsible Business Lending Coalition, a group of nonbank small-business lenders, recently announced a regulatory program designed to bring greater clarity to the industry’s pricing and consumer protections, including: The right to transparent pricing and terms The right to non-abusive products The right to responsible underwriting The right to fair treatment from brokers The right to inclusive credit access The right to fair collection practices Industry self-regulation is a good way for market leaders to demonstrate self-discipline and is preferable to legislative or regulatory changes because of its flexibility and ability to accommodate evolving market trends. >> Webinar: Online Marketplace Lending
According to the latest Experian-Oliver Wyman Market Intelligence Report, mortgage originations for Q2 2015 increased 56% over Q2 2014 — $547 billion versus $350 billion.
According to a recent Experian analysis, millennials (ages 19–34) are now the largest segment of the U.S. population and are also the least credit savvy group.
According to the latest Experian-Oliver Wyman Market Intelligence Report, mortgage originations increased 25% year over year in Q1 2015 to $316 billion.
According to a recent Experian survey, 68% of vacationers spend more money than expected when traveling, often relying on credit cards to make up the difference. Millennials rank even higher when it comes to risky vacation spending. One-third report they have not been saving up in advance of vacation, 72% say they spend more than expected when traveling, and 50% plan to use their tax refund to pay for summer travel this year. Lenders can educate consumers about the impact of utilization on credit scores and reduce loss rates by offering According to a recent Experian survey, 68% of vacationers spend more money than expected when traveling, often relying on credit cards to make up the difference. Millennials rank even higher when it comes to risky vacation spending. One-third report they have not been saving up in advance of vacation, 72% say they spend more than expected when traveling, and 50% plan to use their tax refund to pay for summer travel this year. Lenders can educate consumers about the impact of utilization on credit scores and reduce loss rates by offering personalized credit-education services.personalized credit-education services. >> Infographic: Setting a budget for summer travel
While an influx of small businesses opened during the height of the recession, a recent Experian study found that between 2010 and 2014, small-business start-ups decreased by nearly 45%.
According to a recent Experian analysis, bankcard balances increased 6% year over year to $629 billion in Q1 2015, while delinquencies remained low with 60–89 day-past-due delinquencies declining 8%.
According to the latest Experian-Oliver Wyman Market Intelligence Report, HELOC originations increased 21% year over year, moving from $25.6 billion in Q1 2014 to $31 billion in Q1 2015.
Data migrations are very common in today’s business environment. A recent Experian Data Quality study found that while 91% of businesses engage in data migrations, 85% encounter significant challenges.
Mortgage originations kicked off Q1 2015 with a 25% year over year increase to $315 billion.
In today's data driven world, decisioning strategies can no longer be one-dimensional and only risk-focused. By employing a multidimensional decisioning approach, companies can deliver the products and services customers need and want.