Milestone-based lending and the capability gap | Blend

Milestone-based lending and the capability gap

Our recent study indicated leaders at financial institutions know there’s work to be done to meet consumer needs. Explore this gap — and the path to reducing it.

A recent research study suggests that banks are, by their own admission, not optimized in critical areas deemed to be important to their own success. Put another way, there’s a gap between what banks and credit unions know they need to be doing and what they’re currently able to do. And that gap could be costing them money.

Blend recently commissioned Forrester Consulting to evaluate the current state of milestone-based lending demand and strategies. Forrester conducted an online survey with 2,026 banking consumers and 168 lending strategy leaders at financial institutions to explore this topic. The research suggests that, when it comes to milestone-based lending, these institutions have a gap between their desired and current states. At the same time, leaders are developing strategies to close this gap, informed by a close analysis of the technical functionality needed to get there.

What is milestone-based lending?

Milestone-based lending strategies are rooted in the confluence of active listening and proactive service. Active listening helps lending teams understand where customers are at in their lives: recently graduated; looking for a new home; settling down for retirement; etc. Proactive service takes this knowledge and translates it into offers and services that are relevant and helpful to the consumer. Together, they transform a transactional relationship into something more personal.

Milestone-based lending is characterized by three main pillars: personalization, cross-product decisioning, and product configuration. Each of these pillars is a requirement for success and each is supported by specific capabilities that, when combined, allow financial institutions to provide engaging, relevant offers in real time to consumers.

Three pillars of success for milestone-based lending

Within the research study, Forrester asked financial leaders to rank both the importance of and their current ability to execute each of the underlying pillars. The results suggested that while respondents understand the importance of these capabilities, few are currently able to act on them.


Personalization reflects the ability to provide financial offers to customers at a 1:1 level. Forrester identified four capabilities that together represent the ability to provide a personalized banking experience and asked bankers to rank both the importance of each capability and their current state of optimization.

The biggest gap uncovered by the research was dynamic segmentation. Dynamic segmentation is the use and synthesis of first-, second-, and third-party data to create personalized profiles for use in audience segmentation. When you’re unable to synthesize data from multiple sources, you likewise aren’t able to then effectively segment your customers and deliver relevant offers to them.

Chart describing the gap in personalization efforts

Cross-product decisioning

Cross-product decisioning — the ability to accurately and instantly deliver qualified lending decisions across product lines — is another pillar of milestone-based lending. Consumers can’t see behind the curtain to understand that certain bank products, such as unsecured personal loans or mortgages, are actually siloed business units, not different flavors of the bank they know. They see a single organization and expect a single, unified experience. For the lender, the ability to integrate data across products and business units to provide offers that might be relevant is a powerful driver of increased financial product adoption.

Following the trend above, data integration continued to be a top capability gap for financial institutions across the spectrum. That’s not surprising, but it does speak to the amount of back-end work that needs to be done to ensure that customers on the front end have a seamless and engaging digital experience.

Chart describing the gap in cross-product decisioning efforts

Product configuration

Ultimately, a good customer experience is the end goal for most FI leaders. Reducing the friction for new customers — or existing customers looking to expand their business — is absolutely key to competing in a world where customers don’t value loyalty. The capabilities captured here center around customer self-service and allowing customers the freedom to select the products that are right for them without getting in their way.

Chart describing the gap in product configuration efforts

Banks are investing in milestone-based lending

While these gaps exist today, they may not in the future. As noted earlier, banks have overwhelmingly signaled that building out these capabilities is a priority for them this year and into the future. More than a third of financial institutions have already substantially increased their investment in milestone-based capabilities in 2020. Another third have made more modest increases in investment, and only around 31% have maintained or reduced their investment. Those who are not investing in these capabilities risk falling behind those who do. Unsurprisingly, over half of all financial institutions are planning to further increase investment through 2022.

Charts describing investment efforts in milestone-based lending

Building milestone-based lending capability

To learn more about how financial institutions can close the gaps between their capabilities and consumer expectations, download How banks create sustainable differentiation with milestone-based lending. This study provides a detailed look at the gaps outlined above as well as a roadmap that financial institutions can use to build out these capabilities within their organization and provide a better experience for their customers.

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