Garnet Capital Advisors Blog

Consumer are becoming much more confident in their spending habits, making this market a lucrative one for banks to beef up their loan portfolios.

When we talk about consumer behavior, we're not talking about the risky bunch from a few years ago who were heavily involved in negligent spending practices and exorbitant leveraging on loans.

These days, the American consumer is much more empowered, and is a lot more conservative and astute when it comes to taking out loans and spending their hard-earned dollar. Perhaps it took the financial crisis from eight years ago to spark such a change in behavior, but it has happened nonetheless.

Banks might want to take a second look at consumer lending as a viable approach to increasing profitable assets on their balance sheets, rather than just allowing commercial and industrial assets to hog the board. Considering the fact that commercial and industrial profits aren't as hot these days compared to years past, consumer lending just might be the ticket to more profitable loan portfolios.

Among the interesting notables about modern consumers is the fact that they are increasingly turning to digital platforms to do their banking and seek out loans. A large portion of today's consumers are taking to the internet to apply for loans, particularly those among the millennial demographic. In fact, the partiality to utilize online platforms in this realm has increased about 30 percent, according to a recent survey from PwC.

While the in-person approach is far from dead in the world of banking, digital access to financial products is an absolute must in order for lenders to remain relevant and competitive in this technological day and age.

More Optimistic Consumer Sentiment

Consumer sentiment is flying high these days, hitting over 93 according to data from Surveys of Consumers.

Confidence among consumers increased for the fourth consecutive month as a result of a more positive outlook on their economic situation. Consumers are more likely these days to slow down their spending pace and be more conservative in their borrowing practices in order to avoid the repercussions faced during the financial upset eight years ago.

In fact, the data from Surveys of Consumers continues to point to the possibility of real personal consumption expenditures increasing by 2.8 percent this year. And smart banks are capitalizing on this fact by increasing consumer lending products.

Goldman Sachs Sets its Sights on Consumer Lending

If financial powerhouse Goldman Sachs is hopping aboard the consumer lending train, perhaps other financial institutions should take notice.

Long hailed the bank of the wealthy and privileged, Goldman Sachs is now diverting some of its attention to providing loans to consumers. While this sector of their banking strategy is still in its infancy, the fact remains that Goldman Sachs clearly sees an opportunity to beef up assets on their loan portfolio through consumer lending products.


The online lending market is a huge one right now, with banking powerhouses like Goldman Sachs taking part.

Their goal is to compete with the innovative online lending start-ups that have been sprouting up everywhere over the past few years.

Not only is Goldman Sachs introducing an increasing number of consumer lending products, it's doing so in an avant-garde fashion: via a website or app which operates virtually. Such a move speaks volumes for a financial company that's as old as Wall Street.

The move is a financially smart one: cut back on the costs associated with brick-and-mortar buildings and personnel in order to be able to offer lower interest rates to consumers while still turning a profit. It's a brilliant plan, and one that much smaller-scale financial technology firms have instigated.

It's a unique financial landscape, with the likes of big-wigs such as Goldman Sachs in the same ring as fintech start-ups. But it's a necessary plan, as an increasing number of savvy consumers are looking to these alternative lenders to take out car loans, student loans, and even mortgages.

And Goldman Sachs isn't the only financial giant to set sights on consumer lending through digital platforms. JPMorgan Chase's revenues increased last year largely as a result of its growth in consumer lending revenue. Profits in consumer banking were up $228 million over Q4 in 2014 for the company.

JPMorgan's recent collaboration with digital alternative lender On Deck has provided the former with the opportunity to dramatically speed up the lending process to smaller-scale businesses while learning the tricks of the trade in the world of online lending.

Citigroup is also following suit in the online consumer lending landscape, partnering with fintech firm Lending Club to provide more cost-effective credit to consumers. Such an alliance will allow Citigroup to purchase loan assets that produce healthy yields and acceptable risk, thanks to data-centered underwriting and cheaper servicing.

The boom in consumer lending isn't just reserved for the US; other parts of the globe are realizing spikes in consumer lending practices among lenders. In the UK, lending by banks to consumers increased at the end of 2015 at its fastest rate in over eight years, and overall consumer credit lending in the region jumped by 5.7 percent in the 12 months prior to November 2015, the fastest spike since early 2007.

Today's Consumers Are Willing to Pay More For Better Service

Despite the fact that consumers these days are more conservative with their spending habits, they are still willing to pay higher fees in the name of a more positive banking experience.

Of course, interest rates top the list when it comes to what influences consumers to choose one lender over another. Yet today's consumers are not necessarily willing to sacrifice a good experience in the name of locking in at a lower interest rate.

While interest rates continue to be a critical factor in choosing a loan product, many times it is the overall experience that is just as important for borrowers. The important takeaway for lenders is that even if they cannot totally compete on interest rates, they can still remain highly competitive simply by offering excellent customer service.

Garnet Capital is in the business to help financial institutions step up to the plate and deliver the experiences that consumers are looking for. We are also highly experienced in spawning profitable partnerships between traditional banking institutions and the successful fintech start-ups that are blazing a trail in the lending world.

With years of experience providing valuation services to financial institutions and arranging successful loan sales and partnerships in this space, we can effectively help to add profitable consumer loans to banks' loan portfolios.

Find out more about Garnet Capital's role in helping financial institutions formulate successful collaborations with fintech firms and browse our white papers today.