Over the past year, consumers have witnessed a significant shift in the availability and cost of credit, primarily due to the Federal Reserve’s regime of interest rate increases. This policy has caused the cost of borrowing to rise substantially, moving from virtually zero to a significant expense. The consequences of this policy regime have had unintended and largely unforeseen effects, resulting in the collapse of several banks and the merger of others.
As a result of tightening credit availability, banks have significantly restricted access to credit to consumers and small businesses. This tightening of underwriting for new credit is one driver of increasing U.S. consumer credit card outstandings, especially in the mass affluent segments. Credit cards are more expensive than other sources of short-term liquidity but are readily available for consumers to bridge the gaps. But financial institutions’ ecosystems can adjust and work together depending on market conditions.
Opportunities in Every Part of the Cycle
For example, this situation has created new opportunities for bankers to provide liquidity solutions to their clients. Retail bankers (consumer and small business) can work with their colleagues within their wealth management group. There they have several additional tools at their disposal to provide liquidity, including margin, securities-based lending (securities-based lines of credit [SBLOCs]), signature loans, and real estate loans.
These additional tools enable wealth managers and retail bankers to partner to fulfill client lending needs and offer alternative sources of credit in times of tightening credit availability. The synergies are real:
- Retail bankers and wealth managers working together can assess customers’ overall financial situations, including their income, assets, and investment portfolios. This Tailored Lending Solution enables the financial institution to develop customized lending solutions that align with customers’ financial profiles and risk tolerance. A tailored approach can provide customers with loan structures, interest rates, and repayment terms that best suit their unique circumstances.
- When retail bankers and wealth managers collaborate, they can jointly evaluate the risk associated with lending to a customer, resulting in an Optimized Risk Assessment. Retail bankers assess the creditworthiness and repayment capacity of the customer, while wealth managers consider the customer’s overall financial health and ability to meet ongoing financial obligations. This collaborative risk assessment allows banks to make informed lending decisions, potentially mitigating the risk of default.
- The collaboration between retail bankers and wealth managers can lead to an Enhanced Customer Experience. Customers benefit from a seamless and integrated approach to their lending needs, where they can access a range of lending products and receive personalized advice based on their broader financial objectives. This coordinated approach enhances customer satisfaction and strengthens the relationship between the bank and its customers.
- Lastly, Cross-Selling Opportunities will surface as retail bankers and wealth managers create opportunities for additional products and services. As they work together to address customers’ lending needs, they can identify other financial products, such as investment opportunities or wealth management services, that may align with customers’ goals. This cross-selling approach can deepen the bank’s relationship with customers and generate additional revenue streams.
In summary, the collaboration between a bank’s retail bankers and wealth managers can provide comprehensive financial solutions, tailored lending options, optimized risk assessment, enhanced customer experience, and cross-selling opportunities. By leveraging the expertise of both teams, banks can better meet customers’ lending needs and strengthen customer relationships.
To learn how to fully leverage various components of a bank’s ecosystem to support customers, read our recent Datos Insights report, When Banks Dial Back Lending: Wealth Managers Have Solutions to Fill the Gap.