In Part 1 of our recent blog series, we looked at the impact of COVID-19 on demand deposit accounts and credit cards. In this installment, we examine other lines of business that include auto loans, white label/retail credit cards, and consumer installment lending.
Retail Cards and Consumer Finance
White label/retail cards and consumer finance products present an eerily similar picture to what happened with the general credit card line of business in 2020. Across the board, issuers are seeing decreased originations and lower credit lines, as well as lower exposure to the subprime and deep subprime markets. Application volume was down by nearly 36%, from 23.15 million accounts in 2019 to only 14.85 million accounts in 2020.
One relatively new development in retail financing is the appearance and adoption of fixed-term loans, or “buy now pay later” financing. That approach was not immune to the impact of the coronavirus; overall originations were down 28.5%, from 20.89 million accounts in 2019 to 14.93 million accounts in 2020.
Auto loans have seen steady volume, increasing outstanding balances and generally longer terms. Delinquencies are declining as well, but many FIs continue to embrace a risk-aversion strategy that is opening doors for other lenders willing to provide loans to consumers that fall below super-prime and prime credit segments.
Credit score requirements trended upwards for all credit risk tiers, while the share of subprime and deep subprime loans dropped to an 8-year low. But as Cox Automotive points out, “defaults have been held artificially low because of stimulus support and loan accommodations,” resulting in an unnaturally rosy picture for the state of auto loan health.
Looking Forward and Adapting
As consumers and banks alike embrace the new digital landscape, origination is changing to keep pace. The future is inexorably marching to a digital-first mindset, and advancing technology is making it easier for folks to get the financial products they need.
The State of Origination: 2020
The most successful organizations of the future will implement thoughtful and strategic shifts in their businesses. They will improve access to data, leverage unique personal insights and embrace real-time control. Many of those organizations will need flexible and nimble systems to account for our new normal.
Zoot can help. With more than 30 years of experience, we provide platforms that enable seamless, real-time connections to all your internal data, as well as any third party and alternative data sources you need. We put control into your hands, letting you make the changes and improvements that remove barriers to application.
 Ibid (p 135, 136)