Amplify milestone-based lending with new Forrester research | Blend

Amplify your milestone-based lending strategy with new Forrester Consulting research

The results suggest that consumers are looking for lenders to strengthen their ability to connect financial service to major life moments.

Recently, Blend commissioned Forrester Consulting to conduct a research study of consumer buying habits for financial products and how they connect to the milestones in a person’s life.  The results, based on responses from 2,026 banking consumers and 168 lending strategy leaders at financial institutions, indicate that consumers base much of their financial decision-making on the major milestones in their lives. In turn, their choice in products is influenced by how well financial institutions can speak to those moments. These results signal an opportunity for lenders to amplify (or in some cases, initially adopt) milestone-based lending strategies to best align with customer needs.

A new reality for financial institutions

For many years, banks have enjoyed a certain status as backbones of our financial system. However, digital disruptors, nontraditional financial institutions, and expanding customer needs have begun to erode that enshrined status. In the new and much more competitive landscape that banks find themselves in, being relevant to customers has a new level of importance.

One great way to remain relevant is by building an understanding of where customers are in their lives — based on milestones such as marriage, having a child, getting a new job, or other life-changing events — and providing services that speak specifically to those moments. This approach is called milestone-based lending.

Fundamentally, a milestone-based lending program has three pillars: personalization, cross-product decisioning, and product configurations/customer experience.

Three pillars of success for milestone-based lending

What consumers want

While financial institutions see great value in a relationship where customers hold most or all of their money in a single institution’s product offerings, the study suggests consumers themselves aren’t convinced there’s much value at all.

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In fact, the vast majority of surveyed consumers (73%) were willing to take their business to another financial institution if they were given a good enough — and relevant enough — offer.

So what did consumers want? Consumers were clear in their desire for more relevant offers from financial institutions. 74% of those surveyed told us they believe it’s helpful to know how financial products can help them adjust to the milestones they’re facing in their lives, and 72% said they would prefer to work with a bank or credit union that understands and speaks to what’s happening in their lives at that moment. Without knowing where consumers are in their life or communicating how your products can help them, it may be difficult for financial institutions to secure new customers.

Financial institutions are aiming to deliver robust milestone-based programs

Financial institutions recognize the importance of providing relevant offers to consumers based on milestones in their lives. 77% of respondents from banks and credit unions said that milestone-based lending will be “important” or “very important” to their companies’ success.

Charts detailing the importance of milestone-based lending to financial institutions

Furthermore, these financial leaders are already investing in a milestone-based approach to lending. Sixty percent have adopted milestone-based strategies already, with 26% saying they intend to do so by the end of 2021.  A majority (69%) say they increased their investment in milestone-based capabilities in the past year, including 36% who say their investment has increased by 10% or more, and 62% plan to continue raising investment through 2022.

However, the results indicate most banks struggle to deliver consistent experiences across these pillars and so leave themselves open to differentiated experiences offered by agile upstarts and digitally savvy fintech disruptors.

Building milestone-based lending capabilities

In order to reach customers effectively, financial institutions should consider adopting a milestone-based lending strategy. According to Forrester analysts, banks and credit unions should evaluate their capabilities and develop an intentional, ordered change management approach that focuses on building a foundation first, then bringing capabilities to market and setting the stage for continual testing and improvement. The report outlines a three-step roadmap for financial institutions to follow in this pursuit.

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