The Next Chapter in

Consumer Lending
A new way forward
Highlights from a survey
conducted by the Deloitte Center
for Financial Services
Select Findings:
Deloitte’s Consumer Lending Survey
We have entered a new phase in the evolution of U.S.
retail banking. As banks face unprecedented
pressures from a combination of tough economic
conditions and pervasive regulatory reforms, will we
see the emergence of a new paradigm for consumer
lending?
To determine the scale of the challenge facing the
banks and to find out how consumers have been
reacting to these developments, the Center for
Financial Services sponsored a survey conducted by
Harris Interactive between August 12, 2010, to
August 30, 2010, to obtain a national sample of U.S.
retail banking customers. According to our survey of
5,142 respondents, many consumers are still dealing
with the aftermath of the financial crisis and recession
of 2007 - 2009. The Center for Financial Services will
further investigate this consumer lending paradigm
among three dimensions: first-time defaulters, cross
selling, and customer satisfaction.
Exhibit 1: Credit experience segments
11%
First-time defaulters - Those who
experienced a negative credit event in the
last two years for the first time-11%
10%
Those who have experienced a negative
credit event more than two years ago and
also during the last two years-10%
12% Those who have experienced a negative
credit event more than two years ago but
not during the last two years-12%
66%
Those who have never had a negative
credit event in their past-66%
Figures may not add due to rounding

The emerging “first-time defaulter” market segment

We see a new segment emerging as a result of the financial crisis. We call this group of
consumers the “first-time defaulters” ― individuals who have gone through at least one How Do We Define a First-Time
serious negative credit event in the last two years for the first time in their lives. Defaulter?
 According to Deloitte’s survey, 22% of Americans with bank accounts experienced a First-time defaulters are those who, for
serious negative credit situation during the last two years. For fully 11%, this was a the first time, have had a negative credit
new experience — the first time in their lives they fell into delinquency. experience such as delinquency,
foreclosure, bankruptcy and/or charge-
 Unemployment and reduced income were the principal reasons why these offs, among others, in the last two
individuals have failed to meet their credit obligations. years, since the peak of the economic
crisis is September 2008. (To be
 Many first-time defaulters rated their interactions with lenders during their negative categorized as first-time defaulters, they
credit event as “poor.” This dissatisfaction may strongly encourage them to look would have had to experience at least
elsewhere when borrowing in the future. one of the 11 events listed in Exhibit 2.)
 If not for the economic recession, which has affected millions of households in
America, many of the first-time defaulters might have remained in good credit standing.
 The care and attention shown to these first-time defaulters now — and when they are on the path to becoming creditworthy customers
again — may well determine who they do business with in the future. Lenders could benefit from having more effective ways to identify
and differentiate the temporarily credit-impaired from those more seriously affected for the long term.

Exhibit 2: Negative credit experience during the last two years (first-time defaulters) *
Contacted by
Contacted by collection
collection agency
agency 58%
Been
Been delinquent on medical
medical bills
bills 43%
Three or more times when you were more than 30 days late on a credit card
Three or more times when you were more than bill … 29%
Three or more times when you were
Three ormore
morethan
times30when
daysyou
latewere
on a more than… 14%
mortgage
Been
Been delinquent
delinquent on
on taxes
taxes 14%
Bankruptcy
Bankruptcy 13%
Three or more times when you were more than 30Three
days or
late on atimes
more loan when
other you
thanwere
your more than… 12%
mortgage
Legal judgments
Legal judgments 9%
Charge-offs, meaning bankmeaning
Charge-offs, has forgiven
bankallhas
or forgiven
part of a all
loanor… 8%
Foreclosure
Foreclosure 6%
Been delinquent
Been delinquent on
on child
child support
support payments
payments 2%

* Total exceeds 100% as respondents could pick more than one response.

Deloitte Center for Financial Services 1

Can cross-selling efforts become a reality?
Consumers seem to be open to having an expanded relationship with their primary bank. The survey findings indicate that the opportunity is
there, but, given past attempts by banks to achieve broader relationships via cross selling, this is going to require some fresh, creative efforts
by service providers.
 Consumers in our survey exhibit high preference to use a single bank for many of their needs; however banks will be challenged to take
advantage of this latent need.
 More than three-quarters of customers surveyed saw convenience as a significant reason to focus their banking with a single provider.
 With a single bank, survey respondents want better fees and service — but don’t expect they will get it.
 Also in our survey, not all consumers wishing to obtain a loan product in the next two years expect to use their primary bank. Might this be
a short-term opportunity for banks?
 More than 80% of the customers surveyed named lower fees as their main reason for having or wanting a single provider. Given the
strong level of loyalty and support among customers of community banks and credit unions, this might reflect the power of strong personal
relationships at the local level to minimize fees and deliver value for money. Banks generally appear to have limited pricing power.
 In order to increase their share of wallet, banks may need to be more consistent and connected across distribution vehicles to appeal to
the multi-channel consumer.

Bank customers’ satisfaction and loyalty

Despite banks’ efforts to improve their customer relationships over the last two years, overall satisfaction levels have remained almost
unchanged.
 Satisfaction levels among customers of large and mid-size banks were significantly lower than those for community banks and credit
unions.
 Customers are quite receptive to new services that encourage loyalty and personalization.
 However, more than half the respondents said they expect banks to start charging more fees for their services.
 Most respondents have seen little change in their banks’ lending process.
 Historically, there has been strong customer inertia in retail banking, with many remaining loyal for lengthy periods even though they might
not be completely satisfied. As banks respond to the current environment by changing their services and prices, consumers might break
this cycle and consider moving to other providers in large numbers.
 Are price increases inevitable across the board given regulatory pressures and the need to make up for shortfalls in traditional sources of
revenue such as overdraft fees and debit interchange fees? For those banks likely to increase fees and reduce service levels, the survey
suggests that customers may look for alternatives

Exhibit 3: Credit experiences since September 2008

18%
16%
14%
12%
10%
8% 16%
6% 11% 10% 9% 9%
4% 8% 7% 6% 6%
2% 4% 4% 3%
0%
Higher fees Denied a Lower rates High rates More offers More Denied a Fewer Offered a Less Lower fees Offered a
associated credit card on loans on loans from paperwork loan offers from higher loan paperwork associated lower loan
with application different involved application different amount involved with amount
loans/credit lenders when lenders than I when loans/credit than I
than I obtaining than I wanted obtaining wanted
expected credit/loan expected credit/loan

Deloitte Center for Financial Services 2

There’s more to learn
Deloitte’s Consumer Lending survey offers insights into how consumers are dealing with the aftermath of the financial crisis and recession of
2007 - 2009. The highlights discussed here are just a small sampling of the data points and trends that were unearthed. Deloitte is currently
sharing these insights with clients and helping them to strategize on how the survey results can help their businesses. If you are interested in
learning more, go to www.deloitte.com/us/cfs.

If you would like to learn more about the dozens of findings from Deloitte’s Consumer Lending Survey, please contact:

Justin Edmondson
Senior Marketing Manager, Center for Financial Services
Deloitte Services LP
+1 212 436 5571
juedmondson@deloitte.com

For press inquiries, please contact:

Chris Faile
PR Manager
Deloitte Services LP
+1 212 436 5170
cfaile@deloitte.com

Insights. Research. Connections.

Headquartered in New York City, the Deloitte Center for Financial Services
provides insight and research to help improve the business performance of banks,
private equity, hedge funds, mutual funds, insurance and real estate organizations
operating globally. The Center helps financial institutions understand and address
emerging opportunities in risk and information technology, regulatory compliance,
growth, and cost management.
The Center brings a financial services integrated view to Deloitte and its network of
member firms, each of which is a legally separate and independent entity that
provide audit, consulting, financial advisory, risk management, and tax services to
select clients.
With access to the deep intellectual capital of 169,000 people worldwide, Deloitte
serves more than one-half of the world’s largest companies, as well as large
national enterprises, public institutions, locally important clients, and successful,
fast-growing global growth companies.
To learn more about the Center, its projects and events, please visit us as
www.deloitte.com/us/cfs.

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